The student loan bubble is at $1 trillion and growing by $40-50 billion a month. Loans are backstopped by the government. Colleges and lenders have no incentive to insure that the loans can be repaid and this increasingly toxic slop of student loans is immediately securitized. Everyone makes a bundle, no one bears any responsibility.
The student loan bubble is like the real estate bubble. And we all know how the real estate bubble turned out.
The early warning signs are already there for student debt. 27% of loans are more than 30 days past due.
Market-Ticker.org has the solution. 1) No more government-backed student loans, 2)Allow loans to be discharged by bankruptcy. This would force lenders to evaluate the risk of the loan.
It is time to stop financially raping our young adults and if we don’t, we will all deserve what they do to us in just a few short years’ time.
I agree with 2, since that does cause lenders to evaluate the loans. But I disagree with 1, since without the backing the only people that will be “eligable” for loans are the ones that don’t need it. Having gotten government-backed loans in the 90s for my college education (which was to the tune of $50K, which I’ve paid back in full already), I can tell you that without that I would have never been able to go to college. My folks were not well off, and while I did have some scholarships, it wasn’t enough to cover even half the costs. (And that was in the 90s.)
But if loans are guaranteed by the government, why would lenders need to do due diligence?
I got a student loan for a junior college in LA back when the tuition was free. The degree enabled me to become a computer programmer. I think my total for two years was $7,000. But college now is so expensive that a four year degree is probably more like $70,000. Or more. And unless it’s in a field where the graduate is instantly employable, then they become debt slaves.
Tell me, what will the bank do for “due diligence” for that student?Â
This isn’t a mortgage we’re talking about, where someone can spend a few
years building a credit score by renting. We’re talking about kids
that are 16 to 18, and have *no* credit history. Then what? Base it on their parents? So even if you’re a straight-A student, but have parents which are poor and maybe not good with money, you’re screwed? (That, btw, is exactly the state I was in.)
If they’re not at least partially guaranteed then tell me, what bank will give loans to someone who’s poor with no credit history? The fact that students could force them out in bankruptcy would be enough to make most banks take notice, and not just give loan after loan to kids for useless degrees. (So getting into $50K of debt for a BAFA would be hard, for example, where a BSCS may be a touch easier…)
Sorry, but I just don’t see banks giving student loans without some type of backing. I agree, something has to be done to stop the constant flow of loans to people for useless degrees. But stopping everyone who’s not the kid of rich people from going to college isn’t the answer.