the student loan bubble

[John_doe]

tell you what. go borrow 100,000 dollars and let your professors tell you the same thing we are trying to tell you.

I got through my B.S. Mechanical Engineering only having taken $16,500 in student loans. Military benefits are extremely helpful.

BTW, I know from experience that econ professors are almost always Keynesian. So you might not want to take your beliefs onto a college campus...

some colleges accept rational/fiscally responsible human beings. and if not, i can take my business elsewhere.


i don't owe them anything, and it does not hurt my feelings if they do not want me.

[John_doe]

I study the keynesian model, hence why I do not want to be a part of it. (aparently you do not have much faith in keynes if you are hoarding sound money)

[RTPMarine]

this article was in my last issue of Imprimis....

http://www.hillsdale.edu/news/imprimis/ ... 2&month=05

Perfect! Of all the solutions presented, I think two ring clear: allow the market to determine interest rates, and allow lenders to adjust based on the borrower (Electrical Engineer vs. Ethnic Studies).

[RTPMarine]

I study the keynesian model, hence why I do not want to be a part of it. (aparently you do not have much faith in keynes if you are hoarding sound money)

I don't fancy any economic model over another. It's too much of a waste of energy. Instead of constantly fighting a broken system, I just do the best I can within it.

[John_doe]

this article was in my last issue of Imprimis....

http://www.hillsdale.edu/news/imprimis/ ... 2&month=05

Perfect! Of all the solutions presented, I think two ring clear: allow the market to determine interest rates, and allow lenders to adjust based on the borrower (Electrical Engineer vs. Ethnic Studies).

I don't want to contradict myself here, but it sounds like you are jumping off the socialist boat and back into the laissez faire camp. Welcome back.

[DebtFreeMe]

I recognize that American fiscal policy means a lot to you, but please tell me that you are up to date on economic principles past 1912. Too many metalbugs choose to stack because they are spooked by their government (which they have full control of, they just don't know it). Don't be a dinosaur--learn how the world is working around you in the present day.

The present day? You mean the Keynes general theory from 1935? You do understand that just because a theory is old doesn’t mean it does not work (gravity, supply, demand, relativity)… But if you’re looking for a newer reference How about Anderson 2007 “The Value of Money”, http://library.mises.org/books/Benjamin%20Anderson/The%20Value%20of%20Money.pdf
Guess what, money (as a store of wealth) still comes from the same place.

When has any default ever not caused more spending??

2008-2012 and beyond??? (enough said on that point).

Also, bailouts have no effect on the value of the dollar. Did the dollar collapse because we bailed out the automakers? No.

I certainly did not say it would lead to a collapse. But is your dollar worth more today or in 2008? Thus your dollar has less purchasing power… That did not happen because businesses are greedy, that happened because the FED and Treasury have made more dollars, thus more dollars chasing the same assets means higher prices, thus less stuff purchased per dollar, thus your dollar has less value. You yourself used the idea of cheaper dollars earlier in this thread…

You didn't understand the point. I'll rephrase: student loans by definition cannot go "underwater". Even if potential employers would rather hire highschoolers than college graduates, the underlying value of the loan is not represented as collateral to the banks. When homes were suddenly worth less than what the bank was owed, what happened to the shortfall? A student loan does not have the same underlying value implied in the loan. There can be no "pinch", even if we continue towards default.

Lets lay this out a little better. I borrow $100,000 to buy a house, the house goes down in value to $50,000 I shortsale. $50,000 is now gone from the back, thus a default. Now I borrow $100,000 to get a degree, I pay back $50,000 before I realize that I will never make back the money. I can decide not to pay, as I showed earlier this is already being done by about 25% of the student loan borrowers, thus $50,000 is now lost… Same effect, only its actually worse with the student loan because after borrowing $100,000 I could not pay from the very beginning and the bank has no asset at all to reclaim at least some of its money.

The housing bubble was based on inflated prices. The prices were the bubble.

Those inflated price came about due to government backed loans being used to inflate the prices. That sounds familiar right? As a matter of fact you can read about the fact that government intervention into higher education by offer these bellow market rate loans has driven up the cost here: http://www.usnews.com/opinion/articles/2011/11/23/why-the-government-is-to-blame-for-high-college-costs it’s a well researched article.

