
The Student Loan Crisis Is Overblown - BDGC
http://www.npr.org/sections/ed/2016/07/28/487032643/is-the-student-loan-crisis-fact-or-fiction
======
ScaryRacoon
I think a big point that wasn't touched on in the article (maybe her book
does, I haven't read it) is that the increased debt load on students means
they are delaying or forgoing buying other major purchases, such as homes and
cars. Both of which are huge economic drivers. It isn't that people can't
afford the loan payments, it is that the loan payments are reducing the
disposable income of those students for quite some time.

~~~
rahimnathwani
I can see how car buying increases GDP (as each new car must be produced) but
the same doesn't necessarily apply to home buying. Home supply is relatively
fixed. Increases in demand cause asset price inflation, more than they do
additional homebuilding. So home purchases don't 'drive the economy' in the
sense of causing additional economic output.

~~~
freehunter
Home supply is fixed in some areas, but certainly not in all. Plenty of people
around me are buying new houses in brand new subdivisions. When I bought my
house, the sellers were moving to a brand new house. If someone hadn't bought
their house, they would't have bought a brand new house. My area is growing by
thousands of people per year, and the existing houses are already filled. If
people want to move in, they have to build more houses.

Meanwhile I buy only used cars, so me purchasing a car doesn't drive the
economy any more than buying a used house does.

~~~
rahimnathwani
Your point about used home sales enabling the sellers to buy new homes applies
equally to used cars.

But cars are different from homes:

1) No zoning preventing new cars from being built

2) Cars wear out within a decade or two

~~~
freehunter
Cars vs houses is actually a pretty interesting comparison. Houses wear out
after a decade or two as well, we're just willing to spend more money keeping
a house in good working order than we are keeping a car running. If your
central air goes out, it could cost you $7000 to fix it. If your car's engine
goes out, that repair would cost $4000. But no one throws away their house,
they just pay to get a new air conditioner put in. Few people would put a new
engine in their car, though.

The average price to replace a roof is $12,000. But again, people are more
likely to replace a roof than they are to replace an engine in their car.
They'd just scrap it and buy a new car.

Houses wear out just as fast as cars do, but we're more willing to fix our
house versus fixing our car. And it's not just a function of cost: you can get
a new modular home for $50,000 and it will last decades. The double-wide I
grew up in was installed in 1994 and there are still people living there over
20 years later. Very few people keep $50,000 cars for 20 years, though. And I
see a lot of people with $5000 used cars parked in front of $150,000 houses.
But if they bought a $50,000 brand new manufactured home, they could be
parking a BMW out front instead. And if they wanted to, they could throw the
house away just as fast as they throw away their car.

------
givinguflac
Based on my personal experience and that of friends and acquaintances, 23-24
year olds with a bachelor degree working at Starbucks (or equivalent) is not
at all rare. The 'crisis' may be overblown by the media a bit, but it is
definitely not something that can be ignored. Every media and politic
mouthpiece also said everything was perfectly fine, right up to the 2008
crash. I take anything like this with a healthy dose of salt.

~~~
erroneousfunk
It's not all that rare, but it's not as common workers _without_ college
degrees working as baristas. Here's a post from the New York Fed:
[http://libertystreeteconomics.newyorkfed.org/2016/01/working...](http://libertystreeteconomics.newyorkfed.org/2016/01/working-
as-a-barista-after-college-is-not-as-common-as-you-might-
think.html#.V5oTmZMrLq2)

Your odds of working in a low skilled service position or manual labor job
without a college degree (as a young person) are a little over 50%. With a
college degree, it's about 25%/

~~~
SerLava
Still, the remaining 25% have a lot worse financial situation due to student
loans.

------
irln
For context, this is the ramp up of student loans:
[https://fred.stlouisfed.org/graph/?g=nQY](https://fred.stlouisfed.org/graph/?g=nQY)
and
[https://fred.stlouisfed.org/series/TOTALGOV](https://fred.stlouisfed.org/series/TOTALGOV).

~~~
dursk
I think not being on a logarithmic scale makes that slightly misleading.

------
zekevermillion
Another overlooked problem is that easy debt financing (not to mention need-
based aid) inflates the cost of attending university for those who have to pay
full-price, including those who borrow the cost. This raises the sticker price
required to remain competitive as an institution, and is terribly distorting
as the many schools with no or poor endowments compete with wealthier
universities for students, professors, and capital.

