Higher Education Bubble May Explode in Taxpayers’ Faces

by Hans Bader on March 9, 2012 · 5 comments

in Economy, Employment, Zeitgeist

“61 percent of folks with a student loan are not paying,” notes Andrew Gillen, Ph.D., of the Center for College Affordability and Productivity. Many of the non-payers are still in school, but many others have long since graduated, but are failing to make payments on their student loans. “To give you sense of how unhealthy this is, consider that after the worst housing price crash in our history, 28% of mortgages were underwater.” In short, it looks like there is a huge higher education bubble about to explode in taxpayers’ faces.

Gillen notes that there is a whopping “$870 billion outstanding balance” on student loans. Only “$85 billion” is technically classified as “past due.” But that’s because there is a “massive contingent (47%) in deferment (mostly current students) or forbearance (mostly unemployed or under-employed?).” That’s in addition to at least 27 percent who “should be repaying but aren’t,” since they aren’t in deferment or forbearance.

No one really knows exactly how many people with student loans have effectively defaulted, even though the number appears to be skyrocketing, because the government’s data is such a mess that it seems designed to obfuscate rather than illuminate the problem. Until recently, government data lumped together completely-unrelated loans into

a bucket of random obligations called “Miscellaneous”, which included things like utility bills, child support, and alimony. And it turns out that if you went burrowing in that miscellaneous debt, there was actually a pile of weirdly-categorized student loans in there. [AG: And these mis-categorized student loans were not included.] Meanwhile, the official cohort default rates from the Department of Education were even more useless. Until recently, only the two-year rate was reported. Moreover, those in forbearance or deferment were counted as repaying their loans, and it took 270-360 days of not making payments to be classified as in default. When combined with the grace period, this means that to a first approximation, the “cohort default rate” was not a default rate in any meaningful sense of the term, but rather a measure of how many students never made any payment at all.

Although for-profit colleges have been demonized by the Obama Administration (which has forced some of them to jack up tuition through tightening of the 90-10 rule, and subjected career colleges — but not traditional colleges — to “gainful employment” rules),  education expert Richard Vedder says that “the for-profits care more for their students” and care more than other colleges about whether their students get jobs and are able to repay their student loans.

The Obama Administration has also done other things that increase college costs and drive up tuition.  It has harmed American industry and students who choose not to go to college by discouraging the vocational training needed for well-paying, skilled factory work, contributing to a severe shortage of certain types of skilled factory workers.

Even as Obama pushes for students to pursue white-collar rather than blue-collar jobs, 12.8 million people are unemployed, some of them people with economically-useless college degrees in majors that teach few useful skills. Government subsidies have encouraged colleges to raise tuition, and to dumb down their courses to attract marginal students who once would not have attended college. Meanwhile, college students learn less and less with each passing year. “Thirty-six percent” of college students learned little in four years of college, and students now spend “50% less time studying compared with students a few decades ago, the research shows.” Thirty-two percent never take “a course in a typical semester where they read more than 40 pages per week.”

Willys March 10, 2012 at 10:51 am

Why don’t we imprison those who aren’t paying their student loans, rather than those who smoke pot – or even sell it. After all, which is contributing more to society? You can start with either Louie C.K. or Barack Obama. Or any political person named Clinton.

Steve Sc March 10, 2012 at 2:07 pm

I am one of the chumps paying. I guess I really need to think like the 99% and not pay.

PacRim Jim March 10, 2012 at 5:37 pm

In my experience, an exploding bubble is barely perceptible.

Linda March 10, 2012 at 10:41 pm

I totally agree with your words! I graduate this spring from BCC with an AS in Computer Information Technology. I have acquired $20K in student loans just so I could go to school. I feel as though I’m no better prepared for a career now than I was before prior to attending college. I feel as though I’ve received a “dumbed-down”, second-rate education. As a computer major, one would think I had networked computer labs/servers to practice what I’m being “taught”. Wrong!!! Only one class actually had a networked lab that wasn’t functional for half the semester and then we lost internet access once the PC’s were networked. That class was a Linux class taught by an adjunct teacher who is actually a wonderfully dedicated teacher, but he lacked the necessary resources to properly educate students. I’m worried whether or not I’ll be able to find a job when I graduate. Then when I do find a job, will it pay more than $10 per hour? How will I repay my loans? I’m worried!

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