We are currently running a $16 Trillion debt and still experiencing GDP growth and job recovery.

You do understand that GDP is measured in dollars correct? Thus, if there is constant monetary inflation, and that rate of inflation is greater than the rate of actual GDP growth (held at a constant monetary supply), then it will always appear that GDP is going up. Actually according to http://www.shadowstats.com/alternate_data/gross-domestic-product-charts real GDP has actually been negative since 2004 once you take this inflationary distortion into consideration.

Also, job recovery as compared to when: We are still well below our 2008 numbers for the number of people employed, thus there has been no job recovery.

in the particular situation of student loans, I think economic growth via investment does occur, to an extent

An investment is an undertaking that has an entrepreneur that determines that he/she can create a monetary profit by doing something of value, and it can be measured monetarily. A malinvestment is a misappropriation of investable funds that are due to the influences of governmental interference. That is actually what we are seeing here, resources being directed into a sector of the economy due to governmental interference with the normal market signals. Will some benefit, yes, some always do when the government is involved, will those resources have been used for their highest economic ends, no probably not. But there is no way to know when the government can simply force others to give up their personal property to others so that they can go to beautician or culinary school, or any other education they may want.

I don't fancy any economic model over another. It's too much of a waste of energy. Instead of constantly fighting a broken system, I just do the best I can within it.

Now I understand why your economic thinking is such a contradictory jumble… It’s like some one that says, “reading is hard and a waste of my TV watchin’ time”, and then wants to debate the fine points of a novel they have never read…

Final Note: You guys all seem hell-bent on not hearing any line of economic thought that doesn't agree with your own.

If you provide facts, along with references, as I have we can have an actual discussion on those facts and their meaning. But, simply stating something is true because you have said so is not a discussion on facts, but a game of rhetoric, and yes rhetoric will change no ones mind.

So if you do decide to continue on this discussion, please provide facts and reference so all of us can see the direct material from which your information is being espoused.

[John_doe]

Rob Peter to pay Paul. It all seems flimsy at best.


Anyways back on topic, I hope the bubble does not burst and screw up the world.

[natsb88]

When you take out a student loan, you can use it for whatever you want.

False, at least if you are referring to government student loans. They can be used for tuition, housing, and certain related expenses (basically what's on the bill from the school), but that's it. At least in my experience, I never even touched any money. I signed the paperwork and the loan servicer paid the school directly. Private loans are a different story (they do have restrictions, but since they usually give you the money and then you pay the school, there is an opportunity to misuse), but this situation is primarily about government-issued loans, isn't it?

Also, bailouts have no effect on the value of the dollar. Did the dollar collapse because we bailed out the automakers? No.

Maybe it didn't totally collapse, but it sure lost value. Failing companies that should have been liquidated were instead dumped on the taxpayer, and in the case of GM, a bunch of owed taxes were wiped clean. The government spent a bunch of money and gave up some revenue, which means they either borrowed or printed to make up the difference. That means inflation. Have you noticed the price of food over the last couple years? If the shelf price hasn't gone up, the container has probably gotten smaller.

And this is my point about the educational bubble--is tuition really going to come down any time soon? I don't think so.

Tuition has gone up due to the availability of "easy money" (i.e. federal student loans) creating artificially high demand. Same as housing prices went up with the availability of "easy money" to underqualified buyers through Fannie/Freddie/Clinton's "everybody should own a home" initiatives. If the bubble pops, and the easy money goes away, artificial demand will drop, and prices should come down. They sure did with housing.

I think a college-degree has almost become a requirement to be in the middle class.

I think it depends entirely upon the degree. There is a growing excess of liberal arts degrees that really don't add any marketable knowledge or skill to a person, other than being an indicator that the individual is capable of learning (or perhaps more accurately, memorizing and regurgitating). I think it will get to a point where having a degree like that may give you an advantage in terms of getting a job (a company might hire you over a high school grad), but I don't think it will get you a better job.

Also, in the particular situation of student loans, I think economic growth via investment does occur, to an extent. Remember these loans represent college degrees, which can reasonably be expected to lead to increased productivity. It might not be fair that the bill falls on the taxpayer, but it's still plausible to expect a return on that investment via increased production.

