[mattmanser]

The thing I don't understand is, how does it unravel?

It feels like politically acceptable short-termism of shunting education costs onto future generations. No-one's going to 'lose' money over it. Who will suffer? It doesn't look like it will be corporations that will suffer, save some institutions will close when the endless supply of money suddenly dries up. It looks to me like it will be governments, a political ticking time-bomb much worse than the growth of numbers of pensioners vs number of workers. Is it a potential social disaster where a lot of people will end up sent to a new version of debtors prison for a bit? Or will it massively impact future GDP of developed countries, as people won't be able to spend, they'll be paying back this onerous loans. Having the exact opposite effect that it's supposed to, instead of growing GDP by growing skills, it'll be killing it by curtailing worker spending potential. Tax revenues might fall due to higher education instead of grow.

Governments seems to be making these student loans rock-solid backed by government assurances to the detriment of future generations.

I haven't looked into it enough to know and am lucky enough to have paid all mine off as it was much smaller than today's crazy amounts.

[dv_dt]

It unravels because it's one of many systematic cuts taking wealth out of the hands of the middle and lower classes. Income after graduation is routed back into the student loans instead of going into savings (and getting max compounding early on), or going into the economy (giving steam to GDP..). Will it the straw that breaks the back of our current economic expansion? Or will it combine with current tax cuts to pull so much money out of "main stream" economic circulation that we hit another recession? I'm not sure anyone really knows.

[dnadler]

Yeah, as you say, it's not really a traditional "bubble".

From what I can tell, a few entities will suffer, but not in a spectacular fashion.

1. The government may be forced to forgive a lot of debt, thus taxpayers will suffer.

2. Those making whose student debt payments are not proportional to their income will be an economic drag on the US.

So there is no "bubble" to "pop". Rather, it looks like it's going to be a long-term economic drag on the country.

[hkmurakami]

iirc 1 is already happening, as more loans "than expected" (roll eyes) are delinquent.

[linkregister]

I think it unravels over time. The feedback loop is very long.

At some point, large amounts of young adults will accept loans that exceed the value-add of college by a significant amount. Then, those who chose not to attend college and pursued a trade will be more visibly affluent. The trend will swing the other way, universities will experience downward pressure on tuition, and trade schools will be inundated as universities are now.

Until there is a political solution, I don't see how the cycle rights itself.

Maybe better information dissemination will give young adults more ability to make the rational choice whether or not to get large loans (or what amount of loans to get). Until then, the feedback loop is too long. Furthermore, for those who chose wrongly, there's no remedy. It's a bad situation.

[rsa4046]

Man, what an interesting discussion, and a lot of good points here. As someone involved in education in US (research faculty at major private school in the South), and more recently, in Germany, I've become increasingly concerned with the large number of students graduating these days with bachelor and graduate degrees with little hope of employment, holding huge debt they have scant chance of paying off in any short time frame. This hobbles them severely. More and more I start to wonder if we could not accomplish more by shifting much of burden of instruction in all fields (arts, sciences, language, etc.), back to high school, rather than impoverishing students and loading them with college debt so early in life. Student Loan program seems to mostly be a way to transfer wealth from taxpayer to universities and of course the banks, but not necessarily producing a broadly educated populace. Agree with above comment that running education as a "business" with students as consumers produces a terrible result.

[linkregister]

Agreed, having mandatory Physics and Chemistry classes seemed wasteful to me. I enjoyed them immensely, and I would have taken them as electives.

Most of my classmates didn’t get much out of them, and would have done better with personal finance classes or other practical classes instead.

For the time being, all but two or three college majors (zoology, social work, sadly enough) are still cost-effective over a lifetime, given the median undergraduate student loan amounts. This gap is closing however.

Trades shouldn’t be considered a complete panacea, pay varies widely by regions. Some trades only pay well in one or two places.