~~~
fragsworth
That should only be temporary. Assuming there's competition (and it seems that
there is - no university has a monopoly), the influx of money allows the
industry to grow. The prices should level out over time.

~~~
zekevermillion
One would think that is true, that tuition is seeking a new equilibrium based
on: subsidized lending; lack of bankruptcy protection from student loans;
desire of high school grads to enroll in university. However, we do not seem
to have reached a tuition plateau yet. Further, the expensive tastes of both
public and private institutions, and the leverage undertaken by students,
means that this system overall is fragile. If there is a rapid change in
economic circumstances, we will find that overlevered students (including
those that we thought had "reasonable" debt loads) and high-cost institutions
will fail at an alarming rate. Endowments will shrink overnight. States will
slash funding for state universities / research. Tuition will not possibly be
able to come down fast enough, in those circumstances. Until then -- business
as usual!

------
Kenji
_A third of college students who earn a four-year degree graduate with no debt
at all. Zero._

Frankly, that is extremely alarming. Only a third? It's strange how people can
look at the same numbers and draw completely different conclusions.

Here's my take on the issue: The government inflated prices of education not
unlike banks inflated house prices. All the loaners of student loans should
start making provisions _now_ , and big ones at that. People are defaulting or
taking a longer time to pay back than anticipated. At the end of the day, I
anticipate nobody will act until it blows up and then the state (and thus the
common people) will pay up every single dime of this debt - just another case
of privatized profit and socialized losses, it becomes boring to watch this
game.

I suggest a radically different form of funding education. I would start a
pool for every branch of education and invite private companies to fund
education and institutes they need (which is already happening at some scale).
Then I would have the state multiply the collected amount of money by a
number, say, 2 (or whatever the public agrees to and is reasonable), and pay
that on top of the collected funds, and that is how much funding this branch
of education gets. Maybe there's some minimum too. And I'd make tuition fees
very low but still high enough to disincentivize just fooling around - full
stipends would be granted to poor people who are doing well at school and show
potential.

~~~
cgearhart
> _loaners of student loans should start making provisions now_

But it's vastly more difficult (i.e., nearly impossible) to discharge student
loan debt. Even if it takes years and years, most students will be required to
pay back what they borrowed. I don't think we need to be worried about the
bubble popping, but rather the secondary effects that the weight of student
loans will cause. For example, companies have a natural advantage negotiating
with graduates carrying debt who need a job more urgently than those who have
no debt.

> _I suggest a radically different form of funding education._

I'm slightly less radical, but along the same lines -- fund institutions, not
students. Making students into consumers forces schools to compete on features
& amenities (things students care about) rather than focusing on providing
quality education at low cost. Public colleges don't need to be country clubs
to provide an education.

~~~
Kenji
Yeah, you're right. If the student was the customer, everyone would get
perfect grades and uni would be an amusement park. The student should not be
considered the customer.

That reminds me of a first year lecture of discrete mathematics that I took.
The professor is pretty renowned and does a good job, but he's also incredibly
strict and demanding, especially when it comes to exercises and exams. I still
know pretty much all of the stuff we learned there and it's come in handy year
after year i.e. in crypto and graph theory. Anyway, we could write anonymous
feedbacks for this professor and some students really hated him. He read some
of them to us and they contained things like "you are an a * * * ole" etc. I
understand the frustration with him, it was one of the toughest courses, and
it did cause suffering, but it was also a learning experience and the students
left the course with newly acquired knowledge and skills. I'm pretty sure many
people who were mad with him were even more mad with themselves and likely
dropped out, because among the ones who passed, only few people hated him.

------
pitt1980
Yes, racking up $100K of debt may seem good because you now have a 6 figure
job which is good for the economy. However, what they don't explain is why
$100K of debt was needed, and not say $10K. Or why you shouldn't just take $1M
of student loans out because wow you'd really be productive!