At least a dozen of my high school friends started college in 2007 for teaching degrees; at the time, there were more available jobs than available teachers, and colleges and counselors encouraged people to enroll in el-ed and sec-ed programs. In the four years that followed, we elected a new governor who actually tried to balance the budget, and education took a big hit. Instead of hiring teachers, schools were consolidating and letting them go. Come 2011, there was a wave of new education graduates, and not a teaching job in sight. A few were able to find related jobs, some left the state, and the rest are working "no degree required" jobs and/or thinking about going back to school for something else. Instead of just working for four years and saving up some money, they are now working the same type of job, with a big student debt load instead of four years of saved wages.

Easy loans and the "have to go to college" attitude are giving us lots of majors like general studies, women's studies, history, English, art studies, etc. I don't mean to throw sand in anybody's face if that's your field of interest, but how many of those actually land skilled jobs? Sooner or later the market for art studies positions is going to be saturated, the wage offers will drop (supply and demand), and the excess art studies majors are going to be stuck with a "no degree required" type job. Again, perhaps they have a better shot at landing a "no degree required" job because of their degree, but it's not a good return on their investment.

In short, while it may not be a direct result of the loan bubble popping, I do think degrees can lose value, and don't necessarily indicate increased productivity.

[John_doe]

Sub prime in 2007 (one year before the bubble burst)- 1.3 trillion
student loan deficit- 1 trillion plus the severely stressed monetary system.

[John_doe]

http://en.m.wikipedia.org/wiki/Higher_education_bubble


I hate to use wikipedia, but it is fairly convenient.

[RTPMarine]

Hey man, you're the one jumping to conclusions and making incorrect assumptions here. For instance:

The present day? You mean the Keynes general theory from 1935?

When did I say that I subscribe to Keynesian economics? Your implication that I care for it is misguided at best. At worst, it is you making an ad-hominem attack because it fits what you want to believe about me.

You do understand that just because a theory is old doesn’t mean it does not work (gravity, supply, demand, relativity)

I'm not going to argue with you that monetarism is solid. Nor are the principles that form its foundations. I was just pointing out that a hell of a lot of economic thought has occurred in the past century and I wanted to make sure you incorporate new principles into your understanding of economics. A lot of stackers seem not to.

When has any default ever not caused more spending??

2008-2012 and beyond??? (enough said on that point).

Are you suggesting that the 2008 financial crisis occurred because of a simple default? I think the default occurred because of the financial crisis, but whatever (which came first, the chicken or the egg?). The fact is that we were mired in recession long before default came our way. Once the Fed and European Central Banks decided to buy defaulted assets from banks in late 2008, the economy bloomed! And that happened because banks once again had the chance to churn out credit. People spent! It happened, man.

I certainly did not say it would lead to a collapse. But is your dollar worth more today or in 2008? Thus your dollar has less purchasing power… That did not happen because businesses are greedy, that happened because the FED and Treasury have made more dollars, thus more dollars chasing the same assets means higher prices, thus less stuff purchased per dollar, thus your dollar has less value. You yourself used the idea of cheaper dollars earlier in this thread…

A little bit of natural inflation is good--you won't find any well-respected economist who thinks otherwise. Here you are saying that inflation has occurred since 2008, and it is because of the Fed printing money. That's all good and fine--I totally agree with it. But let me remind you what you said earlier:

In the event of a bailout (with money that is created out of the Feds printing press) the value of the dollar drops thus purchasing power drops

Bailouts have no effect on inflation! Is it a bad way for the government to spend money? Maybe, probably. But it is allocated by Congress and taken out of the budget. The only printing done by the Fed directly for the banks was done to avoid the liquidity trap--it was not a bailout.

Lets lay this out a little better. I borrow $100,000 to buy a house, the house goes down in value to $50,000 I shortsale. $50,000 is now gone from the back, thus a default. Now I borrow $100,000 to get a degree, I pay back $50,000 before I realize that I will never make back the money. I can decide not to pay, as I showed earlier this is already being done by about 25% of the student loan borrowers, thus $50,000 is now lost… Same effect, only its actually worse with the student loan because after borrowing $100,000 I could not pay from the very beginning and the bank has no asset at all to reclaim at least some of its money.

