Predict the Next Bubble

[Exterous]

cast another vote for student loans

 

[Exterous]

This much is true. It's sold as though college is the only possibility of success.

Its only gotten worse since the recession. Everyone wants\requires a college degree. Jobs for college degrees are up 2 million since the recession started while non-degree jobs are still down 5 million

 

[IEC]

Realistically, student loans. I doubt there will be a "bailout" for the little guy though.

It'll be lame if student loan debt is forgiven when I paid off all of mine through hard work.

 

[rudeguy]

Its only gotten worse since the recession. Everyone wants\requires a college degree. Jobs for college degrees are up 2 million since the recession started while non-degree jobs are still down 5 million

and HR idiots are just fueling the fire. They needed a degree to get their shitty job, so they think everyone they hire (who is well below them) should have a degree AND a shit ton of experience.

Make my vote the "college bubble".

 

[poofyhairguy]

It'll be lame if student loan debt is forgiven when I paid off all of mine through hard work.

That is the American way!

 

[CPA]

ok but I'm really not good at this kind of thing

You're bald AND wear glasses? I'm so confused.

 

[rudeguy]

You're bald AND wear glasses? I'm so confused.

shameless selfie

 

[shortylickens]

Miley's Butt?

 

[LegendKiller]

I study student loans quite a bit and while I agree that there is a bubble it is wholly different than the housing or tech bubbles.

1. About 85% of all student loans are owned by the federal government. There's just over $1tr in loans and only ~150bn are owned by private companies, largely Sallie Mae, Access, Keycorp and a few others. Of those the bulk of the new ones are co-signed (~90%).

2. By and large the irrationality, relative to other assets and within student loans, isn't there for student loans and have already shaken out. Loans like Direct-To-Consumer products offered by First Marblehead have already resulted in the bankruptcy and liquidation of TERI. The marked learned its lesson and stopped offering those.

However...

3. There is no underwriting to majors or ability to repay.

But...

4. Since the federal government owns 85% it is largely seen as a entitlement program and has almost unlimited support within Congress. After all, nobody wants to go on record for being the person who stopped people from seeking higher education. Even if the default rate on student loans approaches 20% (according to DOE we are ~16-17%, but that is revised up every release), its still not a big enough number to drive change. That's "only" $170bn in losses, but doesn't include interest revenue.

I read a lot of research out of DC and there is just no impetus to fix the problem. While the bubble won't take down companies or even the USG, it will be a massive drag on our economy since the loans cannot be discharged and you are creating a debt slave class which cannot hope to repay the loans. This will negatively impact household formation, parent retirement (nobody wants to retire if they have to pay on cosigned loans or have their kids live with them because they can't afford to live on their own)...etc which will be a *massive* drag on GDP cumulatively.

As far as dischargability - there isn't really any support for it right now nor do I see it in the near term. Perhaps in 5+ years, if the Dems take more control and the problem becomes too much to bear.

However, even then, it won't be easy since there will be some pretty large hurdles to getting it discharged.


As far as a bond bubble, I do think there is a small one but it isn't something that cannot be weathered.

 

[gorcorps]

Student loans

came in here to say tuition, or maybe college in general.

It's astounding how quickly costs are rising for degrees, many of which mean nothing and don't help find work. I don't see the current rate of growth continuing for long, and the amount of student loans that are going unpaid will change things.

 

[LegendKiller]

came in here to say tuition, or maybe college in general.

It's astounding how quickly costs are rising for degrees, many of which mean nothing and don't help find work. I don't see the current rate of growth continuing for long, and the amount of student loans that are going unpaid will change things.

Tuition won't go down until money stops plowing into that area. Money won't stop plowing into it until either the federal government raises borrowing costs, lowers loan amounts, or underwrites to majors. Or cuts grant money back massively.

But then again, it might go down just because the number of people who can go to school goes down by a lot.

 

[poofyhairguy]

shameless selfie

Remind me not to piss you off you look like you could kick my ass!

 

[Train]

2nd housing bubble will likely happen, since the root cause was not fixed. But overall I don't think it will be as bad. In *most* places, prices aren't as over-inflated as they were.

Education bubble could be a nasty one. Universities have so much in entrenched liabilities they will get hit pretty hard should enrollment drop and they actually have to get competitive with tuition.

 

[highland145]

Remind me not to piss you off you look like you could kick my ass!

Nah, you could out run him.....but since he's carrying, you'll just die tired.

 

[Train]

Tuition won't go down until money stops plowing into that area. Money won't stop plowing into it until either the federal government raises borrowing costs, lowers loan amounts, or underwrites to majors. Or cuts grant money back massively.

