Are Student Loans The Next Mortgage Debacle?

[Ego]

Am I the only asshole making six figures after getting a philosophy degree....

Reminded me of this....
https://fivethirtyeight.com/features/ph ... dont-suck/


And when it comes to earnings for people who only have undergraduate degrees, philosophy majors have the fourth-highest median earnings, $81,200 per year, out-ranking business and chemistry majors, according to the ETS. Bar none, philosophy majors have the highest salary growth trajectory from entry to mid-career.


I wonder how this will play out.

http://www.wsj.com/articles/thousands-a ... 0?mod=e2tw

In the past six months, more than 7,500 borrowers owing $164 million have applied to have their student debt expunged under an obscure federal law that had been applied only in three instances before last year. The law forgives debt for borrowers who prove their schools used illegal tactics to recruit them, such as by lying about their graduates’ earnings.

[RealPerson]

Mainly because student loans are not transferable or investable like housing (the funky idea of buying equity in individuals aside).

Are you sure about this? My student loans have moved around a bit since graduating. I figured once they see you're actually going to make payments on them they become more valuable.

This is what worries me. Where do these loans end up and what do those investment vehicles look like? Who owns them and how do you see them on a balance sheet? Could I own a bunch of these without knowing it? Would Wall Street really overlook such a huge profit potential? From a creditor's perspective, the non-dischargeable nature of student loans may make them more appealing than the safe equity of a single family home. You can walk away from that underwater house, but not from the student loan.

Aside from the ethics of lending large amounts of money to 18 year olds, which makes me cringe, I worry about what level of risk and instability exists in this market and where will it show up if it goes south. Or maybe there is a political calculation that the taxpayer will bail this situation out if the need arises.

[jacob]

Mainly because student loans are not transferable or investable like housing (the funky idea of buying equity in individuals aside).

Are you sure about this? My student loans have moved around a bit since graduating. I figured once they see you're actually going to make payments on them they become more valuable.

I may be wrong here, but I'm semi-sure that federal student loans (93% of outstanding student debt) aren't traded.

This leaves the private lenders (big banks and organizations like Sallie Mae) which do trade as ABS---about 100 billion worth. To compare, the mortgage debt, which was tradeable, was around 8 trillion (give or take a few... it was 2/3 of GDP and GDP was 12 or 13T) during the bubble peak.

So in financial terms, the mortgage bubble was 80x bigger than the student bubble currently is. IOW, student loans wont break the financial system. They might, however, break the government budget.

[GandK]

WSJ article on the subject, dated September 2015: Debt Relief for Students Snarls Market for Their Loans

And one from Investopedia (biased, but contains some facts on the subject): Student Loan Asset-Backed Securities: Safe or Subprime?

[Riggerjack]

. is Riggerjack suggesting that the financial industry has lobbied the government into tricking young humans to sign up for slavery in return for a degree in music appreciation? nooo, that can't be true.

No, I don't think lobbying would have been necessary. College education is considered an unquestioned good. Just questioning the assumprion of value is taboo, and risks getting labeled as ignorant, or mean. Truly, how could I criticize it, except for my petty jealousy and resentment of my betters.

I think politically, coming out against student loans is as likely as reforming SS. In this environment, lobbying would be wasted effort.

My point is that following the herd is not usually the path to unusual success. And that the herd is guided by those who followed that path, and knows of no other. Middle class parents and teachers, who view their education as both central to their self identity and their careers. These people tend to see their own, and the person on the server's side of the counter as the most likely destinations for a young mind, so naturally want to guide their own path. No history teacher wants a bright student to be carrying bricks upon graduation.

My point is that carrying bricks can lead to building walls to starting a company, to creating and selling businesses.

Where someone ends up has more to do with drive and initiative than their initial path.

[Peanut]

50k is 3rd year apprentice wages in trades. No need for student loans, just willing to work plus a bit of discipline.

When society invests in secondary education, to get grads who can't contribute (due to working under the table, underemployment, or a degree in music appreciation) that is a loss to us all, and an evil trick to play on the young and gullible.

Don't disagree there are cheaper routes to 50k. But nobody goes into WS if their primary concern is maximizing income potential. Also I know I read an article about hard-hit Americans that featured a plumber who used to make 40/hr but was down to 10/hr (although not even that because he refused to work for that) after the recession. Union vs non-Union labor was part of it, but I don't remember more than that. Just to say that field is not fullproof either.

Because Brute mentioned it too and I rarely like to see hum slagged off: I've never heard of a degree in music appreciation. Performance, composition, and musicology/music theory, yes. It takes a decade of work to become a decent musician, probably more for a composer. Re: music theory, that shit is HARD. Chromaticism analysis is way harder than doing calculus proofs ime.

Not to say that b.s. majors don't exist at all. I couldn't take "exercise science" seriously.

[Peanut]

--Although it's probably highly employable

[jacob]

http://www.pennfoster.edu/programs-and- ... ege-course

You can find various other silly courses here and there ... like surf science, star trek philosophy, soccer studies, and even the proverbial underwater basking weaving course. I haven't found anything like that that's a fully fledged degree though.

