The college bubble: The next economic crisis?

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http://finance.yahoo.com/college-educat ... -container
Sure, the college grad mentioned in this article is an idiot for taking out $200K for a Sociology degree, but the point is:

But even moreso...

The default rates are only going to go up as more jobs are sent overseas.

Too many people are going to college. College isn't meant for everyone, and it isn't supposed to be. So in the midst of this, people like President Obama and Bill Gates are saying more people should go to college! Obviously it isn't helping with the reason most people go. The jobs are gone, which is why the loan default rates are so high. Also, check this out:

http://chronicle.com/blogs/innovations/ ... lege/27634
This mainly shows a list of percentage of people in careers that don't require college who have at least a bachelor's degree. Some of these people have just really gotten the short end of the stick, and are probably only in their current field, because they were working it in college and couldn't find a better job upon graduation:
13.40% of waiters and waitresses have at least a bachelor's degree! Along with...
29.80% of flight attendants , and
7.24% of food prep workers to name a few
Those are just the people who couldn't find a job that used their degree. What about the people who were pressured to go to college, and then decided on a fairly lucrative career path that only requires a high school diploma?...
7.27% of carpenters have at least a bachelor's, along with
7.76% of electricians
The article doesn't have data on plumbers, but I'd guess that the numbers are about the same.

Not to mention the fact that college doesn't even prepare one for the real world at all. You can be an idiot stump who doesn't have basic life skills, and still graduate:
http://www.usatoday.com/news/education/ ... asks_x.htm

That is absolutely horrible! So how do most people even belong in college at all? Actually the better question would be why do people shell out thousands of dollars per year to go "learn" at a place that doesn't even seem to teach them some of the most basic skills??

Why do colleges force their students to take 1/3-2/3 of their credits for "general education" and "elective" requirements that they probably don't want to take (especially gen eds), when all of K-12 was general education?

When and how bad will the college bubble collapse? Will this result in less people going to college? Is college even worthwhile for more than 10% of the population?

Discuss.

Well, I think that the college experience is worthwhile. At least for me it was. Of course I had tons of scholarships and grants, not much in the way of loans. I am at the end of the "baby boom" generation, and, in my day, politicians were seeking votes and making college affordable.

I think the entertainment bubble is coming up.

I remember a long time ago hearing the complaint:

"It used to be that all you needed was a high school diploma to get a job. Now, you need a college degree to get a job."

And eventually: "It used to be that all you needed was a bachelor's degree to get a job. Now, you need at least a master's."

Now, we've come around full circle in many ways.

I don't see any problem with getting a college degree, or even a PhD, and then pursuing a profession as a waiter, if it makes one feel happy. But, I am really against debt.

I'm taking college classes right now, but purely for my own enjoyment.

The problem is not so much that too many are going to college, but that no one can afford it anymore. Costs have skyrocketed. Most grant money goes towards low-income kids, but the low-income pool is growing very fast and the allotted funds can't keep up. The middle class used to be able to afford to send their kids to school, but not so much these days. When parents can't afford to foot the bill, the kid has to take out a loan if they want to go to college. It's a rare case that someone with a college degree is a waitress by choice.

I do think it's true that college isn't a good fit for everyone, for various reasons, but overall, it's a very worthwhile endeavor for many. I will say that I'm quite skeptical of these for-profit internet schools popping up all over the place. Many of them hire hard-nosed sales people who uses high pressure and aggressive tactics to meet their quotas for enrollees. It's very sketchy, but these practices are isolated to these kinds of schools.

I don't remember college being very affordable for tail end boomers like me. I went through on an ROTC scholarship but had to pay it off with a term in the military. Everyone I knew who was not in ROTC was taking out loans. My brother had an ROTC scholarship but he still had to take out loans because he took an extra year to graduate.

I agree that college shouldn't be for everyone. The problem is that anyone who is smart enough to make a good carpenter or electrician probably goes to college these days, even though they don't need to.

They're still pampering your spoiled generation. Just now it's in the ways of a now cynical generation of apathetic old far baby boomers.

Back in the days when I went to college CCNY in New York City was tuition free. And the place turned out some of the most brilliant professionals in the country. The GI Bill was a tremendous advantage in getting bright people the education they could use to become useful citizens and pay a lot of taxes. It was a great investment in the potential of the country and paid off very well. If an advanced arts major decided to become a plumber after graduation nothing stopped him and understanding the world and culture was no hindrance to working at something that paid well and sustained his family. Education is not a privilege for the potentials of a country it is a basic investment in its human resources and to thwart it by impossible expenses is to choke off the country's potential. Here in Finland higher education is tuition free and if you qualify and can do the work you get the education and the country benefits. I don't know what the hell happened to the USA to put high financial barriers against making brilliant people useful and intellectually equipped but it certainly isn't sensible and very bad for the country.

Not at all surprised.

Students loans were dischargable in bankruptcy. When I went to school, the law said if you were in repayment for 7 years in good faith, your student loan debt was treated like any other unsecured debt.

Now they can only be discharged if they pose an "undue hardship" on the borrower...next to impossible to prove for most people. Being unable to ever pay it off is not enough to get bankruptcy relief.

