Student Loan Bubble

I sat through a presentation by a university on their building plans. Frankly, it made me sick. Edifice complex to the max, ultimately funded by tuition (it is a private university) which in turn could not be supported without student loans. These plans, totaling well over $100 million, were based on students mortgaging their futures. Student loans outstanding now exceed a trillion dollars, and of course they have all the same characteristics as subprime mortgages, without the ability to walk away or start over through bankruptcy. Studies show that students don’t understand what they are getting into until it is far too late, and the system is set up to conceal the facts from them.

After all, how many college students would you have on your campus if you fairly and fully disclosed the likely earnings (not the “best possible outcome”) for a given major and degree and then amortized out the cost of that education and, along with the expected tax burden on that graduate, showed them exactly how much they’d have left to live on?

The answer is this: The campus would be empty.

Actually, it turns out that emptying the campus is a useful threat if you are a public university.

Now CSU is threatening the beleaguered public, taxpayers, and prospective students with stunning enrollment cutbacks, unless—and this smells of extortion—it gets its favorite tax increases on the ballot and passed.

Of course, the vast majority of these student loans simply aren’t going to be paid – the incomes won’t be there – so ultimately the taxpayer will be on the hook. Of course. This bubble needs to get popped quickly before it ruins more lives.

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Comments

  • stephlims  On March 24, 2012 at 1:54 pm

    I agree. I think college tuition is a problem and the fact that most students can’t go to school without borrowing a crazy amount of money. And the high interest rates on student loans an even bigger problem….I finally convinced my son that he’d be better off going to a community college for the first two years then transferring to a public university instead of going to one of the private schools that he was accepted into. He would come out with over $100k in student loan debt. Does not make sense.

  • Tyro  On March 27, 2012 at 11:13 am

    Interesting to see the note about CSU schools. I was going to offer the comment that in hindsight CSU Long Beach may have been a better fit than UC Davis.
    It’s been clear to me that while having a good school is important for the first job, after that it’s another name.

    In case I don’t say it enough… Thanks.

  • r  On March 29, 2012 at 7:37 am

    I’m disappointed in an America where students are considered duped when they borrow money and are expected to pay it back.

    • ..  On April 1, 2012 at 5:51 am

      Expecting to pay back money you borrow – that good old-fashioned moral obligation has become tangled with conflicting values in America today. Get an education at any cost to become rich enough that the amount borrowed is insignificant – this message sounds pretty good to an 18 year old and their cash-strapped families. When the reality is known to the lenders and the schools – these loans can’t be paid back from the incomes the kids can reasonably expect with this education – that’s un-American.

  • ..  On April 1, 2012 at 5:34 am

    As it happens, at least some of the buildings are replacements for hurricane damage – an occupational hazard of living in Florida. Having said that, the timing was great. Two of the new buildings replace old ones that were showing their age, and the new ones are far grander than their predecessors. Thanks FEMA.

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