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Is A College Debt Bubble Collapse Next?

December 6, 2010 by  

Is A College Debt Bubble Collapse Next?As the United States struggles to deal with the collapse of the subprime mortgage bubble, another economic bubble may be about to burst. In a Dec. 2 Yahoo! Finance article, author Laura Rowley pointed out that the college debt bubble shares some traits with the subprime mortgage bubble.

According to Rowley, student loan debt has grown four-fold in the last decade, to $833 billion this June, a number that actually surpasses credit card debt for the first time in U.S. history. In addition, defaults on that debt have skyrocketed. In 2008, which was the last year for which default numbers are available, more than 238,000 borrowers defaulted on student loans. According to The Chronicle of Higher Education, default rates ranged from 20 percent for Federal loans to 40 percent on loans to students who attend for-profit schools.

Rowley also points out that before the subprime mortgage bubble burst, lending institutions were offering big, no-money-down mortgages to unqualified borrowers, a practice in which the student loan institutions are also involved. “Private student loan firms offered instant online approval for up to 100 percent of college costs to students, in some cases for four consecutive years,” she writes.

The lenders would be the big losers in a college debt bubble collapse, according to Rowley. “Lenders can’t repossess a college degree, and changes to the bankruptcy law in 1984 and 2005 mean borrowers can’t charge off their obligations the way they can shed credit-card, mortgage or even gambling debt when they file for bankruptcy.”

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  • Dad

    Someone who would run up $80 to 100 thousand in debt for a liberal arts or business degree is not someone you would want to hire anyway.

    • lkar

      Yes, I agree that 80K to 100K for a collage degree is steep. I graduated in 2000 had a family, worked night shift, and went to school during the day. I had to take student loans to afford the tuition, books, and fees. In the end I amassed 40K in debt. I have a decent engineering job and pay my student loan payments. But with the price of everything going up and my wages have not changed in 5 years (since I took a 10% paycut to stay employed), each payment gets harder and harder. Here is the kicker, the payments gradually go up over time (evidently my pay is supposed to increase over time).

      I said all that to say, you may be a little hard on the not hiring someone line. I get the meaning (responsible people do not go in debt), but the world culture pushed people to have a degree in something if you want to advance. Younger people are not given much choice in the work fields. Look at the jobless rate, the lose of manufacturing in the US, the constant reports of blue collar workers losing jobs and everything they have. The glamour is in the professional fields or hooking a government job. The latter usually requires a degree in anything (like art history;-).

      We should be more fearful of what will the government do if this bubble “pops”. Most on this website are skeptical of the government being able to “fix” anything. Imagine what they will require the young people of the USA to do to get their debt “forgiven”. Even now there is some options for this, but when the banks start collapsing, the government is expected to “fix” it, and then the progressives (indoctrinating the youth already) will claim to have the only solution. The solution will entrench their power and free the indebted to “serve” those that free them of their debt. Though most of us already know that the progressive solution will be at the taxpayers expense.

      So Dad, please make sure to spread the blame to the other elements that lead a young person to take on huge debts for a degree.

      • 45caliber

        Actually I don’t think Dad meant that you shouldn’t hire someone in debt.

        What he meant – and I agree with – is that a liberal arts or business degree isn’t something that is worth a debt of that much. In fact, except for college teachers in liberal arts, I’m not sure what a liberal arts degree is worth anyway. And most business jobs are things like manager at McD’s or some small clothing store.

  • s c

    Doesn’t anyone understand that a degree is worthless in an economy where you can’t find a frickin’ JOB? Why waste all that money? Work on practical skills, or get into a health field [assuming that Mr. Obama's healthcare SCAM doesn't destroy healthcare in America].
    Friends don’t let friends go to Harvard – or get into politics – or live in Chicago – or confuse reality with community organizing – or be around yahoos like Zbig and/or Motormouth Biden.
    Utopia is for the self-deluded. What do you not understand, people?

  • Mick

    How so amazing to spend billions on an education producing nothing but crooks.
    Most of our representatives are college grads, they certainly didn’t learn out to budget considering the amount of debts are country has, they obviously didn’t learn that they’re only federal employees and we’re their boss but they certainly learned on how to cheat, steal, manipulate and get around our constitution and the bigger problem is that the American people pay outrageous amount to send their kids to college to learn the exact same things and actually think it makes sense…Scary…………

    • 45caliber

      Mick:

      But most of that stealing, cheating, etc. was on-the-job training, not college training.

  • Meteorlady

    Great and under the new Obamacare plan the government now controls 100% of college loans…..

    When I went to college I worked my way though with any job I could find. Didn’t get a loan, no subsidies, but did get an academic scholarship. What are children and families today thinking? Work instead of borrowing more, it pays a lot better and you don’t have the government on your back at the end.

    • 45caliber

      I agree. No loans and no one to help but my wife (whom I married after finishing my third year of college). I worked summers and all evenings I could. Of course, the costs were less then too. My tuition (when I started) was $89 a semester with about $120 in books. By the time I finished four years later it was three times that. Now it is $10,000 or more a semester and the books are over a $1000.

