Student Loan Bubble: Bursting or Bailout?

[Willowz]

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

 

[WhoWee]

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

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."

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

 

[mege]

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.

 

[John Creighto]

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.

 

[DoggerDan]

Nice finds, John. I knew there was a reason I chose a public university!