Student Loan - Bubble Burst?

In summary, the conversation discusses the issue of a possible student loan bubble burst and the consequences it could have for students and the general population. It also touches on the idea of a potential bailout and suggests alternative solutions, such as stopping collections until students find jobs. The conversation also mentions the predatory nature of for-profit schools and their high student loan default rates, which has led to government scrutiny and laws to regulate their eligibility for government-backed loans. Additionally, there is a discussion about using post-graduate tax revenue as a measure for determining the amount of loan money a school is allowed to receive.
  • #1
197
1
I'm a little behind on this topic. Will there be a student loan bubble burst? What consequences does that carry for students and everyone else? I don't understand why there would be a bailout? This might sound a bit idealistic, but could they stop collecting debts with percentage until a student would find a job, and then they would resume collecting?

Regarding this: http://www.businessweek.com/finance/occupy-wall-street/archives/2011/11/when_will_the_student_loan.html [Broken]
 
Last edited by a moderator:
Physics news on Phys.org
  • #2
Willowz said:
I'm a little behind on this topic. Will there be a student loan bubble burst? What consequences does that carry for students and everyone else? I don't understand why there would be a bailout? This might sound a bit idealistic, but could they stop collecting debts with percentage until a student would find a job, and then they would resume collecting?

Regarding this: http://www.businessweek.com/finance/occupy-wall-street/archives/2011/11/when_will_the_student_loan.html [Broken]

This is worth a read - a type of predatory lending.

http://www.huffingtonpost.com/2011/09/12/for-profit-colleges-student-loan-_n_959058.html
"The high number of student loan defaults at for-profit institutions has prompted heightened government scrutiny in recent years, amid evidence that some schools aggressively market their programs to students but fail to deliver on the promise of careers. For-profit schools typically cost nearly twice as much as public colleges and universities, and students on average graduate with much higher student loan debt."

***

http://www.bizjournals.com/columbus/blog/2011/09/leading-the-list-colleges-with.html

"In 2009, the latest data available, for-profit schools in the U.S. had an average 15 percent default rate, compared with 7.2 percent at public schools and 4.6 percent at private nonprofit institutions, according to the U.S. Department of Education. Overall, the rate stood at 8.8 percent. That’s nothing compared with the 1980s, when the national student loan default rate surged, peaking at 22.4 percent by 1990 thanks mainly to elevated default levels at for-profit colleges.
According to a Dayton Daily News article from 1990, there were numerous trade schools in the state with student loan default rates above 40 percent, and in a few schools above 70 percent and 80 percent.
Imagine a school with an 81.5 percent student loan default rate, with the government continuing to back loans to students heading to the school. Insanity, right? Well, that’s what the government thought, too. Congress passed a law in the early 1990s saying the federal government wouldn’t back loans to students at schools where default rates had gotten too high. Today, if a school has a 25 percent student loan default rate for three years, it can lose eligibility for government-backed student loans."


****

http://www.reuters.com/article/2011/09/12/education-forprofit-idUSS1E78B0UY20110912
 
Last edited by a moderator:
  • #3
On the article's comment about for-profit schools: the whole reason they're competitive (or exist at all in the large number they do) is because there is lots of easy money for schools.
 
  • #4
WhoWee said:
This is worth a read - a type of predatory lending.

http://www.huffingtonpost.com/2011/09/12/for-profit-colleges-student-loan-_n_959058.html
"The high number of student loan defaults at for-profit institutions has prompted heightened government scrutiny in recent years, amid evidence that some schools aggressively market their programs to students but fail to deliver on the promise of careers. For-profit schools typically cost nearly twice as much as public colleges and universities, and students on average graduate with much higher student loan debt."

***

http://www.bizjournals.com/columbus/blog/2011/09/leading-the-list-colleges-with.html

"In 2009, the latest data available, for-profit schools in the U.S. had an average 15 percent default rate, compared with 7.2 percent at public schools and 4.6 percent at private nonprofit institutions, according to the U.S. Department of Education. Overall, the rate stood at 8.8 percent. That’s nothing compared with the 1980s, when the national student loan default rate surged, peaking at 22.4 percent by 1990 thanks mainly to elevated default levels at for-profit colleges.
According to a Dayton Daily News article from 1990, there were numerous trade schools in the state with student loan default rates above 40 percent, and in a few schools above 70 percent and 80 percent.
Imagine a school with an 81.5 percent student loan default rate, with the government continuing to back loans to students heading to the school. Insanity, right? Well, that’s what the government thought, too. Congress passed a law in the early 1990s saying the federal government wouldn’t back loans to students at schools where default rates had gotten too high. Today, if a school has a 25 percent student loan default rate for three years, it can lose eligibility for government-backed student loans."


****

http://www.reuters.com/article/2011/09/12/education-forprofit-idUSS1E78B0UY20110912

Student loans have to be be paid by law so a default is often just a temporary shortfall. I agree that the repayment rate should effect the amount of loan money schools are allowed. However, I think the default rate is a crude measure of this. Post graduate tax revenue could also be used as a basis for how much student loan money a school is allowed.
 
  • #5
Nice finds, John. I knew there was a reason I chose a public university!
 

1. What is a student loan bubble?

A student loan bubble refers to a situation where the amount of student debt borrowers owe exceeds their ability to repay it. This can happen when there is a significant increase in the number of students taking out loans, combined with rising tuition costs and a weak job market.

2. How big is the student loan bubble?

The student loan bubble is currently estimated to be over $1.7 trillion in the United States, making it the second largest consumer debt category after mortgages. This amount has more than doubled in the past decade, and it continues to grow.

3. What are the consequences of a student loan bubble burst?

If the student loan bubble were to burst, it could have serious consequences for the economy as a whole. It could lead to a decrease in consumer spending, a rise in defaults and bankruptcies, and a decline in home ownership rates. It could also have a negative impact on the job market, as graduates may be forced to take lower paying jobs in order to make ends meet.

4. How did the student loan bubble form?

The student loan bubble formed due to a combination of factors, including the rising cost of education, the easy availability of loans, and the lack of financial education for borrowers. Additionally, the high demand for college degrees and the belief that a degree is necessary for success have contributed to the growth of the student loan market.

5. What can be done to prevent a student loan bubble burst?

To prevent a student loan bubble burst, there needs to be a combination of solutions. This could include implementing policies to make higher education more affordable, increasing financial literacy for borrowers, and finding ways to reduce the burden of existing student debt. It is also important for borrowers to carefully consider the amount of debt they are taking on and to have a plan for repayment before taking out loans.

Suggested for: Student Loan - Bubble Burst?

Back
Top