What would a student loan "bubble burst" actually be like? (bankruptcy, 2013)

[MaseMan]

I've read quite a few posters on this forum state that a student loan bubble might be going "pop" in the near future. What would this actually look like? It seems to me that with student loans being propped up by the government, the status of the roughly $1 Trillion in student loans in our country is fairly secure.

[shaker281]

Here is one perspective.

Student Loan Bubble? There's No Such Thing | TIME.com

[NJBest]

Higher education would be worthless.
Unemployment rates would be MUCH higher.
Banks would be writing off significant amounts of student loan debts.
Loans would tighten up.
Less people would be able to afford higher education.
Higher education will regain it's value as the number of college graduates drop (Over a 25 year period or so).
We will put a man on the moon.

That's what it would look like. But that's not going to happen since there are safeguards that protect student loans.

[chuckmann]

Originally Posted by NJBest

Higher education would be worthless.
Unemployment rates would be MUCH higher.
Banks would be writing off significant amounts of student loan debts.
Loans would tighten up.
Less people would be able to afford higher education.
Higher education will regain it's value as the number of college graduates drop (Over a 25 year period or so).
We will put a man on the moon.

That's what it would look like. But that's not going to happen since there are safeguards that protect student loans.

Hmmmm..... I get your point that government would pay off the loans and banks would once more be bailed out with taxpayer money.

Therefore, unlike in the real estate market, government would continue to make bad loans to students enrolling in for profit institutions.

In a rational world, these scumbag for profit institutions would be driven out of business as they were no longer able to push student loans onto unsuspecting enrollees.

[chuckmann]

Originally Posted by shaker281

Here is one perspective.

Student Loan Bubble? There's No Such Thing | TIME.com

The thing is, the student loan industry can’t crash, pop, fizzle, or otherwise suddenly deflate because the Department of Education backs at least 85% of all student loans. Of the remaining loans that are privately issued, 90% have cosigners. On top of that it’s nearly impossible for student loan debt — whether owed to the government or to private lenders — to be discharged during bankruptcy. The upshot is that rising delinquency and default rates on student loans, while troubling in many respects, are simply not a serious danger to bank balance sheets and therefore are not going to cause a banking crisis like the real estate bubble did. If default rates do end up being much higher than the government anticipates, it will lead to losses for the federal government, and may even cause some political turmoil, but it will not add up to a financial crisis.

Yep, the government will bail out whom? Cuz they sure dont bail out the people who were hornswaggled into taking those loans.

Again, let’s go back to the definition of a bubble: They’re a result of over-valued assets. And while there’s been a lot of talk lately questioning the value of a college education, the truth is that purchasers of college degrees are still by and large making out like bandits. A recent Georgetown University study estimated that college graduates, on average, earn $2.8 million more over their lifetimes than they would if they had just graduated high school. And this earnings differential has actually grown since 1999, by 12%. Even if you end up paying the full sticker price of $250,000 for a degree from one of the most elite institutions in the country, the investment still makes a ton of sense

.

Yep, the old "more money over a lifetime" argument that is the cornerstone of the government-education complex. Problem is, we have no way of know if fifty years from now that will still be true. If you buy the education industry's propaganda, this is true. If you wonder how we can maintain our high standard of living based on taking in each others' laundry, congratulations, you understand that the basis for our historical robust economy has always been a strong manufacturing and resource production base.

[MrRational]

The issue isn't the entirety of the debt... just the margin above reasonable relative to benefit.
Make the colleges discount every bill and pay that off from their endowments.

[GiantRutgersfan]

There is no way for the bubble to "burst". People eventually have to work and wages can be garnished if student loans aren't paid on.

The only thing I think it is really gonna effect is housing. But its going to be more of a slow drag rather then a "bubble bursting"

[NJBest]

Originally Posted by MrRational

The issue isn't the entirety of the debt... just the margin above reasonable relative to benefit.
Make the colleges discount every bill and pay that off from their endowments.

The endowment is already used to discount tuition for academically adequate students. There's a limit on what the endowment afford. If you want the endowment to be used on all college students, colleges will just admit students that are worthy of the endowment. Those are the ones they already use the endowment on. So in the end, you'll just have less students in college... the top 5% or so.

[juggerburn]

Originally Posted by NJBest

The endowment is already used to discount tuition for academically adequate students. There's a limit on what the endowment afford. If you want the endowment to be used on all college students, colleges will just admit students that are worthy of the endowment. Those are the ones they already use the endowment on. So in the end, you'll just have less students in college... the top 5% or so.

Ahh, interesting word choice there with "adequate." If the top 5% is adequate, what is everyone else?

[andywire]

Originally Posted by juggerburn

Ahh, interesting word choice there with "adequate." If the top 5% is adequate, what is everyone else?

The cause of the student loan bubble... Or about 1/2 of them anyways.