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Old 06-11-2012, 06:39 PM  
Direckshun Direckshun is online now
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The next bubble bursting: could be student loans.

I think this piece will prove to be prescient.

http://www.washingtonpost.com/opinio...iOV_story.html

Subprime college educations
By George F. Will
Published: June 8

Many parents and the children they send to college are paying rapidly rising prices for something of declining quality. This is because “quality” is not synonymous with “value.”

Glenn Harlan Reynolds, a University of Tennessee law professor, believes that college has become, for many, merely a “status marker,” signaling membership in the educated caste, and a place to meet spouses of similar status — “associative mating.” Since 1961, the time students spend reading, writing and otherwise studying has fallen from 24 hours a week to about 15 — enough for a degree often desired only as an expensive signifier of rudimentary qualities (e.g., the ability to follow instructions). Employers value this signifier as an alternative to aptitude tests when evaluating potential employees because such tests can provoke lawsuits by having a “disparate impact” on this or that racial or ethnic group.

In his “The Higher Education Bubble,” Reynolds writes that this bubble exists for the same reasons the housing bubble did. The government decided that too few people owned homes/went to college, so government money was poured into subsidized and sometimes subprime mortgages/student loans, with the predictable result that housing prices/college tuitions soared and many borrowers went bust. Tuitions and fees have risen more than 440 percent in 30 years as schools happily raised prices — and lowered standards — to siphon up federal money. A recent Wall Street Journal headline: “Student Debt Rises by 8% as College Tuitions Climb.”

Richard Vedder, an Ohio University economist, writes in the Chronicle of Higher Education that as many people — perhaps more — have student loan debts as have college degrees. Have you seen those T-shirts that proclaim “College: The Best Seven Years of My Life”? Twenty-nine percent of borrowers never graduate, and many who do graduate take decades to repay their loans.

In 2010, the New York Times reported on Cortney Munna, then 26, a New York University graduate with almost $100,000 in debt. If her repayments were not then being deferred because she was enrolled in night school, she would have been paying $700 monthly from her $2,300 monthly after-tax income as a photographer’s assistant. She says she is toiling “to pay for an education I got for four years and would happily give back.” Her degree is in religious and women’s studies.

The budgets of California’s universities are being cut, so recently Cal State Northridge students conducted an almost-hunger strike (sustained by a blend of kale, apple and celery juices) to protest, as usual, tuition increases and, unusually and properly, administrators’ salaries. For example, in 2009 the base salary of UC Berkeley’s vice chancellor for equity and inclusion was $194,000, almost four times that of starting assistant professors. And by 2006, academic administrators outnumbered faculty.

The Manhattan Institute’s Heather Mac Donald notes that sinecures in academia’s diversity industry are expanding as academic offerings contract. UC San Diego (UCSD), while eliminating master’s programs in electrical and computer engineering and comparative literature, and eliminating courses in French, German, Spanish and English literature, added a diversity requirement for graduation to cultivate “a student’s understanding of her or his identity.” So, rather than study computer science and Cervantes, students can study their identities — themselves. Says Mac Donald, “ ‘Diversity,’ it turns out, is simply a code word for narcissism.”

She reports that UCSD lost three cancer researchers to Rice University, which offered them 40 percent pay increases. But UCSD found money to create a vice chancellorship for equity, diversity and inclusion. UC Davis has a Diversity Trainers Institute under an administrator of diversity education, who presumably coordinates with the Cross-Cultural Center. It also has: a Lesbian, Gay, Bisexual, Transgender Resource Center; a Sexual Harassment Education Program; a diversity program coordinator; an early resolution discrimination coordinator; a Diversity Education Series that awards Understanding Diversity Certificates in “Unpacking Oppression”; and Cross-Cultural Competency Certificates in “Understanding Diversity and Social Justice.” California’s budget crisis has not prevented UC San Francisco from creating a new vice chancellor for diversity and outreach to supplement its Office of Affirmative Action, Equal Opportunity and Diversity, and the Diversity Learning Center (which teaches how to become “a Diversity Change Agent”), and the Center for LGBT Health and Equity, and the Office of Sexual Harassment Prevention & Resolution, and the Chancellor’s Advisory Committees on Diversity, and on Gay, Lesbian, Bisexual and Transgender Issues, and on the Status of Women.

So taxpayers should pay more and parents and students should borrow more to fund administrative sprawl in the service of stale political agendas? Perhaps they will, until “pop!” goes the bubble.
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Old 09-20-2012, 09:23 PM   #16
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"Oh no! I voluntarily entered into a contract where I knew exactly how much I borrowed! It's not fair!"
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Old 09-20-2012, 10:39 PM   #17
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Originally Posted by blaise View Post
"Oh no! I voluntarily entered into a contract where I knew exactly how much I borrowed! It's not fair!"
It's really hard to have sympathy. Not sure if that's the issue here, though.
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Old 09-21-2012, 04:10 AM   #18
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Old 02-01-2013, 10:38 AM   #19
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http://www.zerohedge.com/news/2013-0...-unsustainable

Student Loan Bubble Update: "This Situation Is Simply Unsustainable"
Submitted by Tyler Durden
on 01/29/2013 13:49

The last time we looked at the most underreported debt crisis sweeping the land, which is nothing short of the second coming of subprime, namely the student loan bubble, we posted "the scariest chart of the quarter" in which the Fed had finally caught up with our prior data showing that student loan delinquency had soared to some 11% from the 9% reported in the previous quarter, even as the Fed disclosed it had issued some $42 billion in Federal student loans in the same quarter, and a cumulative $956 billion, a number which as of December 31 is certainly over $1 trillion. This number was lower than the one we had shown previously, or a default rate of some 13.4%, sourced by the DOE. As it turns out both we and the Fed were optimistic.