This all came from lots of lobbying (and likely bribing) of Congress to change the laws by the student loan companies. They saw this trend back in the 1990s if not sooner. With a worsening economy, all these college graduates are struggling just to have any income. Paying back student loans is just not possible on what most graduates are making.

Last edited by zer0netgain on 06 Dec 2010, 11:27 am, edited 1 time in total.

I wasn't aware that student loans could be discharged for anything, including undue hardship. I know they cannot be discharged in bankruptcy. There has been some false relief in the way of forbearance and refinancing based on a debt to income ratio in the last couple of years, but the debt never goes away. It's just stretched out over a longer time period. It's not uncommon for graduates to be paying back student loans for 20 or more years.

In Australia you get a massively discounted education. The loan you take out on university fees only starts to be repaid once you earn a certain income, within Australia. If you run off overseas, you dont have to pay anything back. Though I am still a bit annoyed that I have to have any loan at all, since my parents, who introduced the HECS system, did not pay anything for their own education.

It does seem odd, though--so many people going to college, and yet, such a bloody ignorant population we have.

"The government is running budget deficits! Oh my God, we better cut taxes! Heavens to Betsy, the deficits are getting bigger! We better cut taxes even more!"

Even though I was from a poor family, I was able to attend a really nice private college, thanks to a lot of scholarships and grants. Of course, many kids felt proud that their parents were wealthy enough to be able to pay for them to go there.

Student Loans are unsecured debt. Initially, they were dischargable like any other unsecured debt.

They then changed the law to require a 7 years repayment period in good faith before student loans were subject to bankruptcy discharge. That was the law when I went to college (I researched because I would never agree to any debt I could not get out from under if things went badly after the fact).

While I was in school, the student loan companies got Congress to change the law to only allow the discharge of student loans in cases of "undue hardship."

There is no black line rule of what qualifies. The Bankruptcy Courts have imposed a three-prong test to determine if "undue hardship is present....

1. Can the debtor make their monthly payment?

2. Is the debtor's financial situation likely to change for the better in the foreseeable future?

3. Has the debtor been making payments in "good faith?"

This test is problematic at best. The first prong could be negated by arguing that the IBR and ICR repayment plans cap monthly payments to 20% of a debtor's discretionary income (20% of gross income - poverty level for debtor's family size). I've not seen a court support such a stand, so it might be arguable that if a debtor can't make payments sufficient to clear a debt before it would default, this prong is met.

The second prong is problematic because nobody knows the future. If you're employed in the field to which you were trained, you might be able to show that you can't expect much to change. However, if you are underemployed, it could be argued that you choose to earn less than you could, but you might counter by being able to document that you've sought better jobs only to not be selected. There would also be an issue about how much you work. I know I can't handle working more than 40-hours per week for a long period of time, but that you don't take 2-3 jobs to try and pay off your debt could be seen as not meeting this part of the test.

The third prong is the worst. "Good faith" is a nebulous legal concept akin to "reasonable person." If you don't take 2-3 jobs to make your student loan payment, it might be argued you've not acted in "good faith." If you don't live off generic peanut butter and crackers so that you have $5 more to put towards student loans, it may be argued that you've not acted in "good faith."

At best, the only people who can get student loans discharged in bankruptcy often have to be in a situation where they are on a fixed income with increased employment options being highly improbable for any number of reasons...with documented disabilities being a factor. It is a abomination that we allow any creditor to have such a preferential position over a debtor.

The biggest spot of good news I found was a case where a person got a "undue hardship" discharge in light of the student loan carrier arguing that they could go with IBR or ICR plans to have the balance of their owed debt "forgiven" at the end of 25 years. The court recognized that while IBR and ICR "forgives" student loan debt remaining after 25 years of repayment, the IRS treats that forgiven debt as taxable income, and there is no bankruptcy relief for IRS debts. A person who can't manage to pay off student loans won't have any way to deal with the IRS liability, and the IRS' collection options are very harsh. Hence, student loan "forgiveness" can result in an "undue hardship" justifying dissolving the remaining debt via bankruptcy rather than letting it be "forgiven" when it comes due at the end of 25 years.

like many other things, higher education in america is just a big racket.

That's why it's smart to live with your parents after graduation if you want to pay off your student loans. Then you can pay them off at once instead of struggling on your own with the debt building on.

I remember President Obama promising to change those laws that screw students for life. I don't know whether he took any action or not. Certainly the Republicans won't allow him to do anything now, and will want to give more power to the college-loan-shark industry.

Anyway, in addition to the BA (with a double-major in French and Biology), I have 2 MS degrees--one in statistics, and the second in economics. For the first one, I had a teaching assistantship, which allowed me to cover the tuition costs. For the second, I was a USDA employee, and was allowed to take classes for free.

Now, I take classes at a community college.

But, I remember as a teaching assistant, trying to teach math to illiterates who had been admitted to the university, but who shouldn't have been passed beyond the second grade. Of course most of them weren't going to finish their university degrees. It was rather adbsurd, but the university took their money and gave them inexperienced (and unqualified) graduate students to try to teach them. Oh well, at least I was able to finish my MS.

I had a career as a statistician, but I really didn't like it that much, and can't work any more at all. At least I had an income.