I put this question here and not in Great Debates because I am looking for factual answers, here.
We all understand, more or less, how the financial crisis unfolded and why. The student loan industry is looking fairly similar, but with some striking differences (namely, instead of an overvalued house, we’re looking at an overvalued intellectual asset/credential). Tons of aid + costs that continue to rise + easily-achievable loans + people willing to take them out + employers who continue to use schools as proxies for hiring candidates… it all contributes to this upward death spiral.
So, my question is simple: What is likely to happen, here? Will something burst? Will the burst be of a different nature? What is likely to happen as a result of the burst, if it occurs? How will this change the landscape of things, understanding how the financial crisis has changed the landscape as of now?
There is a saying that “if things can’t keep going on like this - they won’t”.
What is the issue? The cost of education, long term, is to high for the value?
Then what we will see is less people choosing to go to college. Employers will compensate by choosing candidates and giving them the less intense but sufficient education for their field, or sponsoring likely candidates. (Usually, in return for guaranteed work term - which turns into indentured labour). Imports of qualified candiadates from outside the country, where education is cheaper, will surge. Students will enroll in foreign universities where tuition is cheaper.
Lawyers will become more clever at how to use the escape clause for cancelling hopeless student debt in bankruptcy. Currently, IRIC, less than 1000 people have used the “no hope” clause and interpretations are all over the map. (One lawyer said, “anyone can win the lottery, so there is no situation of absolutely no hope.”)
Obama suggested limiting student loan repayment to a fixed percentage of the person’s income.
In articles I’ve read about this possible bubble, phrases like this have been used to describe the idea that companies use college degrees as a screening criterion for entry-level positions when the degree is not really pertinent to the job’s duties. So requiring a degree is a partial substitute for actually evaluating people.
I read somewhere that a BSN bachelor’s degree is now becoming a requirement for registered nurses, even though there is no requirement to obtain a BSN to become certified as an RN. Employers are making it a requirement. I also understand that some law enforcement agencies may now be encouraging or demanding a bachelor’s degree, which historically wasn’t required.
Ah, I see. So, a medium-sized company can downsize their HR dept from eight people to five, or whatever.
Doesn’t sound like that could be a big part if the subject of this thread, unless maybe the idea is that this contributes to bigger problems, like companies having to devote more energy to on-the-job training (once they realize that the graduate’s diploma doesn’t reflect the set of specific skills they were looking for as much as they’d thought).
One of the results of the housing bubble crash was a fall in housing prices. Do you think that a student loan crash will result in cheaper education, meaning that it might be worth it to put off grad school for a few years, or do you think tuition will stay the same or go higher and fewer people will go to school?
But, when the pool of available candidates for a job gets too small - some companies will figure out that they can pay less and hire just as good a candidate by finding the smart ones without degrees and giving on-the-job training (if a degree or certain knowledge is really needed).
I don’t have any of the expertise to answer the OP, but from what I’ve gathered it isn’t really a bubble at all. Supporters of expanding student loans like Arne Duncan usually tie the loans to a future increase in skilled employment, which generates greater tax revenue than the government loses on individuals who cannot repay their loan in full.
Again, I can’t confirm that those assumptions are factual, but that is generally the argument laid out -that the government is either breaking even or getting a positive return in the long run while the overall workforce becomes more skilled with higher pay. I’m also having trouble finding documentation of Duncan’s words beyond the ambiguous
That being said, he’s been on Meet The Press, Face The Nation, The Daily Show, etc. repeating the same type of rhetoric.
Here’s a WSJ article that lays it out in more quantitative terms:
The article lacks the scope to talk about how loan dollars go in part towards salaries of teachers and university employees. A good chunk of the money will also go towards construction and beautification projects for the campuses. In other words, a fair share of the money will go back into the economy immediately. How much? Well, I can’t answer that…
There’s no real possiblity of a crash, per se, since people cannot discharge or walk away from their loans. The government can simply garnish their pay for the rest of their lives. And any losses from non-repayment that do occur will not shake the government the way they did the mortgage industry.
Many employers use college degrees/qualifications/credentials as a way to screen candidates since there are usually too many applicants for any one given spot and not enough resources/manpower to interview them all.
Also, you’ll get things like “Want to work for Goldman Sachs? Send us a resume through your school’s OCR website and we’ll interview you at your local XYZ Building next week.” If you go to Random State U, you have to pretty much claw your way to the top since nobody’s coming to cherry-pick you. This is very hard to do when so many people are sending in resumes to what amounts to a black hole. You still have to be smart to get cherry-picked from an Ivy, sure, but you don’t have to be a genius – but even with that being said, being a genius from a lesser school/no school won’t be enough to get your foot in the door.
In other words, people go to college because there is a cost to not attending, both socially and in terms of hiring. Without a college education, it’s extremely difficult to get interviews at many decent jobs without connections/referrals/in-house references/people who can vouch for you.
I remember reading about one corporation in Japan, during the heyday of Japanese dominance. The Japanese business world was very sexist. One fellow figured out he could get a very dedicated, very talented captive labour pool by hiring women (for less pay!) who had difficulty getting hired elsewhere.
The same thing here - the companies that figure out how to hire very capable but not fully educated workers, will come out ahead - and save money. We saw something similar in the computer field the last few decades - high school and college dropouts (Bill Gates? Steve Jobs? Steve Wozniak?) succeed despite not completing formal education. I also expect the variety of material available on the internet to assist with the ability to get trained away from the traditional channels.
When I graduated from Programming school (with a cert) back in 1981, there were a large number of companies who wouldn’t hire IT people without a college degree. Of course, it made no difference WHAT your degree was in, as long as you had one. You could have a degree in 14th Century Lithuanian Art, and that was good enough for them. Five and ten years later, same bullshit. Hire someone with zero programming experience but a degree in Slavic Chess Analogies, but not the guy with 10 years of actual experience.
The plunge in housing prices came for two reasons: (1) when people defaulted, banks foreclosed and put houses back on the market, putting downward pressure on prices; and (2) the growing number of defaults led banks to tighten lending standards, reducing the number of people who could buy a house and putting further downward pressure on prices.
Neither of these factors is present in the education market. No one can repossess your college education and return it to the market. And loans are originated by the government, with standards set by the political process for political reasons. I know of no evidence that there will be a tightening of eligibility that will leave fewer people with access to student loans, no matter how many people default.
So no, there will be no significant reduction in college prices. At most we may see a slowdown in the rate of increase, as students themselves become more reluctant to take out huge loans, especially for marginal majors at second tier institutions.
Fifty years ago, colleges gave students excellent value for their money. Students paid a relatively small amount and exchange they were virtually guaranteed an excellent career once they had a diploma. Because of this, a mythos grew up surrounding the American college education. People assumed that it was automatically worth the price, and that it was almost always a good idea to attend the most elite and expensive school they could get into. Most people still do assume that. I work with college-bound seniors every day and I can testify that none of them are questioning the value of a college education. Their parents, teachers, guidance counselors, etc… have been telling them for years that getting into a good college should be their only goal, or at least their biggest goal. They aren’t skeptical of the claim. They’re kids, after all.
In the past year there’s been some publicity for the cases of kids who ran up enormous debts and now can’t find jobs. Will this publicity cause the adults to start teaching their kids different priorities? I’m not seeing it yet.
The fall in housing prices accelerated the collapse of the bubble because those with onerous loans could no longer refinance, and thus were more likely to default.
The analogy for student loans would be that the excess number of college grads chasing jobs which require degrees but don’t pay well means that more college grads can’t afford to repay their loans.