
The Student Loan Bubble is Starting To Burst - rnernento
http://www.cnbc.com/id/101012270
======
msandford
It's really too bad that the laws surrounding student loans make them
artificially cheap. You can't get rid of college debt through bankruptcy so
you're basically saddled for life.

Normally the interest you pay is the combination of three things:

1\. The (inherent) time value of money

2\. Expenses the lender incurs to keep up with the debt

3\. The average default risk of those taking the loans

Student loans only price in 1 & 2 because of the near impossibility of not
paying the loans back. Which is great in the short term as it means that more
people are able to go to school because the interest rate is lower and thus
they can afford more debt.

But a college education is a lot like a house. The price of a house isn't how
much it's "worth", it's an artifact of how much money you have to pay every
month for the privilege of living there. A house of a certain niceness is
(everything else equal) going to cost the same amount of money per month
whether the interest rate is 1% or 15%. A $1500/mo mortgage buys you $250k of
house at 4% but only $150k of house at 9% and only $95k of house at 15% like
in the early 80s. ([http://www.bankrate.com/finance/mortgages/history-of-
mortgag...](http://www.bankrate.com/finance/mortgages/history-of-mortgage-
interest-rates.aspx))

By removing all the default risk from the pricing of student loans, more
students are able to afford college which is exactly the intended effect of
the laws. But the size of most academic institutions doesn't grow; most
colleges don't admit twice as many students just because more are clamoring to
get in. This excess demand and fixed supply means that colleges can raise
prices. And thanks to the lowered interest rates those who could have afforded
college prior to the law (and lower interest rates) are still able to afford
it because the lowered interest rate has increased their borrowing capacity.

Those on the margin prior to the change in the law still aren't able to afford
college once the price increases follow the increase in available money and
additional demand for degrees.

The law was changed in 1978 and it's taken quite a few years for this
unintended consequence to play out. It's really sad to see it happen.
[http://www.finaid.org/questions/bankruptcyexception.phtml](http://www.finaid.org/questions/bankruptcyexception.phtml)

~~~
kilroy123
A large part of the problem is all the shitty _for profit_ schools. They get
students to take out large government backed loans, then are defaulting, since
they can't actually get a job.

I knew several people I grew up with who went to these schools. They took out
huge loans, 10k plus, and they never landed any kind of job with their
"certificates" / degrees.

[1] Half of all defaults are from these kind of schools.

[1] [http://www.businessinsider.com/career-education-corp-will-
pa...](http://www.businessinsider.com/career-education-corp-will-
pay-9-million-to-students-after-allegedly-inflating-job-numbers-2013-8)

~~~
dnautics
>[1] Half of all defaults are from these kind of schools.

That means half of all defaults are from the "other" kind of school. And the
loans from the "other" kind of school are much, much more than 10k +, and many
of those students are "never landing any kind of job", too.

Sounds like a LARGER part of the problem is "conventional" higher education.

~~~
jlgreco
How many people go to real schools, and how many go to fake 'for profit'
schools?

And isn't the median student debt something like 25k? Not really _" much much
more"_ in my book. Anyone with a real degree should be able to handle that
sort of debt.

What we should be doing is allowing lenders to discriminate by major and
school. Good school with a good degree? Lend. Good school with a shitty
degree? Lend with extreme caution caution. Fake school with any sort of
degree? Tell them to kindly fuck off.

~~~
dnautics
> What we should be doing is allowing lenders to discriminate by major and
> school. Good school with a good degree? Lend. Good school with a shitty
> degree? Lend with extreme caution caution. Fake school with any sort of
> degree? Tell them to kindly fuck off.

No disagreement here.

I don't want to give the perception that I think "for-profit" higher education
is problem-free. I do think they have severe problems, but putting a
disproportionate amount of attention on them is distracting to the problem
that the "non-profits" are - which has a bigger societal impact, since they
are serving more people. "For-profits" are just an easy target because of the
broad social perception that profits breed evil, where many of those
evildoings are just as bad in the "non-profit" higher educational sector.

~~~
rayiner
No, for-profits are a problem. They account for 10-13% of students, but 25% of
student loans, and 50% of defaults. They have no academic standards, because
they have no concern for academic reputation in the way traditional
institutions do, and can seek to enroll the largest possible classes without
worrying about keeping up GPA/SAT medians.