~~~
gerbilly
I think universities are addicted to visa students and that drives tuitions
through the roof.[1]

Visa students don't require government funding, they just pay cash. And often
those students, who come from the rich families of the entire world, money is
no object, so tuition naturally rises to meet the price that they will bear.

Of course government funding for domestic students does not keep up with that
price inflation.

Back in the late 80s, I paid for my Bachelors by working part time jobs, and I
was a full time student. I don't think I could do that today, unless I worked
nights and never slept.

[1] Canadian universities anyway, may also apply to all north american ones.

------
jorge-fundido
When our federal government gets involved in something, the potential for
corruption is too great - there's just too much money. We saw it with
federally backed mortgages, federally backed student loans, and will see it
with federally mandated health insurance. The intentions may be good but it's
only a matter of time before opportunists screw it up.

The figures at the end of the article seem to be cherry-picked in a way to
hide the full details. Instead of telling us what a quartile looks like, why
not show the full distribution?

~~~
TheLarch
Why is the federal government more inclined to corruption than a corporation?

On the subject of corruption I can't recommend reading this highly enough:
[https://www.amazon.com/Conman-Master-
Swindler%C2%92s-Library...](https://www.amazon.com/Conman-Master-
Swindler%C2%92s-Library-Larceny/dp/0767917375)

~~~
jorge-fundido
I didn't mean to imply corruption strictly by the federal government. I meant
more broadly that whenever there is a huge pool of money, many actors
(individuals, corporations, government agencies) will do whatever possible to
get a piece of that.

A con man selling a book spilling the secrets of his cons? Sounds like a con -
I'm kidding (mostly). Reminds me of how self-help superstars peddle their
wares.

~~~
TheLarch
The book is a wild, wild ride. He regularly sold "investments" that would
ostensibly benefit the Nazis, and never did a mark make moral objections to
the investment. Another striking aspect is the value that con men put on their
props: there were cottage industries at the time to produce formal-looking
documents and fake telecommunications equipment. The Sting was surprisingly
accurate, it turns out; there really were many cons of that sort.

------
api
Maybe not in isolation. It has to be taken as part of a larger picture.

There is tremendous downward pressure on wages and has been for a long time
due mostly to outsourcing, foreign competition, and automation. All those
things are deflationary in general.

Central banks have tried to fight this via traditional inflationary monetary
policy but it's not working. Since the pressure on wages is so deep and
structural, those policies are just inflating other things. Chief among these
are housing and education because these are financed with debt.

I think this is the wider picture. It's not so much a student loan crisis as a
larger breakdown of the entire 20th century economic formula.

------
forgingahead
Related:

"Credit Crisis: The Sky is not falling [2007]":
[http://www.brookings.edu/research/papers/2007/10/mortgage-
in...](http://www.brookings.edu/research/papers/2007/10/mortgage-industry-
downs)

"Growing Foreclosure numbers don't spell doom
[2007]":[http://www.businesswire.com/portal/site/google/index.jsp?ndm...](http://www.businesswire.com/portal/site/google/index.jsp?ndmViewId=news_view&newsId=20070618005881&newsLang=en)

You can find lots more, I just did a cursory search.

------
PaulHoule
Another angle is to look at it from a business perspective.

Early on, Lending Club introduced roughly 10 categories of loans, one of which
was "Student Loan".

In the first few years the risk models worked out pretty well for the other 9
categories of loans and they turned out to be pretty good investments from the
viewpoint of the lender and roughly similar in return/risk profile.

Student loans were a disaster, with the interest mostly eaten up with
defaults. They stopped making student loans.

People think abstractly that education is a good thing, but from the viewpoint
of improving your job prospects it is a risky thing. If it wasn't for
government guarantees and subsidization, however, student loans would not
exist today except for people who don't need them. It just is not a good
business (as a business) to make loans that have a high chance people can't
pay them.

------
RcouF1uZ4gsC
Actually, this is a lot like the housing crisis. The banks lent money in
excess of the value of the home to people that could not afford the debt. With
the student loan crisis, the Federal government has been lending money to
students assuming that the value of the education is equal to what the
institution charges for it. This has resulted in severe tuition inflation and
a massive debt burden.

I think a good solution both now and going forward is to:

1) Calculate the value of the education based on the Institution, the Major,
and the Degree. We should be able to calculate this based on the Federal
student loan information cross-correlated with IRS data.

2) Forgive all debt in excess of the value of the education

3) Only finance student debt up to the expected value of the education.

This will do a lot in terms of removing the tuition market distortion and in
relieving the debt load.