Is it really that hard to admit that the value of a college degree is non-fungible and the debt is reserved by the individual? You basically say it yourself here--if some college grad suddenly stops working and cant pay back the loan yada yada. The de-valuation of his degree is not represented by mine, which has me working a well-paying job and making my student loan payments. Whereas housing prices are fungible because the assets' values are tied to one another, a college degree is only as useful as the individual makes it. The reserve is the individual, not the inflated asset.

What's sad here is that this is just a game of semantics. Education is overpriced, and it is overpriced because of federal involvement. That's really all that matters about this subject.

Those inflated price came about due to government backed loans being used to inflate the prices. That sounds familiar right? As a matter of fact you can read about the fact that government intervention into higher education by offer these bellow market rate loans has driven up the cost here: http://www.usnews.com/opinion/articles/ ... lege-costs it’s a well researched article.

Ok, so a few paragraphs above, you seemed to believe that the educational bubble centered around the value of a college degree. Here you are indicating that the bubble is coming from inflated tuition costs. Do you believe there are two bubbles (serious question--there very well might be). As I've already said a few times in this thread, I don't see education costs coming down any time soon, regardless of what the federal government does with faulty student loan debt. Correcting interest rates would not be reflected for some time. The article you linked even states:

"Inflation-adjusted tuition and fees have tripled over those same 30 years while aid quadrupled; the aid is going up faster than the tuition." So, basically, it has taken 30 years for us to dig this hole. That's a big ass hole, and it isn't going to correct itself overnight just because we take a hard-line on student loans.

You do understand that GDP is measured in dollars correct? Thus, if there is constant monetary inflation, and that rate of inflation is greater than the rate of actual GDP growth (held at a constant monetary supply), then it will always appear that GDP is going up. Actually according to http://www.shadowstats.com/alternate_da ... uct-charts real GDP has actually been negative since 2004 once you take this inflationary distortion into consideration.

Also, job recovery as compared to when: We are still well below our 2008 numbers for the number of people employed, thus there has been no job recovery.

You are really just looking to play semantics. And GDP can be measured by anything--here it is in gold: http://pricedingold.com/us-gdp/. Here is a chart showing nominal vs. real GDP: http://www.data360.org/dsg.aspx?Data_Set_Group_Id=230. Notice how the real GDP has been working upwards since Q2 2009. See but instead of my data coming from "Shadow Government Statistics" (oooooooh scary), I pulled from data360.org. Again: I am not saying that things are peachy. We should be growing much faster, and unemployment should be coming down much faster. My original point was that we are making these small gains with $16T in debt on our backs--not bad.

Oh and jobs. Unemployment in 2010 was 10.1. Today it is 8.2. It might not be a fireworks show, but it is progress. Here is the chart: http://www.tradingeconomics.com/united-states/unemployment-rate. No job recovery, really?

Now I understand why your economic thinking is such a contradictory jumble… It’s like some one that says, “reading is hard and a waste of my TV watchin’ time”, and then wants to debate the fine points of a novel they have never read…

Hopefully you felt a little better after writing that. I'm sure you fancy yourself to be pretty clever.

[RTPMarine]

When you take out a student loan, you can use it for whatever you want.

False, at least if you are referring to government student loans. They can be used for tuition, housing, and certain related expenses (basically what's on the bill from the school), but that's it. At least in my experience, I never even touched any money. I signed the paperwork and the loan servicer paid the school directly. Private loans are a different story (they do have restrictions, but since they usually give you the money and then you pay the school, there is an opportunity to misuse), but this situation is primarily about government-issued loans, isn't it?

At my university the stafford loans were sent to the school also. But once tuition was paid, the school sent a check for the difference. I deposited them into my bank account, and spent them as I needed.

The rest of your points are pretty solid--any small disagreements I have were address in my comments to DebtFreeMe.

[RTPMarine]

http://en.m.wikipedia.org/wiki/Higher_education_bubble


I hate to use wikipedia, but it is fairly convenient.

Did you even read this??? It is basically a detailed account of why there is no higher-education bubble.

[natsb88]

When you take out a student loan, you can use it for whatever you want.

False, at least if you are referring to government student loans. They can be used for tuition, housing, and certain related expenses (basically what's on the bill from the school), but that's it. At least in my experience, I never even touched any money. I signed the paperwork and the loan servicer paid the school directly. Private loans are a different story (they do have restrictions, but since they usually give you the money and then you pay the school, there is an opportunity to misuse), but this situation is primarily about government-issued loans, isn't it?