~~~
muzz
Agreed. Article in San Jose Mercury News just yesterday:

[http://www.mercurynews.com/education/ci_24041125/profit-
coll...](http://www.mercurynews.com/education/ci_24041125/profit-colleges-
soaking-up-tax-dollars-despite-student)

The good news:

"Last year California cut from its tuition aid program more than 130 private
colleges with low graduation rates and too many student loan defaults. Some
wonder if the federal government will follow the state's lead to hold colleges
responsible for their performance.

Today, only 50 for-profit schools in California remain eligible for state-
subsidized tuition; 115 do not"

~~~
pyre
> low graduation rates

> hold colleges responsible for their performance

Sounds like a recipe for lowered standards...

~~~
jlgreco
That's why you factor in job placement rates. Degree-mills are already a
problem.

~~~
fnordfnordfnord
For "workforce training" in Texas, we have a rolling average criteria (along
with several other metrics). Which is good, because economic fluctuations
affect the job market. Some classes just can't seem to catch a break.

To add to that, they tighten the noose with every legislative session. It
appears to be the intention to make our pay proportional to "graduate
success"; which will likely end up meaning GPA. That would put the same
incentives in place for public college instructors that have existed in for-
profit schools.

------
prostoalex
Pretty good overview and opinion of the status quo and historical
retrospective here:

[http://online.wsj.com/article/SB1000142412788732416520457902...](http://online.wsj.com/article/SB10001424127887324165204579028771723069750.html)?

"Politicians subsidize the purchase of a good or service, prices inevitably
rise in response to this pumped-up demand, and then the pols blame the
provider of the good or service for responding to the incentives the
politicians created. Think housing finance and medical care."

...

"We've got a crisis in terms of college affordability and student debt," said
Mr. Obama, without a trace of irony at the State University of New York at
Buffalo. The same man who three years ago forced through a plan to add $1
trillion in student loans to the federal balance sheet over a decade said on
Thursday, "Our economy can't afford the trillion dollars in outstanding
student loan debt."

~~~
muzz
Adding "$1 trillion in student loans to the federal balance sheet over a
decade" is a result of direct lending, ie cutting out the middleman. It is
also saving the taxpayer money to the tune of $70B over ten years.

~~~
jerf
It doesn't save the taxpayers _any_ money if the government makes foolish
loans that can't be repaid that nobody would have ever lent out if their own
money was on the hook instead, nor does it save the taxpayers any money if the
government provides easy, free money that causes unnaturally skyrocketing
tuition followed by an unnatural higher ed crash.

An awfully expensive $70B over ten years, I think.

~~~
muzz
You are not contradicting my post.

The savings of $70B comes from eliminating a profit layer that was enjoyed by
the banks.

The government insured the loans _before_ and _after_ the change in 2010. So
the taxpayer was on the hook for losses. Now it is still on the hook for
losses, but also benefits from profits.

The $70B is simply from cutting out the middleman.

~~~
jerf
A profit layer that _also_ prevented those other things from happening. These
things can not be considered in isolation. People are more careful with their
own money than the free money the government provides. We prevented the
eeeeeviiil profit mongering bank bastards from making money, at the cost of
encumbering millions upon millions with debt, and who knows what damage we're
going to witness to the higher ed system over the next few years.

Will it have been worth all this damage to prevent the eeeeeeviiiiil
profiters? It really already wasn't, and the accounting for the evil of our
current policy is only going to get worse.

~~~
kdragon
Basically we are publicly subsidizing education. Will it be worth it? Well,
history has shown education to be a better investment than subsidizing the
risks of private institutions. I'm betting it will be.

~~~
jerf
We wouldn't behaving this discussion if we had not created a situation via
government meddling in which education is frequently _not_ a good investment.

Don't deal in the fuzzy-wuzzies of how wonderful education is in a perfect
world. Deal with the world in front of you, the one on the news, the one
generating a _trillion_ dollars in crushing debt on those least able to pay it
back. People are _exploiting_ your willingness to hide in glib, pretty
generalities.

------
pessimizer
I'm going to leave this here:
[http://my.firedoglake.com/deanbaker/2012/03/11/student-
loan-...](http://my.firedoglake.com/deanbaker/2012/03/11/student-loan-bubble-
nonsense-peter-peterson-and-the-washington-post-mess-up-on-the-economy-yet-
again/)

It's Dean Baker's critique on coverage of this type from the Post. The most
important thing to take from it is that the housing bubble popping turned $22
trillion of household wealth into $14 trillion. The sum of all student loans
add up to around $1 trillion.

Banks getting out of an industry because they don't find it profitable anymore
(since the government turned off the free guarantee taps) has nothing to do
with cascading defaults due to excessive leverage and lack of regulation.

If there's a bubble out there, it's in Asset Backed Securities (ABS) like auto
loans and credit card debt. And housing is currently looking like the bubble
that wouldn't die.