    • Marvin

      Meteorlady:

      Wake up and smell the cost of inflation. When you went to college-and trust me I can tell you went a LONG time ago, a student could work nights, weekends, and summers in order to pay for college. Now, with some PUBLIC not-for-profit colleges costing upwards of near 30K a year, tell me how a $10.00 an hour job (which is high paying for most high school grads) will help repay that debt? Is this what happens with age…people grow out of touch?

      Wake up. College was 11K a year when I went 20 years ago. The same education is 30K. Wages have not increased that much. Quit comparing your life (apples) to reality as it is today (oranges). Open your eyes.

  • Teresa

    If this is so then why can someone answer me is congress pushing so hard for the illegals to get our tax dollars to pay for their tuition programs in CA?

  • http://com i41

    Meteorlady. all of my children who are college degreed citizens all worked their way through colleges and did not get any hekp except prayer and cheers from their parents. All 6 are very sucessful and productive citizens. some are college others are associate degreed and others are business owners, but all are productive. The ones thaty went to college, could not beleive from day one had at least 2 credit cards and momma and daddy tail there lazy butts along even after they got a degree. Some of my kids still don’t have credit cards, they might have debit, but never credit cards. The ones who do are military officers and said they pay off as soon as they never carry a balance. Of course their parents have never had a credit card. Definetely I have had a checkbook since I was 15, but when credit cards became the rage and stored said they wouldn’t take a personal check, I just tell the store or establishment to keep their stuff and walk out and leave. I don’t care if I’m in Denver of Minn., they don’t want to have you leave. This college b–l s–t idea you must have a degree to be some one is just so much crap. Go check out a Wal-Mart and see how many college degreed clowns are stocking shelves and have 25-45,000 dollar debts. Since I get colleges sending out infor of wanting people to go to their schools, I always call and listen to the speech and then ask if they can guartenee a job. Their comment is always no but you chances are better for getting one. I have help get high school grads, go to teck and mechanic schools who always gartentee jobs and get most of their schooling paid for or at least 1/2 of the costs. Why because these student male or females, are needed and actually are doing something productive and useful. All the Business degreed unemployed grads I meet ask if they really like the hopey and changy crap they beleived in.

  • 45caliber

    I understand many college graduates used to declare bankruptcy as soon as they graduated since they weren’t working and hadn’t made any real money during the time in college. That was stopped but it hasn’t changed things much.

    The real problem is that the only people who can now afford to go to college are the children of really rich people – or those on Welfare. When it costs up to $10,000 or more a semester in college, there are very few who can afford it. The middle class usually can’t get loans for college because their parents make too much to get the loans but not enough to pay for the college tuition.

  • JimH

    Some students go to community college for the first 2 years and have the credits transfered to the university. This saves a substancial amount of money. You can also learn trades at a community college. For some of use that is more affordable.

  • Marvin

    Finally, people are starting to notice the college scam. We as a society have been brainwashed into thinking that college is “an investment in yourself.” While this may be true in the classical, Socratic sense of the word, the debt is not worth it unless a student is getting a marketable degree. Even then, the marketable degree argument only justifies the cost of college for so long. After a while, the cost outweighs the benefits of these non-liberal arts degrees as well.

    While I believe that students have some culpability as to how much debt they acquire, I also believe the schools have a GREATER responsibility in not encouraging so much borrowing. Why? Simply because many of the students are KIDS (yes 18-22 is still a child in my mind). Plus the schools and society have indoctrinated into these kids that college debt is good debt. I call BS.

    Colleges encourage borrowing. Colleges do not discern between various degrees. Colleges do not care about the individual’s ability to repay the debt. Colleges perpetuate myths that have been debunked. (My personal favorite is the million more earned over a lifetime made by a college graduate as opposed to one who never attended.)

    The only aspect of education that most colleges care about is getting the most money out of their students in the shortest amount of time possible. Furthermore, don’t be fooled…non-profits are as good at this game as for-profits.

    The bottom line is that the cost of college will have to crash in order for an equilibrium to be created between price and benefit-just like the housing market crashed. The cost of college is way out of line in comparison to wages. Like the price of houses, the cost of college will take a dive sooner or later because people will not be able to afford it, not because the colleges willingly lowered their prices.

    Marv

  • Lisa

    If the following comments are any indication of education or college experience, I suggest looking inward. Most of the comments are lacking in punctuation and coherence.

    Most people look at a Liberal Arts degree as a Bob Ross certification to painting, however, certain artistic careers (e.g. graphic designer, photographer, web designer) require a specific amount of education and skill. So, it’s not a cake walk or a stroll through the daisy field.

    Furthermore, there are several young adults and non-traditional students returning to school whom may have had the capabilities and determination for college, but for several unknown reasons did not do well in highschool or after. The only fall back you have are the universities that are willing to accept you. Consider the source.

    I can agree not everyone is equipped for dealing with the pressures of academics, but can everyone agree that most bachelor degrees are what highschool degrees were 30 years ago? It’s basically a hunting license for a job in our economy.

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