At my university the stafford loans were sent to the school also. But once tuition was paid, the school sent a check for the difference. I deposited them into my bank account, and spent them as I needed.

The rest of your points are pretty solid--any small disagreements I have were address in my comments to DebtFreeMe.

Interesting. I always owed, never got anything back I know the funds are only "supposed to" be used for school expenses though, as it's in the terms, and they can audit at any time. Don't know if they ever do, but they can.

[RTPMarine]

http://en.m.wikipedia.org/wiki/Higher_education_bubble


I hate to use wikipedia, but it is fairly convenient.

Taken straight from the article:

"In a financial bubble, assets like houses are sometimes purchased with a view to reselling at a higher price, and this can produce rapidly escalating prices as people speculate on future prices. An end to the spiral can provoke abrupt selling of the assets, resulting in an abrupt collapse in price — the bursting of the bubble. Because the asset acquired through college attendance — a higher education — cannot be sold (only rented through wages), there is no similar mechanism that would cause an abrupt collapse in the value of existing degrees. For this reason, many people[who?] find this analogy misleading. However, one rebuttal to the claims that a bubble analogy is misleading is the observation that the 'bursting' of the bubble are the negative effects on students who incur student debt, for example, as the American Association of State Colleges and Universities reports that "Students are deeper in debt today than ever before...The trend of heavy debt burdens threatens to limit access to higher education, particularly for low-income and first-generation students, who tend to carry the heaviest debt burden. Federal student aid policy has steadily put resources into student loan programs rather than need-based grants, a trend that straps future generations with high debt burdens. Even students who receive federal grant aid are finding it more difficult to pay for college."[26]

However, the data actually shows that, notwithstanding a slight increase in 2008–2009, student loan default rates have declined since the mid 1980s and 1990s. [27][28]. And even during the recession, those with college degrees are much less likely than those without to be unemployed, even though they earn higher wages.[29]"

Now Jesus Christ can we all just get along?? Nobody here is right or wrong, we just hold different opinions.

[John_doe]

This is under the assumption that the college degree has a lack of intrensic value (of which I would agree).

[John_doe]

http://en.m.wikipedia.org/wiki/Begging_the_question




Hey wikipedia, I need you to eat wikipedia.

[Engineer]

This is under the assumption that the college degree has a lack of intrensic value (of which I would agree).

An education always has some inherent value, and "sometimes" a degree can add to that value.

In my case, the government threw my degree (six years worth) under the bus just before I was set to graduate. It was a simple rule change, but it really screwed up my life at the time it happened. The industry I was headed into lobbied for cheaper labor, and congress decided that an associates degree in that field was equivalent to a Masters. Those extra years of college sure seemed to be a waste when starting salaries were cut in half.

My education, however, paid off handsomely in the long run...and continues to pay dividends even though I'm retired.

[John_doe]

http://en.m.wikipedia.org/wiki/Begging_the_question




Hey wikipedia, I need you to eat wikipedia.

Sorry informal fallacies were never my thing.

[John_doe]

This is under the assumption that the college degree has a lack of intrensic value (of which I would agree).

An education always has some inherent value, and "sometimes" a degree can add to that value.

In my case, the government threw my degree (six years worth) under the bus just before I was set to graduate. It was a simple rule change, but it really screwed up my life at the time it happened. The industry I was headed into lobbied for cheaper labor, and congress decided that an associates degree in that field was equivalent to a Masters. Those extra years of college sure seemed to be a waste when starting salaries were cut in half.

My education, however, paid off handsomely in the long run...and continues to pay dividends even though I'm retired.

It is a peice of paper, that people spend lot's of peices of paper on to justify their memorization of trivial garbage that is only in some cases applicable. It is a heirarchy of rats in a similar race pointing fingers at people not responsible for their actions. At some point, even adults have to grow up.

[John_doe]

http://en.m.wikipedia.org/wiki/Begging_the_question




Hey wikipedia, I need you to eat wikipedia.

Sorry informal fallacies were never my thing.

This informal deductive fallacy was listed under the controversy section btw.

[68Camaro]

This is under the assumption that the college degree has a lack of intrensic value (of which I would agree).

An education always has some inherent value, and "sometimes" a degree can add to that value.