~~~
hudibras
This is the key paragraph:

 _The student loan market is now valued at $867 billion, less than 1 /25th the
size of the housing market at its bubble peak. Furthermore, all of it will not
default and the defaults that do occur will be spread over many years._

Also, just wanted to say that Dean Baker is great, that's all.

------
tokenadult
The pervasive third-party payment in higher education results in many
distortions in incentives. Consultants to colleges advise setting high list
prices, and offering "merit scholarships" that simply roll back the apparent
price of the college to near its actual value as a revenue-maximizing
strategy.[1] Very few parents shop for colleges with the free online resource
from Education Trust, the College Results website,[2] which allows comparison
of what various colleges actually spend per student on instruction. On the
whole, most people assume colleges are more similar than they actually are,
and that list price is a reliable guide to which colleges are somewhat better
(as a value proposition for the student). Neither assumption is correct.

[1] [http://www.maguireassoc.com/services-challenges/optimize-
net...](http://www.maguireassoc.com/services-challenges/optimize-net-revenue/)

[2]
[http://collegeresults.org/search1b.aspx?institutionid=166027](http://collegeresults.org/search1b.aspx?institutionid=166027)
(See the "Finance and Faculty" tab on the page comparing similar colleges for
any college you are curious about.)

~~~
acjohnson55
I'm going to push a little further.

Maybe, just _maybe_ , the root problem is our financial scheme for higher ed,
in particular, the idea of foisting the cost on the student prior to
enrollment (let alone graduation, or gainful employment). Say what you want
about our K-12 system, but its costs haven't spiraled completely out of
control. Nor have the costs of highly state-subsidized public universities in
many other parts of the world. I don't think enough people are seriously
considering the idea that we have shot ourselves in the feet by demanding that
the government and private industry make a return on investment on a basic
service that provided all sorts of positive externalities when people have
access to it. We've encouraged colleges to compete with one another for market
share.

Maybe the incentives that aren't working for us are a result of our cultural
infatuation with winner-take-all competition.

------
jack-r-abbit
It is amazing the number of comments that talk about the problems of
defaulting on loans and then place the blame in all sorts of places _other
than_ the people defaulting on loans. Unless you were forced at gun point to
sign loan papers (or other scandalous things transpired), there isn't a lot
that can convince me you are not solely responsible for your loan. I don't
care if it is for an education, a house, a car or a new pair of sneakers... if
you accepted money with the condition that you would pay it back, you are
responsible for paying it back or suffer the consequences of _not_ paying it
back. In some cases, the consequences of not paying it back might be better
than what would happen if you _did_ pay it back (like starving to death
because you can't afford to eat. or freezing to death because you can't pay
for a place to live). I'm not saying that people don't find themselves in
financial hard times and some times only have really horrible options to
choose from. But some times I feel like people _start out_ with default as an
actual option in their minds. Like it is no big thing... just Plan B. It very
much is a big thing and should be your Plan Z!

