<story><title>The Student Loan Bubble is Starting To Burst</title><url>http://www.cnbc.com/id/101012270</url></story><parent_chain><item><author>kilroy123</author><text>A large part of the problem is all the shitty &lt;i&gt;for profit&lt;/i&gt; schools. They get students to take out large government backed loans, then are defaulting, since they can&amp;#x27;t actually get a job.&lt;p&gt;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 &amp;quot;certificates&amp;quot; &amp;#x2F; degrees.&lt;p&gt;[1] Half of all defaults are from these kind of schools.&lt;p&gt;[1] &lt;a href=&quot;http://www.businessinsider.com/career-education-corp-will-pay-9-million-to-students-after-allegedly-inflating-job-numbers-2013-8&quot; rel=&quot;nofollow&quot;&gt;http:&amp;#x2F;&amp;#x2F;www.businessinsider.com&amp;#x2F;career-education-corp-will-pa...&lt;/a&gt;</text></item><item><author>msandford</author><text>It&amp;#x27;s really too bad that the laws surrounding student loans make them artificially cheap.  You can&amp;#x27;t get rid of college debt through bankruptcy so you&amp;#x27;re basically saddled for life.&lt;p&gt;Normally the interest you pay is the combination of three things:&lt;p&gt;1.  The (inherent) time value of money&lt;p&gt;2.  Expenses the lender incurs to keep up with the debt&lt;p&gt;3.  The average default risk of those taking the loans&lt;p&gt;Student loans only price in 1 &amp;amp; 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.&lt;p&gt;But a college education is a lot like a house.  The price of a house isn&amp;#x27;t how much it&amp;#x27;s &amp;quot;worth&amp;quot;, it&amp;#x27;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&amp;#x2F;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. (&lt;a href=&quot;http://www.bankrate.com/finance/mortgages/history-of-mortgage-interest-rates.aspx&quot; rel=&quot;nofollow&quot;&gt;http:&amp;#x2F;&amp;#x2F;www.bankrate.com&amp;#x2F;finance&amp;#x2F;mortgages&amp;#x2F;history-of-mortgag...&lt;/a&gt;)&lt;p&gt;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&amp;#x27;t grow; most colleges don&amp;#x27;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.&lt;p&gt;Those on the margin prior to the change in the law still aren&amp;#x27;t able to afford college once the price increases follow the increase in available money and additional demand for degrees.&lt;p&gt;The law was changed in 1978 and it&amp;#x27;s taken quite a few years for this unintended consequence to play out.  It&amp;#x27;s really sad to see it happen.  &lt;a href=&quot;http://www.finaid.org/questions/bankruptcyexception.phtml&quot; rel=&quot;nofollow&quot;&gt;http:&amp;#x2F;&amp;#x2F;www.finaid.org&amp;#x2F;questions&amp;#x2F;bankruptcyexception.phtml&lt;/a&gt;</text></item></parent_chain><comment><author>dnautics</author><text>&amp;gt;[1] Half of all defaults are from these kind of schools.&lt;p&gt;That means half of all defaults are from the &amp;quot;other&amp;quot; kind of school.  And the loans from the &amp;quot;other&amp;quot; kind of school are much, much more than 10k +, and many of those students are &amp;quot;never landing any kind of job&amp;quot;, too.&lt;p&gt;Sounds like a LARGER part of the problem is &amp;quot;conventional&amp;quot; higher education.</text></comment>
<story><title>The Student Loan Bubble is Starting To Burst</title><url>http://www.cnbc.com/id/101012270</url></story><parent_chain><item><author>kilroy123</author><text>A large part of the problem is all the shitty &lt;i&gt;for profit&lt;/i&gt; schools. They get students to take out large government backed loans, then are defaulting, since they can&amp;#x27;t actually get a job.&lt;p&gt;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 &amp;quot;certificates&amp;quot; &amp;#x2F; degrees.&lt;p&gt;[1] Half of all defaults are from these kind of schools.&lt;p&gt;[1] &lt;a href=&quot;http://www.businessinsider.com/career-education-corp-will-pay-9-million-to-students-after-allegedly-inflating-job-numbers-2013-8&quot; rel=&quot;nofollow&quot;&gt;http:&amp;#x2F;&amp;#x2F;www.businessinsider.com&amp;#x2F;career-education-corp-will-pa...&lt;/a&gt;</text></item><item><author>msandford</author><text>It&amp;#x27;s really too bad that the laws surrounding student loans make them artificially cheap.  You can&amp;#x27;t get rid of college debt through bankruptcy so you&amp;#x27;re basically saddled for life.&lt;p&gt;Normally the interest you pay is the combination of three things:&lt;p&gt;1.  The (inherent) time value of money&lt;p&gt;2.  Expenses the lender incurs to keep up with the debt&lt;p&gt;3.  The average default risk of those taking the loans&lt;p&gt;Student loans only price in 1 &amp;amp; 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.&lt;p&gt;But a college education is a lot like a house.  The price of a house isn&amp;#x27;t how much it&amp;#x27;s &amp;quot;worth&amp;quot;, it&amp;#x27;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&amp;#x2F;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. (&lt;a href=&quot;http://www.bankrate.com/finance/mortgages/history-of-mortgage-interest-rates.aspx&quot; rel=&quot;nofollow&quot;&gt;http:&amp;#x2F;&amp;#x2F;www.bankrate.com&amp;#x2F;finance&amp;#x2F;mortgages&amp;#x2F;history-of-mortgag...&lt;/a&gt;)&lt;p&gt;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&amp;#x27;t grow; most colleges don&amp;#x27;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.&lt;p&gt;Those on the margin prior to the change in the law still aren&amp;#x27;t able to afford college once the price increases follow the increase in available money and additional demand for degrees.&lt;p&gt;The law was changed in 1978 and it&amp;#x27;s taken quite a few years for this unintended consequence to play out.  It&amp;#x27;s really sad to see it happen.  &lt;a href=&quot;http://www.finaid.org/questions/bankruptcyexception.phtml&quot; rel=&quot;nofollow&quot;&gt;http:&amp;#x2F;&amp;#x2F;www.finaid.org&amp;#x2F;questions&amp;#x2F;bankruptcyexception.phtml&lt;/a&gt;</text></item></parent_chain><comment><author>jobu</author><text>Always ask if the school is Regionally Accredited in the degree you intend to take:  &lt;a href=&quot;http://en.wikipedia.org/wiki/Regional_accreditation#Regional_accreditation_vs._national_accreditation&quot; rel=&quot;nofollow&quot;&gt;http:&amp;#x2F;&amp;#x2F;en.wikipedia.org&amp;#x2F;wiki&amp;#x2F;Regional_accreditation#Regional...&lt;/a&gt;&lt;p&gt;If not, the credits are generally non-transferrable and many businesses will simply toss your resume.</text></comment>