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Anorak | Higher Education Is All About Debt: Pricking The University Bubble

Higher Education Is All About Debt: Pricking The University Bubble

by | 24th, October 2014

loans students

DID you sign up for Bachelor of… degree? Did you borrow money to pay your fees? The UK is not America – yet, where sky-high college fees are an affront to ideal of freedom. B ut it;s getting that way. Higher education is big business. And you owe it:

It is likely that there are at least as many adult Americans with student-loan debts outstanding as there are living bachelor’s degree recipients who ever took out student loans. That’s right: as many debtors as degree holders! How can that be? First, huge numbers of those borrowing money never graduate from college. Second, many who borrow are not in baccalaureate degree programs. Three, people take forever to pay their loans back.

Some retire before the loan the paid off.

That pension pot is shrinking: 

 “A]n estimated two million Americans age 60 and older … are in debt from unpaid student loans, according to data from the Federal Reserve Bank of New York. Its August Household Debt and Credit Report said the number of aging Americans with outstanding student loans had almost tripled from about 700,000 in 2005, whether from long-ago loans for their own educations or more recent borrowing to pay for college degrees for family members. . . . While older debtors account for a small fraction of student loan borrowers, who have accumulated nearly $1 trillion in such debt, the effect of owing a constantly ballooning amount of debt but having a fixed income can be onerous, said Senator Bill Nelson, Democrat of Florida, chairman of the Senate Special Committee on Aging.”

Not everyone pays it off. J.D. Tuccille:

Unshockingly, while defaults decline for credit card debt, mortgages and auto loans, they’re on the rise for student loans. “At 10.9 percent, the second quarter 2014 delinquency rate on student loans was more than three times that of mortgages and auto loans, and more than 3 percentage points higher than the rate of serious delinquencies on credit cards.” Apparently, young grads with overpriced sheepskins and no decent jobs in the offing have trouble meeting the tab.

That affects housing. John Aravosis observes:i

8% fewer homes will transact than normal in 2014, purely due to student debt. … Our conclusion is that 414,000 transactions will be lost in 2014 due to student debt. At a typical price of $200,000, that is $83 billion per year in lost volume.

But if you can’t afford to buy a house, don’t:

When legislators and activists say that we need low-down-payment loans because most people couldn’t possibly save up for a 20 percent down payment, what they’re really saying is that people can’t actually afford to buy a house. Helping them to go buy one anyway is not a great idea; it will work out well for some, to be sure, but it will have tragic consequences for others, and for the housing market as a whole if there’s another downturn. We just spent six years learning, the very hard way, that you can’t borrow yourself rich. That knowledge is too expensive to throw away so easily.

Maybe the amount of student debt is low?

debt

Jordan Weissman looks at the demographics:

If you talk to people who study education policy for a living, they’ll tell you that the real victims of student debt aren’t English grads who took out a bit too much money to attend the University of Michigan or Oberlin. Those kinds of borrowers usually end up just fine.

However, there is a huge contingent of working-class and minority students  some of whom are among the first of their families to attend college  –  who are getting chewed up by student debt. These are young people, and increasingly older adults, who might not have gone to college 20 or 30 years ago, but do now because the economy is brutal for job-seekers without a degree. They borrow for school, often to pay the inflated tuition at an unscrupulous for-profit institution or little-known vocational school, then frequently drop out. Suddenly, they find themselves in debt, with no degree and no guidance on how to manage their loans.

Maybe not. Pew:

In the early ’90s, only among graduates from low-income families did a majority of graduates finish college with student debt. Now, solid majorities of graduates from middle-income families (both lower-middle and upper-middle) finish with debt, and half of students from the most affluent quartile of families do the same. Among recent college graduates who borrowed, the typical amount of cumulative student debt for their undergraduate education  increased from $12,434 for the class of 1992-93 to $26,885 for the class of 2011-12 (figures adjusted for inflation). The increase in the median amount of debt by newly minted borrowers between the class of 1992-93 and the 2011-12 varied somewhat by the graduates’ economic circumstances. But regardless of family income, the typical amount owed at graduation increased about twofold over this time period.

The big money comes from overseas students:

Christopher Ingraham notes:

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The big story in student debt over the past 20 years is not   and never should have been   the few people taking on huge debt burdens, but rather that the share of  all  students graduating with  any  student debt has risen sharply:

In 1989, 22 percent of households headed by twenty-to-forty-somethings with a degree were saddled with student loan debt. That figure more than doubled by 2010, standing at 50 percent. It’s likely climbed even more since then. That number is probably an underestimate, too. Another important consideration is that the data above only go back to 1989. If we could extend it further, to

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Posted: 24th, October 2014 | In: Money, News Comment (1) | Follow the Comments on our RSS feed: RSS 2.0 | TrackBack | Permalink