~~~
kalleboo
Because simply blaming it on the people signing the loans isn't productive,
it's just a statement of the status-quo with no solutions (shaming people
isn't going to change anything).

~~~
jack-r-abbit
Blaming it on the people signing the loans _is_ productive if it makes people
see they need to cover their debts. Nobody said anything about shaming anyone.
The only shameful thing is trying to blame others and not taking
responsibility for your decisions.

------
druiid
I really have to wonder if a lot of the changes made previously to the student
loan system are at all linked to the huge campaign contributions made by the
University of California system. Basically, any changes that have been made I
think benefit greatly the schools (including the rising tuition/costs) to the
great chagrin of students. You have a situation where the real people making
out here are school administrative types and the students and teachers get the
short end. I don't say this lightly, but I do wonder if the nearly $2 million
donation each cycle [1] (making them the top contributor in both of the last
two cycles) has something to do with how things have worked out.

As a previous (sadly I had to withdraw due to time and work commitments) UCSD
student I can tell you that student per-quarter costs went up about 25% over
the time I started and the time I left. During that period as well there were
certainly no administrators begging to have their pay brought down, only calls
to cut teachers, teaching hours, maintenance staff, etc.

During that same time period as well, there was a building boom on campus with
no stopping in construction of many new campus housing projects (even some
which have consistently NOT been anywhere near capacity), new administrative
building and a few new campus buildings here and there (where they can fit
them between all of the new administrative buildings and housing projects). Of
course this was all going on during the period that UC regents were (and
really continue to) say that the state was cutting far too much money and thus
the reasoning for raising tuition year-over-year.

So, really I guess my question is: How much did/has money 'talking' in an
election cycle contribute to the situation the entire student loan system now
finds itself? I'm by far no conservative, but I can't help but personally see
this as the public being sold out.

[1]
[http://www.opensecrets.org/pres08/contrib.php?cid=N00009638](http://www.opensecrets.org/pres08/contrib.php?cid=N00009638)

~~~
muzz
40% of UC Berkeley undergrads pay no tuition [1]

These conspiracy theories are really interesting, especially in light of the
facts.

[1] [http://newscenter.berkeley.edu/2013/04/18/campus-
announces-2...](http://newscenter.berkeley.edu/2013/04/18/campus-
announces-2013-14-freshman-admissions-decisions/)

~~~
druiid
I'm not entirely certain how your link somehow conflicts with the points I
raised. They're really entirely separate. The number of students paying no or
reduced tuition really just affects that specific group. This exists across
any university/institution and as far as I know has for quite some time...

------
dmix
Misplaced incentives all over the place. This one is going to be messy. But as
many people have pointed out, much more slow moving than the previous
financial bubble.

~~~
abstractbill
_This one is going to be messy._

As someone who really hasn't thought about it very much, I'd love for someone
to expand on this. What's the expected fallout? In the housing bubble, many
people lost the places where they lived. But it's not like someone can "take
back" your education if you default on the loan, so what happens instead?

~~~
oscilloscope
The development of adult life is stunted. It takes longer to afford to rent an
apartment on your own, buy a house, buy a car, get married, start a family,
start a business, etc. If you're college educated you probably have a broad
support network. So instead of being homeless, you move back in with your
parents.

So instead of losing your home, you may never get it in the first place.

The consequences of defaulting on a student loan are also quite severe.

[https://studentaid.ed.gov/repay-loans/default#what-are-
the](https://studentaid.ed.gov/repay-loans/default#what-are-the)

~~~
speeder
You are correct.

I am 25, and since my first serious job (I was 23) I've been in the government
category for the most rich as possible in earning amount (the category is
everyone in the top 5% of income... granted, there is still a GREAAAAT gap
between the top and low of that... I reached the top 5% with 20k USD/year)

I don't own a vehicle (not even a bicycle), much less a living place.

I think if I sum all my possessions (literally, including my clothes, glasses,
phone... without depreciation) and my debts, I am still negative.

According to my calculations, I will be able to buy my first apartment when I
am about 35 years old, unless I move back with my parents and stop paying
rent. Also I won't bother in buying a vehicle, unless it become really, really
necessary (and then, I will buy a chinese QQ or J2)

When I think about that, it is really, really, really depressing and
ridiculous.

------
astrodust
It's as if the value of a formal education has never been lower, the job
market is swamped with people that would be more qualified and experienced
than you, and the cost has never been higher.

------
ahsanhilal
The worst part of this thing is that students loans do not need to be that
high because college costs should not be that high. Student loans are
artificially high because of two reasons: 1\. Government subsidies 2\.
Increasing college costs

Government subsidies are there because the government knows that a kid who
goes to college will be able to give a better return on it 'public'
investment, since lifetime earnings for a college educated individual are
about 50-100% higher than a high school one. This will make them pay more
taxes etc.

The schools on the other hand are taking the subsidized college loans in the
form of tuition and fees and using them not to increase educational standards,
but rather, invest in extracurriculars, building etc. The government does not
tie college loan financing to college performance at all, so effectively it
just subsidizes the borrowing costs for school in the form of cheap college
loans.