But then again, it might go down just because the number of people who can go to school goes down by a lot.

I think you also have to account for the growing awareness of bad ROI on most degrees nowadays.

Even if a "good" degree field's prospects stay the same, with the ever-increasing tuition, there comes a point where it's not really worth it anymore.

Hopefully this will prevent dumbasses from going $150k into debt for a field that barely pays what the average unskilled laborer can get.

 

[PricklyPete]

Housing...at least where I live seems to be entering another bubble. Student loan debt is also spiraling out of control.

 

[rudeguy]

I think you also have to account for the growing awareness of bad ROI on most degrees nowadays.

Even if a "good" degree field's prospects stay the same, with the ever-increasing tuition, there comes a point where it's not reall worth it anymore.

Hopefully this will prevent dumbasses from going $150k into debt for a field that barely pays what the average unskilled laborer can get.

That won't happen.

Most parents' dream is that their kid will go to college. Not get a good job, not be a good person, just that they go to college. So kids are marched into college and expected to get a degree. No one cares what degree, just get one.

So these kids go massively in debt because its what they are told is the right thing and the most important thing to do. The media plays into this making it seem like a college graduate is a better person than someone who isn't. Then the politicians get involved and make a huge deal out of everyone being able to go to college. Even if they can't afford it!

Its all a scam controlled by liberal hippies. They hide in the universities pretending to be educators while in reality they are brain washers.

 

[LegendKiller]

I think you also have to account for the growing awareness of bad ROI on most degrees nowadays.

Even if a "good" degree field's prospects stay the same, with the ever-increasing tuition, there comes a point where it's not really worth it anymore.

Hopefully this will prevent dumbasses from going $150k into debt for a field that barely pays what the average unskilled laborer can get.

Growing awareness? LOL. Surely you must be joking.


There isn't a whole lot of growing awareness. Parents still encourage kids to "follow their dreams" and kids have no fucking clue what they are doing. 90% of them cannot even fathom what a monthly budget looks like let alone fitting $50k in student loans into it.

That's because parents see it as "follow your dreams" and they largely don't talk about money. Furthermore, schools don't really teach a budgeting class or a realistic business class (mostly theory). Finally, colleges aren't incentivized to tell the truth about the whole thing.

 

[LegendKiller]

That won't happen.

Most parents' dream is that their kid will go to college. Not get a good job, not be a good person, just that they go to college. So kids are marched into college and expected to get a degree. No one cares what degree, just get one.

So these kids go massively in debt because its what they are told is the right thing and the most important thing to do. The media plays into this making it seem like a college graduate is a better person than someone who isn't. Then the politicians get involved and make a huge deal out of everyone being able to go to college. Even if they can't afford it!

Its all a scam controlled by liberal hippies. They hide in the universities pretending to be educators while in reality they are brain washers.

It has nothing to do with "liberal hippies". Every side promotes the "follow your dreams" crap in one form or another.

Ask a person whether education should be a right or entitlement, most on the left will say entitlement. Then ask whether student loans should be dischargeable, most on the right would say no, people should own up to their mistakes.

Yet I see the problem as one of asymmetrical information and relationship within a lending agreement. Lenders (USG included) know that they can't pay back the money with the crap "dream" degrees but they know they have debt slaves. Borrowers largely don't know this and they aren't thinking of the ramifications.

Usually when you buy a house each side knows the consequences of default, both sides will lose. However, in student loans only one side loses.

 

[7window]

I study student loans quite a bit and while I agree that there is a bubble it is wholly different than the housing or tech bubbles.

1. About 85% of all student loans are owned by the federal government. There's just over $1tr in loans and only ~150bn are owned by private companies, largely Sallie Mae, Access, Keycorp and a few others. Of those the bulk of the new ones are co-signed (~90%).

2. By and large the irrationality, relative to other assets and within student loans, isn't there for student loans and have already shaken out. Loans like Direct-To-Consumer products offered by First Marblehead have already resulted in the bankruptcy and liquidation of TERI. The marked learned its lesson and stopped offering those.

However...

3. There is no underwriting to majors or ability to repay.

But...

4. Since the federal government owns 85% it is largely seen as a entitlement program and has almost unlimited support within Congress. After all, nobody wants to go on record for being the person who stopped people from seeking higher education. Even if the default rate on student loans approaches 20% (according to DOE we are ~16-17%, but that is revised up every release), its still not a big enough number to drive change. That's "only" $170bn in losses, but doesn't include interest revenue.