I like to view such courses more like "general training exercises" that generate positive attributes that translate into other fields in ways that are other very indirect. For example, English Litt. makes for more coherent corporate memos and mathematical analysis makes for spouting less self-contradictory BS. It's kinda like doing push ups. The push up movement is useless on its own(*) but it does create muscles that are useful for other applications.

(*) Please give me an example of how getting yourself from a prone position into a plank position can possible be useful for anything?!?

I used to believe (see old blog posts) that college was useless because you could substitute it for a library card and 50c in late fees. I changed my mind on this. Now I think it's useful to acquire and propagate an intellectual culture (which I think is a good idea ... because otherwise: Sarah Palin or Donald Trump wins ;-P ) which might not be available from parents/neighbours/present culture. In that way, a college education is likely a way to "jump culture", say, from a stage where "reading is for suckers" to a stage where "reading makes you a better person".

Is that worth $30000 in debt? Well, that's more of a valuation problem, right...

[Riggerjack]

(*) Please give me an example of how getting yourself from a prone position into a plank position can possible be useful for anything?!?

Speaking as a former soldier, the ability to move from prone to moving, quickly, is literally the difference between the quick and the dead. (I was a lousy soldier, and would've been in the second group...)

. Now I think it's useful to acquire and propagate an intellectual culture (which I think is a good idea ... because otherwise: Sarah Palin or Donald Trump wins ;-P ) which might not be available from parents/neighbours/present culture. In that way, a college education is likely a way to "jump culture", say, from a stage where "reading is for suckers" to a stage where "reading makes you a better person".

This is what I'm talking about. As a geek, who tested well, when I was young, I thought I was smart, and going to college was where I would find other smart folks. By elimination, those that didn't go, would be less smart.

IRL, I don't find this to be true at all. Some of the brightest folks I ever knew wore helmets or hard hats. While I've met some very bright folks who did go to college, I've found college grads to be no more bright that the general public, on average. This should be no surprise, with over 60% of HS grads going that route. It would be nice to think these are the top 60%, but observation makes it clear that isn't the case. You do eliminate most of the real numbskulls, but that's about it.

Maintaining this illusion that there is a class of smarter, better people in colleges is a critical part of selling the experience at financed rates. It's like a very expensive Mensa club. Where in the end, you get a certificate, and the pleasure of.hanging out with other people smart enough to send in a check, and take a test with nearly 60% pass rate.

[jacob]

@Riggerjack - Point well taken!

[JL13]

I think there's a possibility that there will be some amnesty program in the future. I suppose the reverberations of that will be very different than the mortgage debacle. A millennial bailout this time!

I suppose from a macro standpoint this would be inflationary? Of course we're nowhere near real inflation now so that might just return things to the normal/historic 3%/year. The median 20-34 year old is earning between pre-tax $2k-$3k per month while paying down what, $30,000 in student loans? That's a big chunk of their income!

What would they spend their extra disposable income on I wonder?

[Riggerjack]

. Though I understand I may be more of an exception to the rule, in my experience for many many well-paying jobs out there it really isn't about the particular degree you got. It's more about communication and logic skills, work ethic, and being at least decent at recognizing and then being willing to play some games. Oh, and then building off of the contacts you make in those jobs

Exactly. With those skills and an entrance ticket, you will be fine. Most sheepskins are interchangeable. Mid management in most corporate gigs require a degree, but not a technical degree. After a few years, it is the jobs that matter, not the degree. And the first job has more to do with interview skills and connections than school or degree.

Obviously, in specific fields, specific degrees are important. Most engineering jobs will require an engineering degree, but most HR/supervisory/project management jobs are more flexible.

It is unfortunate how little we teach HS seniors about how middle class careers progress. Maybe it's better now, but I remember being clueless about this and self conscious about being clueless.

[SilverElephant]

About the German school/apprenticeship system:

There is a lot to be said for the apprenticeship system. For a very long time (until sometimes in the 70s, when university attendance rates started climbing), university graduates were demi-gods but someone who had completed an apprenticeship (carpentry, bank clerk, nurse...) was held in high regard indeed. From my readings I believe this corresponds to someone who held a college bachelor's degree in the US in the 70s: not the highest possible achievement, but well respected.

This has changed.

First of all everybody wants to go to university because "being an academic is the only way to get a decent-paying job". I think university attendance rates are now just over 50%, similar to the 60% mentioned by Riggerjack for the US. One way to this has been to create degrees equivalent to underwater basket weaving (my personal favorite here is far eastern medieval theater science), and to actual turn some former apprenticeships into university degrees (I think physical therapist is one of them). Another way has been to gradually lower the Gymnasium requirements. The traditional STEM fields, especially the German classic, mechanical engineering, still pay very well. Others not so much.

The case for jobs requiring an apprenticeship not paying well is not absurd, though. What's happening - as far as I can see - is this: some apprenticeships pay more than others. This has to do with supply and demand. Outdoor, manual labor pays more than cushy, simple, indoor desk work. But the real way to money is to continue beyond a simple apprenticeship and going to become a "Meister", which is two years more of formal requirements but essentially - as the name says - requires you to demonstrate mastery in the field, entitles you to run your own business and take on apprentices. Here to money will eventually come in through the business.