(shameless plug) I wrote a blog post about this if anyone is interested to
read more:

[https://medium.com/i-m-h-o/35d383a4fbad](https://medium.com/i-m-
h-o/35d383a4fbad)

~~~
muzz
1\. Government profits from student loans. I.e., it does not subsidize them as
a whole-- rather, it makes money off them.

2\. In theory, colleges compete on cost as well as other factors. There exist
private colleges and even for-profit private colleges (although the data shows
us that for-profit private colleges often have the worst outcomes).

It's easy to blame government for problems. Easy, but not always correct.

~~~
ahsanhilal
Government subsidies towards student loans is a well known fact. Just like
government subsidized the cost of borrowing for mortgages, so has it
inculcated a perverse system of college financing. Evidence of this can be
seen in the largest increase in student defaults since 1990 at around 9.1%.
whereas car, mortgage and credit card default rates are around 1-4%. That is
called adverse selection run by a government system that is incentivized to
give out bad loans due to the profit it sees in the long term.

Colleges, in a theoretical free market might compete on cost, but in real-life
they actually are competing on providing amenities and extra curriculars, not
in any way associated with how well kids are educated. College prices,
inflation adjusted, have gone up by 120-130% in real terms, while median
family income is stagnant. Most of the increase in Net revenues in colleges is
NOT spent on paying educators since their wages and teacher/student ratios
have been increasing linearly. The rise is mostly attributed to budgetary
items for Other Employees, coaches adminstrators etc and large infrastructure
funding.

------
jack-r-abbit
This might be a foreign concept to some people, but banks are for-profit
businesses. If one of their products is not making them (enough) money,
they'll dump it... just like other businesses. The article describes
JPMorgan's announcement as "spin". They aren't spinning anything. They are
just end-of-lifing a poor performing product. Get over it.

------
asmithmd1
Huge difference between student loans and mortgages - the only pain felt will
be by the students and taxpayers who will (again!) make the lenders whole on
their bad bets:

Student loans cannot be discharged even if you declare bankruptcy - while home
owners could walk away and hand the keys to the bank.

Student loans are guaranteed by the government - the issuers just file for
compensation.

The sickening part is that once the lender gets paid in full for a non-
performing loan they buy loan back from the government for 10% or so and then
file a lien on any future earnings.

~~~
muzz
Taxpayers no longer subsidize private lenders. That ended in 2010.

~~~
twoodfin
Sure: Now they're funding the loan program directly. At the moment it's
profitable, but if there are ever losses they'll come directly from the
taxpayers' pockets.

And there are indirect losses, too: Imagine the government started running a
program to pay people $20K+/year (think grants + loans) not to work for four
years, provided they paid some of it back at low, capped interest rates.
Surely a lot of people would take the government up on that offer, and instead
of being productive taxpayers, contributing to the economy and to the
treasury, they'll sit around playing XBox. Maybe it turns out that the average
college degree program is a better investment than this, even accounting for
the lost GDP and tax revenue. But there's no way to be sure, since there's no
market at work.

~~~
muzz
The government insured those loans _before_ AND _after_ the change. It was on
the hook for loan losses before and after.

The indirect effects are MASSIVE BENEFITS for taxpayers, not losses. College
graduates have lifetime income of $1M+ more than non-graduates, and this
income is of course taxed at each individual's highest marginal rate. They
have half the unemployment rate of non-graduates so they consume less
unemployment and incur fewer other costs to government.

------
abdophoto
Every kid I come across that plans to go to college I tell them to find the
cheapest route possible. Start at either a good community college or go to a
public in-state school. You can still go to a good college for a reasonable
price, but it seems more and more that kids are taking the more expensive
route (dorms, out-of-state, etc).

~~~
tzs
For kids from poor or middle class families, Princeton, Harvard, Yale and
Caltech will usually cost less than an in-state public school when it comes to
what the student and his family actually have to pay.

In-state public school has a lower sticker price, but have less non-loan need-
based aid so students have to come up with a high percentage of the sticker
price. The top private non-profit schools have higher sticker price, but
provide a lot more non-loan need-based aid, so students have to pay a much
lower percentage of the cost. At Princeton, for example, the average debt at
graduation is only $5k.

~~~
checker
I wish that I knew this when I was a senior. I saw the number with four zeros
per semester and ran.

------
bayesianhorse
Just because people shout "bubble" at any exponential growth phenomenon
doesn't really mean we can tell when "the bubble bursts". Crashes in growth
curves are always unpredictable. You can predict that there will be a crash,
but telling when it's going to happen, that's the hard part....