I read a lot of research out of DC and there is just no impetus to fix the problem. While the bubble won't take down companies or even the USG, it will be a massive drag on our economy since the loans cannot be discharged and you are creating a debt slave class which cannot hope to repay the loans. This will negatively impact household formation, parent retirement (nobody wants to retire if they have to pay on cosigned loans or have their kids live with them because they can't afford to live on their own)...etc which will be a *massive* drag on GDP cumulatively.

As far as dischargability - there isn't really any support for it right now nor do I see it in the near term. Perhaps in 5+ years, if the Dems take more control and the problem becomes too much to bear.

However, even then, it won't be easy since there will be some pretty large hurdles to getting it discharged.


As far as a bond bubble, I do think there is a small one but it isn't something that cannot be weathered.

How about the government forgiveness program ? How is that looking?

 

[LegendKiller]

How about the government forgiveness program ? How is that looking?

The income-based repayment with a 10+ year forgiveness? You can go onto Income Based Repayment and then take a public service job to get them forgiven in 10 years or 25 years for any other job. So, at a minimum, a student will be 47 before his/her loans are forgiven under normal circumstances or 32 with a public job.

Not great.

 

[Fritzo]

Butts. Definitely butts.

 

[Theb]

I study student loans quite a bit and while I agree that there is a bubble it is wholly different than the housing or tech bubbles.

1. About 85% of all student loans are owned by the federal government. There's just over $1tr in loans and only ~150bn are owned by private companies, largely Sallie Mae, Access, Keycorp and a few others. Of those the bulk of the new ones are co-signed (~90%).

2. By and large the irrationality, relative to other assets and within student loans, isn't there for student loans and have already shaken out. Loans like Direct-To-Consumer products offered by First Marblehead have already resulted in the bankruptcy and liquidation of TERI. The marked learned its lesson and stopped offering those.

However...

3. There is no underwriting to majors or ability to repay.

But...

4. Since the federal government owns 85% it is largely seen as a entitlement program and has almost unlimited support within Congress. After all, nobody wants to go on record for being the person who stopped people from seeking higher education. Even if the default rate on student loans approaches 20% (according to DOE we are ~16-17%, but that is revised up every release), its still not a big enough number to drive change. That's "only" $170bn in losses, but doesn't include interest revenue.

I read a lot of research out of DC and there is just no impetus to fix the problem. While the bubble won't take down companies or even the USG, it will be a massive drag on our economy since the loans cannot be discharged and you are creating a debt slave class which cannot hope to repay the loans. This will negatively impact household formation, parent retirement (nobody wants to retire if they have to pay on cosigned loans or have their kids live with them because they can't afford to live on their own)...etc which will be a *massive* drag on GDP cumulatively.

As far as dischargability - there isn't really any support for it right now nor do I see it in the near term. Perhaps in 5+ years, if the Dems take more control and the problem becomes too much to bear.

However, even then, it won't be easy since there will be some pretty large hurdles to getting it discharged.


As far as a bond bubble, I do think there is a small one but it isn't something that cannot be weathered.

Great post.

I'm surprised so much of the debt is government owned and the default rate is so high. Back when I did my FAFSA I always took the maximum amount and I still borrowed less for college than I did to buy my truck.

 

[Imported]

Realistically, student loans. I doubt there will be a "bailout" for the little guy though.

It'll be lame if student loan debt is forgiven when I paid off all of mine through hard work.

Agreed on both. I finish paying mine off in May. Only took 7 years.

 

[Train]

Growing awareness? LOL. Surely you must be joking.


There isn't a whole lot of growing awareness. Parents still encourage kids to "follow their dreams" and kids have no fucking clue what they are doing. 90% of them cannot even fathom what a monthly budget looks like let alone fitting $50k in student loans into it.

That's because parents see it as "follow your dreams" and they largely don't talk about money. Furthermore, schools don't really teach a budgeting class or a realistic business class (mostly theory). Finally, colleges aren't incentivized to tell the truth about the whole thing.

You have described the problem perfectly. And nothing in my post disputes that. I never said it was the mainstream idea. I said there is a growing awareness. You can find plenty of vocal people, even some with celebrity status (Mark Cuban for one) pointing out the issue and slowly raising the publics awareness. At some point it won't be a fringe idea, and the scales will tip. There are already early adopters using cheap/free education alternatives like Khan academy. If they prove successful, more will follow.

At the very least, the "follow you dreams and go to college no matter what" mantra can be replaced with something like "follow your dreams and go to college if you can, but be aware of the real possibility of life crushing debt at current tuition rates"