I saw a chart the other day which showed the average lifetime earnings of a "Meister" to be just a couple % shy of those of a university graduate. The difference is, a future "Meister" starts working around age 16; they usually buy a house earlier and pay it off quicker.

@jacob: the system of separating children in school early through some form of "IQ testing" is utterly broken here. We don't IQ test. Up until recently the decision of which school to send a child to was up to the kid's elementary school teacher. But parents rebelled. They saw their child's future going down the drain if they didn't get to go to Gymnasium, because then they'd have to become an apprentice. Court cases and appeals piled up. Decision power on this has been slowly transferred to the parents in some states, and standards for Gymnasium attendance have slowly dropped in others.

So even in a country with a long history of apprenticeships, the system's reputation has been slowly undermined in favor of universities, and companies complain they can't get decent apprentices (because anyone who can do ANYTHING goes to university.)

[BRUTE]

does SilverElephant believe that more university has caused apprentices to become less respected, or that it is a reaction to globalization? many hard working people from eastern european countries willing to work for less?

[fiby41]

The Staggering Scale Of Student Debt In USA - A $1.3 Trillion Crisis

[CS]

@zarathustra I'd guess that a philosophy major is more along the lines of an IQ test than a major (at least to survive the major) - and one that is good at measuring the IQ specifically related to how humans work, as opposed to pure STEM skills. This falls in line with Jacob's ideal education system - except it falls much later and is sort of self-selected. You are uniquely posed to work, and excel, in any human run system.

@jacob
I was taught in high school that free education through high school was supposed to serve the function of having an thoughtful and educated population. High schools seemingly are not up to the task, and now we hope colleges can do it. You've already talked about the 90% that don't really want to learn as it is... this is not a good prognosis for our society.

--

I don't buy into that first tier, second tier stuff for colleges. That is advertising dollars and our "I deserve it culture" run amok. As far as I'm concerned only applies to a few select situations, such as wanting a professorship, or getting a law partnership. For the majority of people, it just doesn't matter. But these young kids don't know that yet - and apparently their parents are out to lunch and not teaching them things like grad school should be free, least in the US. Instead, these kids don't want to suffer with a 'second tier' school, not realizing that the biggest predictor of their success will be how much effort they put into it. Getting a summer internship is going to take them much farther than paying 30k for a private college, verses 10k for the local university. They should live at home for free, if possible, while studying, instead of working a job to pay for an unneeded car, and rent, etc.

And it's not just young kids that do this stuff - late twenties too. I have an ex-cousin (ex-dh's cousin) who ran up nearly 200k in student loans, because he always had to go to the best school - some design school in Georgia, then NYU for film, while his parents (!!) were making payments on the undergrad loans because he couldn't afford them while waiting tables in NY. So instead of fixing that travesty for his folks (who had no college as far as I was aware), he racked up 30k per quarter private student loans for NYU. And ended up running out of even private money to finish the degree. There was *no reason* to have done that, when the knowledge could have been gained so much cheaper.

Conversely, I was able to find the one (yes, singular) program in the nation where getting a screenwriting/writing MFA was not only free, but it paid the bills for 2.5 years. There was only the opportunity cost of not working and forfeiting the associated higher earnings.

The cousin, btw, was all for Bernie Sanders and tuition forgiveness. That makes me irate, and I'm a liberal type person. I can see some things like, free basic college education in reasonable majors for hardworking kids, not just for them, but for the benefits of having an educated society. I'm not for the equivalent of handing out free Cadillacs to spoilt brats, which is frankly, how I see my that ex cousin's request for free tuition. But he will be living with that stupidity for the rest of his life because it is nigh impossible to discharge that debt...

[OTCW]

IMO, the student loan response to bad loans will be to make it harder to get loans or a limiting of amounts. Result will be that a lot of private schools below the 'first tier' will be closing their doors.

[Italiano]

IMO, the student loan response to bad loans will be to make it harder to get loans or a limiting of amounts. Result will be that a lot of private schools below the 'first tier' will be closing their doors.

A financial collapse and then this. Do not know what this will look like but I agree with you. One of those things so obvious , we all see it but keeps being put on back burner because the debt number isn't high enough yet or? But it always seems something major must happen first before it gets resolved.

[Farm_or]

Yes. And add the rapidly declining foreign students. So many other countries are more than happy to take up our slack. I believe in many cases, providing a better education for less.

All of these things are compounding our higher learning problems. It seems to happen in everything that the government subsidizes. The bar goes down the same time the cost goes up.

Everybody is NOT college material. I have a lot of experience working with people in the German trade/tech system. Excellent alternative. Unfortunately, I have experiences of working with spoiled high pedigreed college brats too. Not so excellent.

What was great about American education was the value. That value is being surpassed by foreign competition. We must evolve to compete or prepare to fail. Will we continue subsidizing a bloated system? More likely, tourist education is in our future the same as tourist health care.