~~~
zanny
Student loans look like they should be easier to predict than anything else.
You can't see a bubble burst untill the inability to default is lifted. Until
then, there is no defaulting, so there is no loss of confidence. The only
metric to measure is how few payments people are making on their outstanding
loans. For example, I only pay the minimum since I'm unemployed. I've drained
around $300 of my savings just on minimum student loan payments.

~~~
bayesianhorse
At some point the banks will recognize that you won't ever pay all of the loan
back, and then they have to write off a large portion of that debt.

If that realization happens too quickly for too many student loans, then there
might be a sudden crash. Doesn't look like it yet though.

------
everettForth
No, it's not. Not even close, and this is really terrible reporting. It's
unfortunate that so many young people are carrying large amounts of student
loan debt, but there is no sign of a "bubble" bursting any time soon. I don't
even understand how the notion of a "student loan bubble" makes sense, since
people don't "speculate" on college like they speculate on real estate.

There are so many things wrong with the idea of a "bubble" popping. People
can't walk away from student loan debt, like they can walk away from real
estate debt. Interest rates are expected to rise, but only slightly with the
90-day T-bill yield. Not the insane rates 20% rates that banks were hitting
people with in the subprime crisis.

People may find diminishing returns for college vs the rising costs, but that
isn't the same thing as banks suckering people in with ARMs and then using
leverage to make huge speculations on CDO's that lost 90% of their value.

Here's a madeup example from the subprime crisis. Someone puts $0 down and
buys a $500k home with a loan from the bank. The bank expects to make $500k in
interest over the lifetime of the loan due to ballooning interest. Now, let's
say variable interest rates from the loan kicks in, and the person can no
longer make his monthly payments.

In the past, when the real estate market was good, he could just sell the
house for $600k, and keep a profit. But, lets say now the price of the home
dropped to $300k. There is no way you are going to expect someone who put $0
down on a home he bought 2 years ago to cover $200k in debt for a home he
doesn't even own any more due to foreclosure. So, now, instead of having
something worth $500k in profit, the bank owns something that is a $200k loss.

Banks lost over a trillion dollars worth of assets in a matter of weeks.

Look at what was happening for years before the crisis though. In those times,
it was very likely that a home could increase in value from $500k to $600k in
a few years. How was that happening? A lot of it was because people figured
out that they could put $10k down, and do this to make $100k, or 10x their
investment in a few years. The true speculators are the people who just bought
real estate only because they thought the price would keep going up. This in
turn drives up the price without being tied to any kind of intrinsic value.

You simply don't have that kind of pure speculation in the college loan
industry because you can't just buy and sell college degrees.

Also, people aren't just going to declare bankruptcy from their student loans
in the same way as the subprime crisis because they legally can't. Wages can
be garnished from student loans, and it's extremely hard to have the debt
erased due to bankruptcy.

The "bubble" scenario is sensational, because everyone sees a trillion dollars
evaporate in a few weeks. Instead, in the case of student loans, I think that
we may see something just as bad for the economy, but it will happen over
years, not weeks.

In a lot of ways, I think that's why this problem may be worse, because it may
be just as bad, but much harder to notice than the subprime crisis.
Journalists think that the only sign of economic failure is when a "bubble"
pops though, which just isn't true. Slowed growth over 20 years could be just
as bad if not worse.

~~~
MattGrommes
I'm not arguing since you know way more about this than I do but I'm curious:
I've thought of a lot of the problem with the college loan situation as
exactly "speculation" since people are gambling that the job they get on the
other side is going to let them pay off the giant loans easily. No, people
don't buy and sell degrees but isn't there a lot of speculation type behavior
going on?

~~~
skylan_q
_I don 't even understand how the notion of a "student loan bubble" makes
sense, since people don't "speculate" on college like they speculate on real
estate._

This is exactly what's going on. They're making the bet that they'll be in
demand later and able to pay off their loans. Just like buying a house and
being able to make money from it later. After all, everyone had a rationale as
to why the price of their house would increase just like they do about the job
market turning around for people with a degree/diploma in X.