~~~
blahi
So you ignore and refuse the well argumented conclusions of the book author
interviewed in the article and instead give some arbitrary opinions
because...?

~~~
RcouF1uZ4gsC
Because, I am sure we could have found a mortgage expert in 2007 to assure us
that there was no mortgage crisis.

In addition, the concept of federal government offering loans with no
independent verification (which we could easily do) as to the value of what
they are giving the loan for seems like a good way to create a bubble (see
Fannie Mae).

I agree with the author that student loans are good in that it enables people
who would otherwise have not been able to afford college to be able to get a
degree. However, student loans are an issue that a major constituency in the
United States think is an issue (see Bernie Sander's campaign). To dismiss
that concern as just due to media scare tactics does not seem reasonable.

~~~
blahi
So your argument is that the author is wrong because somebody else might have
been wrong for something that happened in the past.

Makes total sense.

------
squozzer
What bothers me most about these discussions is that no one seems to advocate
making college cheaper. The solution space always seems to gravitate towards
finding more money. I do not see how that approach can sustain itself forever.

Ditto for health care.

~~~
jorge-fundido
Agreed. As much as I personally would like to see a smaller federal gov't, I
think that if the federal gov't is going to concern itself with something big
like energy, health care, or education, then it might as well take it over
completely. As much as that scares me, it's probably better than this
perversion of a free market society that we currently have.

------
GarrisonPrime
Wow, such a misleading premise. The majority of readers will come away with
the simplistic conclusion that "there is no problem with student loans,
unemployment among the educated, etc."

Music to NPR's ears.

~~~
jorge-fundido
NPR is my go-to radio station for news but more & more it sounds like National
Propaganda Radio, but maybe I'm just turning into a grumpy old conservative.

------
dailyrorschach
I am surprised this interview seems to ignore that the larger problem is
coming from students who take loans out, but then drop out of the program
before graduating, making it even harder to pay back their loans.

This is an interesting article in The Atlantic on that subject:
[http://www.theatlantic.com/business/archive/2016/07/the-
scar...](http://www.theatlantic.com/business/archive/2016/07/the-scariest-
student-loan-number/492023/)

~~~
blahi
I'm surprised you comment without reading the article. Not really though.

>The problem is that we have a lot of people actually borrowing small amounts
of money, going to college, not completing [a degree] or completing
credentials that don't have labor market value. They tend to be older. They
tend to come from disadvantaged, middle-income families and they're
struggling. [But] not because they owe a lot of money.

~~~
dailyrorschach
Yes but the interview seems to imply that this diminishes or somehow makes the
case for the problem overblown. It says yes this is a problem, but doesn't
really go into any specifics on why it's a bigger problem for those borrowers
or that this is where the defaults are coming from. I guess I could have
worded my comment better to say that I felt it wasn't given enough attention
or depth.

------
yourareanidiot
In France if I broke my leg it's free To fix. I can go to university for 500€
per year. People of USA open your eyes not your assholes.

~~~
jbb555
It's not "free". Someone is paying for it? It's either people whop didn't gain
the benefit of either, or it's you later on, only instead of a transparent
loan, it's opaque taxes so you don't realize you are paying.

~~~
damptowel
Gov can still be considerably cheaper depending on the structure of the
underlaying circuit, how much intrest does the gov charge vis a vis the banks,
I'm sure for profit institution charge a lot more, leading to a higher
fraction of income going into repayments, depressing overall demand, thus GDP,
thus higher gov debt ratio. etc ...

