Debt Downgrade and the Student Loan Bubble
August 7, 2011
The cost of money has just gone up. It makes sense, really, that this happened, but the disappointing part is that it was totally avoidable.
And S&P directly blames the GOP. Interesting.
The student generation is going to be paying more interest on its student loans than ever before. Many of us have worsening credit, or our financial situation is sliding. 85% of us are either just getting by or are falling behind. Now our country is slipping as a whole.
Is this a bad time to mention that we lost the medal count at the Beijing 2008 Olympics for the first time, like, ever?
In the words of the great Dr. Dre himself, “Never let me slip, cause if I slip, then I’m slippin.” America? Ya slippin?
The Student Loan Bubble
How similar are 2011 educational lending practices and 2006 home lending practices?
Housing loans = education loans
based on the American ideal of owning a home for all = based on the American ideal of higher education for all
Politicians encourage private lenders to give out home loans = Politicians encourage private lenders to give out student loans
Private lenders give you a 6-figure mortgage… but only if you have a heartbeat and a job! = private lenders give you a 6-figure student loan… but only if you have a heartbeat and an acceptance letter!
home prices collapse thanks to Wall Street greed = employment collapses thanks to corporate greed
In Plain English
The “student loan bubble” is really just a metaphor for a mass default on student loans. In plain English, this means that students will borrow money, and then later not be able to pay it back, at the new, steeper rates, that are going to be charged as a result of recent congressional inefficiency.
The debt downgrade makes life harder for students with debt.
Student debt needs to be forgivable by bankruptcy! It’s not! Let’s change the law!
Just to be clear, I’m saying this now, and I’ve been saying this for a few months now. The student loan structure in our country is going to collapse. Some people will be very angry. It won’t be pretty.
It’s taking them 2 years to even evict home owners in foreclosure! How long do you think it will take them to repo your degree?…
Trick question. They can’t. Information is free, and education is about information. We should all constantly be educating ourselves in one way or another. And because I love education, I believe that education should not force people into financial ruin.
As a result of the debt crisis, it will be harder to get money for school from the government
The money is drying up, but not because of anything to do with the educational lending industry – it’s just because the government is shutting down. Education remains as profitable for universities as ever, and their profit margins are growing.
And there is no educational cash cow bigger than our law school system. We’re looking at record unemployment for J.D.s in our country, yet we continue to pump them out at an increasingly fast rate. This is only a microcosom for education in general. I now see advertisements for higher education everywhere I go, and I’m assuming that this is true for many people.
The money they use to fund those ads, as well as their private accounts, is coming directly out of the middle class. USA is becoming synonymous with crippling wealth imbalances – multimillion dollar parties and 1 in 6 citizens going hungry on a regular basis. This is only, again, a microcosom for our world, which has even more striking wealth imbalances. I’m not saying stark equality is the best either, but I’m saying that our system is broken, and that we need to fix it. How? Trial and error.
…is the way we’re going to rise out of this bad economy. The macrohumans in our world need to start experimenting – using trial and error to discover better systems. Forget all the dumb buzzwords you’ve heard recently, you know what they are, and I won’t give them power by repeating them. Think about the situation for yourself, and think of ways that we could run our society better. Show your ideas in the comments!
The earlier we pop the student loan bubble, the better.
Meatier analysis for those who like text better than stock images and sugarcoated formatting:
Demand for student lending is growing continuously, and shows no sign of slowing down. The job market is not recovering, and the lack of hiring forces many would-be workers back into school, forming what I call the student generation: At my age, my great grandfather had packed up and moved to a different country. By this age, my grandfathers had fought in a world war. By this time, my father had a good job at a good company. Our generation, at this age, has a master’s degree.
And who finances this dramatic, quiet, social change? Private educational lending. Debtpocalypse makes money more expensive, which will dramatically contract supply. It will go, like the housing crisis, from easy as 1-2-3 to get a loan to damn near impossible. Overnight. Demand continues its rise up, fueled by low employment figures, and supply disappears… tell me econ people, what happens to price?
It pops like a champagne cork! Champagne for the owner class, that is. The wealthiest 1%. …While the rest of us go into debt to finance it. How much debt are we willing to stomach before we get up and defend ourselves? What do we do when the system is designed for you to be in debt for life? Debtors own more than you think, and money, while illusory, is a powerful mirage, and can conjure human action with more efficiency than any other force on Earth. If dodging creditors is your strategy, I hope you have a back-up plan or two (i.e. fake own death and take a vacation in Thailand for maybe a decade or two).
To put my partisan stance simply, I want the best life for the most people. I don’t care about the name, color, or mascot of your favorite macrohuman, I just want the best life for the most people. This requires action, and the red team in Washington is gridlocking all possible action while the blue team refuses to step up and do what it takes to accomplish anything. When the naysayers have more more assertive ambition than the idea people, it’s no surprise when nothing gets done. That’s why debtpocalypse is not surprising to me.
There are two factors driving up the price of student loans. One, the government will no longer be giving them out. Two, the credit downgrade increases the cost of money for the organizations borrowing money to lend to students – and I promise that they will pass this increased cost on to the students.
The first factor will actually be vastly overshadowed by the growing private student lending industry. They make a lot of money on this, and this market anomaly, inefficiency, will continue to inflate the education system with students. Eventually, most of them will default, and because you can’t repo an education, they’ll garnish wages.
This is the ultimate method of force in this game, and when it starts to be used, the backs of the middle class will crack.
Then things get so crazy that no one knows what will happen.