~~~
msprague
Except that you can't declare bankruptcy and walk away from a student loan,
like you can with a house. The idea of a bubble bursting is the idea that all
of the money will disappear at once, but instead what will happen is people
will be plagued with debt that they can't repay quickly causing long term
growth problems because the college graduates will have less spending money.

~~~
kdragon
I get your point at least. While one could argue that student loans are in a
speculative bubble (in regards to their actual value), existing bankruptcy
laws prevent the bubble from bursting.

Part of the collateral for student loans is, technically, your economic
freedom. It's easier for banks to assume you will pay the principal of your
debts, when government is the acting collection agency. It's very difficult to
escape garnished wages.

However, if something changes and people have a way to shed their student loan
debts, I think the bubble will pop very quickly.

------
rayiner
I'm not sure JPM getting out of the student loan market means it's about to
burst. The government's entering the market means that simply no one is
interested in getting private student loans.

Under the government's new program, PAY-E, your payment is capped at 10-15% of
discretionary income and unpaid interest capitalization is capped at 10% above
the original principal amount. Debt is forgiven after 20 years.

Basically, there is no way for private lenders to compete with these generous
terms. For the moment, at least, the government's program is running solidly
in the black (indeed, with a big profit margin).

------
Tloewald
The problem with student loans is that they drive up the cost of education by
reducing the perception of up-front cost. The solution is to abolish them and
let the market deal with it. Universities can switch over to being athletic
clubs and government funded think-tanks or something.

It boggles the imagination that NYU charges something like $60,000 tuition per
student per year on top of all its other sources of revenue.

------
npguy
Here is some perspective on the size of US student loans:

[http://statspotting.com/outstanding-student-loans-in-the-
us-...](http://statspotting.com/outstanding-student-loans-in-the-us-is-more-
than-chinas-total-external-debt/)

------
unono
Perfect opportunity for hackers.

Employers pay big money to find employees. Students pay big money to get
educated to get a job.

Hackers roll in with apps that allow students to do courses for free on the
smartphone/tablet, sell the info of the students to employers, who then hire
the students. Everyone wins. Hackers are proclaimed heros.

~~~
jlgreco
So... an online college with a placement department.

~~~
unono
No.

A free app.

The data points of the app users are sold to employers.

~~~
jlgreco
The only difference here is who is paying who. _" Run an online university. Oh
yeah, the university is an app, not a website, and therefore super trendy."_
is not a _" perfect opportunity for hackers"_. The actual software involved
with such a proposal is chump-work.

~~~
unono
Writing a really good app that is both enjoyable for students and a rigorous
test of ability that employers are looking for is not chump work.

If you can show employers that your app truly tests useful abilities they
would be lining up. The current education system fails at producing workers
with the right skills and employers are always complaining abou this.

~~~
jlgreco
What you are looking for is Khan Academy. Khan Academy with enough content,
with sufficiently _rigorous_ content, with sufficiently rigorous _evaluation_
, to become accredited so that employers will value their assessment of a
students worth. Actually, they would need to be _better_ than merely being
accredited, since employers sure aren't bending over backwards to pay
accredited universities serious cash for access to their students.

See, what is Khan Academy really lacking at this point? Is the hard part their
website with youtube hosted videos? Are they really just jonesing for some
mobile developers? Or is producing quality content with broad coverage _and_
depth their bottleneck?

Making an app is the easy part. Education is not failing for want of an app.
Certainly not for want of a gamified app.

But hey, I can't stop you. Knock yourself out. Hell, pitch it to YC; I hear
they are doing non-profits now.

~~~
unono
No, this ain't non-profit, it's big profit stuff.

Khan academy is definitely not it. They teach traditional curriculum which is
isn't useful to business.

The app is definitely isn't the easy part - it is basically the whole part.
The current education system is a failure for 2 reasons

\- unanalyzed teaching

\- unmotivated students

Apps solve both problems, every user interaction recorded and analyzed,
gamification.

You can turn it around even and starting hiring those students yourself and
create your own megacorp with the best employees and make megabucks.

~~~
jlgreco
1) The absolute _last_ thing this world needs is more for-profit education,
_particularly_ for-profit education that has somebody else foot the bill. Do
yourself a favor and try to sell this idea as non-profit; I was giving you the
benefit of the doubt by assuming it was.

2) An app that teaches people things but doesn't have anything to teach them
is worthless. _Of course_ the software is the easy part...