Quote:
Research by FICO Labs into the growing student lending crisis in the U.S. has found that, as a group, individuals taking out student loans today pose a significantly greater risk of default than those who took out student loans just a few years ago. The situation is compounded by significant growth in the amount of debt that new graduates are carrying.

The delinquency rate today on student loans that were originated from 2005-2007 is 12.4 percent. The comparable figure for student loans that were originated from 2010-2012 is 15.1 percent, representing an increase in the delinquency rate by nearly 22 percent.
And since there is always a lag between getting the full cohort remittance and delinquency data, the real bad loan percentage is likely in the 20%+ category. So $1 trillion in federal student debt now, 20% delinquency, means $200 billion in loan defaults with zero collateral. And rising fast.

This is on par with the amount of subprime loans that was expected to end in foreclosure, yet another number that was vastly optimistic and would have been far worse had the Fed not stepped in to bailout the entire financial system.



And it gets worse. According to FICO:

Quote:
While the delinquency rate is climbing, the average amount of student loan debt is increasing even faster. In 2005, the average U.S. student loan debt was $17,233. By 2012, it had ballooned to more than $27,253 – an increase of 58 percent in seven years. By contrast, the average credit card balance and the average balance on car loans owed by U.S. consumers actually decreased during the same period.

In a related finding, FICO’s quarterly survey of bank risk managers conducted in December 2012 found that nearly 60 percent of respondents expected delinquencies on student loans to increase over the next six months. The same respondents expected delinquencies on all other types of consumer loans to decrease, putting the pessimism around student loans in sharp relief.
So not only are loans accelerating, but the actual amount of any given loan is rising exponentially.

Some of FICO's scary charts which nobody will pay attention to until it is far too late.

The total percentage of US population with 1 or more student loans has increased from 12.1% in 2005 to 19% in 2012.



The consumer may be deleveraging... in everything but student loans that is: a 58% increase in the average student loan notional in seven years.



And nearly 1% of the population has over $100,000 in student loans!



* * *

FICO's assessment is round in line with outs. "This situation is simply unsustainable and we’re already suffering the consequences,” said Dr. Andrew Jennings, FICO’s chief analytics officer and head of FICO Labs. “When wage growth is slow and jobs are not as plentiful as they once were, it is impossible for individuals to continue taking out ever-larger student loans without greatly increasing the risk of default. There is no way around that harsh reality.”
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Old 02-01-2013, 10:58 AM   #20
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So, stop taking out student loans you can't pay back.
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Old 02-01-2013, 11:11 AM   #21
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I'm so glad I didn't go. Well, that and because I'm not the college type and would've busted out/quit.

but the costs for those that do go are ridiculous.

If I were to ever go back, or if I chose to back then, I would've gone the trade school route.
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Old 02-01-2013, 11:18 AM   #22
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A lot more people are. However few work their way through anymore. I think the loans set up that incentive.
where are you getting that few students work their way through college?
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Old 02-01-2013, 11:45 AM   #23
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That was quite the fear mongering piece by Zero Hedge.

The bubble won't burst on student loans. They aren't dischargeable in bankruptcy except for extenuating circumstances. Is it sustainable? No. Will it lead to a financial contagion? No
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Old 02-01-2013, 11:52 AM   #24
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where are you getting that few students work their way through college?
Real life.
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Old 02-01-2013, 11:53 AM   #25
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That was quite the fear mongering piece by Zero Hedge.

The bubble won't burst on student loans. They aren't dischargeable in bankruptcy except for extenuating circumstances. Is it sustainable? No. Will it lead to a financial contagion? No
I agree with this. It also won't lead to falling home prices for people with otherwise good loans.
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Old 02-01-2013, 11:54 AM   #26
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I went to college in the mid 90s. Had student loans and worked two jobs and parental help. I now work for one of the Tivas (student loan servicer) and let me tell you that we are the best right now at getting people to pay.
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Old 02-01-2013, 11:57 AM   #27
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This isn't about a bubble bursting, this is about an economic model (colleges) that isn't sustainable in the long run. There is a highly dysfunctional system involving kids with too much debt, the federal government taking on too much risk, and colleges that think that 8% increases in tuition fees EVERY YEAR is perfectly reasonable regardless of what the economy is doing.

Combine that with EVERY middle and upper income family thinking that a college degree is ABSOLUTELY required, and you have a recipe for disaster, probably at taxpayer's expense ultimately.

We need to wean our society off the notion that EVERYONE should get a college degree, and EVERYONE should own a house, and the taxpayer should underwrite all of it. All we do is screw up the economics around those sectors and then have the inevitable breakdown down the road.
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Old 02-01-2013, 12:28 PM   #28
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Old 02-01-2013, 12:35 PM   #29
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Wasn't he occupy crowd claiming college should be paid for by taxpayers?
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Old 02-01-2013, 12:38 PM   #30
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Real life.
I don't think anecdotal evidence even supports such a claim.
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