------
tribune
Certainly some people are struggling with student debt, and I don't want to
look down on their struggle. From a macroeconomic standpoint, though, the
Student Loan "Crisis" is at least an order of magnitude smaller than the
Mortgage Crisis.

~~~
Phlarp
How many finance professionals were saying "I don't want to look down on
struggling homeowners, but from a macroeconomic standpoint the housing loan
"crisis" is at least an order of magnitude smaller than the early 2000's tech
bubble or the S&L scandals of the 80's" in 2006?

~~~
dragonwriter
AFAICT, pretty close to zero. There were people that were denying a problem
even existed, and people portraying it as an enormous bomb poised to go off
anytime, and very few people in the middle.

------
IanDrake
I can't help feeling this is somewhat orchestrated.

This author was an adviser to Clinton's campaign. Clinton has already said
this is a problem, but the reality is that she will do nothing about it (for
various reasons). So, it seems the best way to make that palatable to her base
is to start a new narrative that says, "there is no problem".

Like a Jedi brain trick, her followers will parrot the same thing and repeat
the cherry picked statistics in these talking points.

~~~
jorge-fundido
Especially considering how this started under Bill Clinton's administration
(see Title IV) [1]. I remember watching how proud he was of it [2][3]. Maybe
the intentions were good but coupled with the repeal of Glass-Steagall and
rise sub-prime mortgage crisis makes me wonder.

[1] [https://www.congress.gov/bill/103rd-congress/house-
bill/2264...](https://www.congress.gov/bill/103rd-congress/house-
bill/2264/text) [2]
[https://youtu.be/b1TdC9g4XBQ?t=32m28s](https://youtu.be/b1TdC9g4XBQ?t=32m28s)
[3] [http://www.pbs.org/newshour/bb/politics-july-
dec96-clinton_0...](http://www.pbs.org/newshour/bb/politics-july-
dec96-clinton_08-29/)

------
lintiness
a few points:

the same public unions that support clinton and sanders are the ones that
created the "for profit" school debt problem. many union contracts offer
mandatory pay raises for nonsense masters degrees pumped out online.

the government subsidizing student debt with artificially low interest rates
has increased the size of the load as well as the cost of said education.

~~~
givinguflac
You do understand that a massive portion of this issue is private schools
costing so much? Most private schools have nothing to do with the unions or
politics you're talking about.

~~~
lintiness
private schools cost a lot for two very important reasons: (1) consumers
believe they're worth it and (2) said consumers can borrow money to pay
tuition at extraordinarily low interest rates.

~~~
Clubber
I think one of the biggest draws to private schools is they typically don't
require admissions testing such as SAT, ACT, GMAT, etc.

Of course, when you hear "private school," many people think private high
schools, which are typically superior to public, particularly in southern US
regions. The different is these are "for-profit," which can easily be
confused, particularly by someone right out of high school.

Finally large marketing expenditures and high pressure sales targeted at
people who believe people are required, morally or legally, to be honest.

~~~
lintiness
stanford, harvard, yale, university of chicago, mit, williams, amherst,
princeton, penn, cal tech, ... all private schools that not only require
standardized test scores, but prefer top percentile.

~~~
Clubber
Replace "private" with "for-profit." I conflated the terms a bit. Many people
mistake "for-profit" schools for private schools. For profit schools are
perfectly fine with the ambiguity.

------
atkinswj
The stats regarding the horrifying amount of student debt in this country
speak for themselves. The stats regarding historically low levels of household
formation and milestone purchases (home, car, etc.) among millennials also
speak for themselves. This article is garbage.

------
eganist
This feels like when bankers thought mortgage default rates wouldn't crack 8%
back in 2007.

------
awt
The student loan "bubble" is essentially an attempt to paper over the lack of
jobs and serves as a welfare program for youth funded (as are most government
programs) with debt.

------
awt
Ha. Overblown. His wife must not owe 100K+ after being kicked out of law
school like mine.