If you really think a for-profit Khan Academy that teaches...
nontraditional... curriculum, but doesn't actually have any content since you
seem to be completely ignoring that problem... is what the world really needs,
then pitch it to YC as a for-profit startup. I ain't stopping you...

~~~
unono
I think we'll keep disagreeing about this.

I think your argument comes from the traditional 'liberal arts' education
angle.

I'm coming more from vocational type place. More of a rentacoder/odesk done
more comprehensively.

Anyway, adios

~~~
jlgreco
I'm not worried about liberal arts education. I couldn't care less about that.

I'm just wondering how you think making an app would be the difficult part of
teaching thermodynamics or fluid mechanics to people.

~~~
unono
Khan got famous for explaining concepts really well. There were plenty of
online stuff covering it already. He just did a superior product.

Same with the app. It needs to be excellent, something Steve Jobs would be
proud of, and it will make dent in the universe.

This is big, heady, stuff, and we'll kill the ed business with it. I like
nothing better than to see government jobs disappear.

~~~
gurumeditation
Why would it need to be an app at all? It has zero benefits over being a
website and requires students to buy an expensive piece of hardware to access
it.

------
teeja
Health, housing, education. What's the next sector for the relentless blood
funnel?

------
beambot
This link explains the "bubble" completely: _The Most (And Least) Lucrative
College Majors, In 1 Graph_ [1]. Make this a mandatory ACT / SAT question so
that people quit making poor value decisions: STEM >> arts and humanities in
terms of median earning power.

[1] [http://www.npr.org/blogs/money/2013/09/09/219372252/the-
most...](http://www.npr.org/blogs/money/2013/09/09/219372252/the-most-and-
least-lucrative-college-majors-
in-1-graph?utm_source=npr&utm_medium=facebook&utm_campaign=nprfacebook)

------
frozenport
I am confused because you cant avoid atudent loans, theee is no bankruptcy -
they will take your money before your employer pays you. How could it burst if
studentsl will eventually pay all of it off?

------
canvia
Universities should issue the loans themselves so that they have an incentive
to deliver a quality, useful education that has value in the marketplace to
guarantee their repayment.

Or make the education free and a % of each graduate's future earnings (up to
some max $ amount or limit it to 20 years after graduation) are paid back into
the endowment to fund future students.

------
PhasmaFelis
I've got about $10,000 worth of student loans that I've been steadily paying
off. What sort of effect might this have on me?

~~~
everettForth
If your interest rates are not fixed, they are likely to go up next year.
Sorry, if you were hoping for a handout.

~~~
PhasmaFelis
Hah, do I look stupid? I was just wondering how bad I'll get burned.

------
sprash
I still don't understand why people don't just go to Europe:

[http://www.studyineurope.eu/tuition-
fees](http://www.studyineurope.eu/tuition-fees)

I didn't pay a single cent for my education...

------
kalleboo
Thank god my country has tax-funded tuition (upper education is provided free
for all citizens), this sounds like a nightmare.

~~~
VladRussian2
they even paid us a stipend - something at the level of a minimum wage - and
we were such a lazy "lowest part of the back" students, it's a shame.

In the community college here (i went for ESL) i saw a bunch of youngsters who
go to the college and work simultaneously, and some workers at the local
Starbucks go to the state school. My respect to them.

------
kenster07
MOOC couldn't have come at a better time.

~~~
smm2000
MOOCs are solution for highly motivated students who are generally able to get
accepted by traditional universities, ace classes and graduate with little to
no debt. They are not the solution for sub-par students who go to for-profit
universities, could not get a job afterward and could not repay loans.

I consider myself reasonably motivated, graduated with almost perfect GPA and
I still struggle to complete MOOCs. It's just too difficult to force yourself
to study without outside pressure and peer support.

------
afterburner
Hey, maybe tuition will go down if loans aren't as readily available...?

~~~
muzz
Not sure why you'd think that at all

~~~
afterburner
Because if people can't afford to go (as in, can't get the money at all),
demand goes down, universities lower tuition to attract more people? It's not
perfect or necessarily what would happen, but it could happen.

------
jalayir
Just get an undergrad in India.

------
mboroi
...and I was all like,
[http://i.imgur.com/fPcPbev.png](http://i.imgur.com/fPcPbev.png)