In my case, the government threw my degree (six years worth) under the bus just before I was set to graduate. It was a simple rule change, but it really screwed up my life at the time it happened. The industry I was headed into lobbied for cheaper labor, and congress decided that an associates degree in that field was equivalent to a Masters. Those extra years of college sure seemed to be a waste when starting salaries were cut in half.

My education, however, paid off handsomely in the long run...and continues to pay dividends even though I'm retired.

It is a peice of paper, that people spend lot's of peices of paper on to justify their memorization of trivial garbage that is only in some cases applicable. It is a heirarchy of rats in a similar race pointing fingers at people not responsible for their actions. At some point, even adults have to grow up.

This thread is proving to be mostly a post-count increaser, so the last post from me in this one.

University is what you make of it - the above approach toward learning would mean that person is not at university for the right reason.

If someone is truly educated with the right degree from the right institution (which doesn't have anything to do with expensive or exclusive), the combination can not only be personally useful, it truly can open up doors for employment. And the most important thing to learn is how to learn, which university gives one an opportunity to fine-tune/hone. There is some common perverse presumption that universities teach; not true. What universities offer are opportunities to learn, but for that to happen students have to actively pull out the information. That is the distinction between lower level education and university. Too many people are going to university for the wrong reasons. That there are students sitting in classes expecting to be fed, or worse - just trying to get their degree stamped - rather than actively seeking learning, doesn't negate the positives for those people there that know how to learn. As someone that - as part of my task of finding the best people for my department - reviews resumes, interviews, hires, I have to weed out the productive people from the rest. I look to degree, school, GPA, resume, cover letter, as an entry point, but once past that threshold people have to provide solid evidence to me that they "get it".

Best wishes to the both of you (JD and Marine) while you plan your future.

[John_doe]

This is under the assumption that the college degree has a lack of intrensic value (of which I would agree).

An education always has some inherent value, and "sometimes" a degree can add to that value.

In my case, the government threw my degree (six years worth) under the bus just before I was set to graduate. It was a simple rule change, but it really screwed up my life at the time it happened. The industry I was headed into lobbied for cheaper labor, and congress decided that an associates degree in that field was equivalent to a Masters. Those extra years of college sure seemed to be a waste when starting salaries were cut in half.

My education, however, paid off handsomely in the long run...and continues to pay dividends even though I'm retired.[/quote]


It is a peice of paper, that people spend lot's of peices of paper on to justify their memorization of trivial garbage that is only in some cases applicable. It is a heirarchy of rats in a similar race pointing fingers at people not responsible for their actions. At some point, even adults have to grow up.[/quote]

This thread is proving to be mostly a post-count increaser, so the last post from me in this one.

University is what you make of it - the above approach toward learning would mean that person is not at university for the right reason.

If someone is truly educated with the right degree from the right institution (which doesn't have anything to do with expensive or exclusive), the combination can not only be personally useful, it truly can open up doors for employment. And the most important thing to learn is how to learn, which university gives one an opportunity to fine-tune/hone. There is some common perverse presumption that universities teach; not true. What universities offer are opportunities to learn, but for that to happen students have to actively pull out the information. That is the distinction between lower level education and university. Too many people are going to university for the wrong reasons. That there are students sitting in classes expecting to be fed, or worse - just trying to get their degree stamped - rather than actively seeking learning, doesn't negate the positives for those people there that know how to learn. As someone that - as part of my task of finding the best people for my department - reviews resumes, interviews, hires, I have to weed out the productive people from the rest. I look to degree, school, GPA, resume, cover letter, as an entry point, but once past that threshold people have to provide solid evidence to me that they "get it".

Best wishes to the both of you (JD and Marine) while you plan your future.[/quote]

sorry, off topic again. (partially my fault)

I just don't feel that I or anyone else should have the obligation to pick up someone else's tab. I come from the ideaology that if you can't afford something, you don't buy it.

Seeing as how my viewpoint is one of a person "behind the times" I guess once again I have to be punished for another persons bad judgement.

[John_doe]

Malinvestment should not be rewarded or encouraged, epescially not at the expense of those who choose the right path.

[68Camaro]

This is under the assumption that the college degree has a lack of intrensic value (of which I would agree).

...

Please note that the above is a mis-attribution - that extract was from "engineer".