Saturday, December 4, 2010

Is the College Debt Bubble Ready to Explode?

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Laura Rowley
Yahoo! Finance

Kelli Space, 23, graduated from Northeastern University in 2009 with a bachelor's in sociology — and a whopping $200,000 in student loan debt. Space, who lives with her parents and works full-time, put up a Web site called TwoHundredThou.com soliciting donations to help meet her debt obligation, which is $891 a month. That number jumps to $1,600 next November.

In creating the site, Space, of course is hoping to ease her financial burden, but it's "mainly to inform others on the dangers of how quickly student loans add up," she said. So far she's raised $6,671.56, according to her site.

Space is just one example — albeit an extreme one — of a student loan bubble that may be about to burst. Over the last decade, private lenders, abetted by college financial aid offices, eagerly handed young people hundreds of thousands of dollars to earn bachelor's degrees. As a result of easy credit, declining grants and soaring tuitions, more than two-thirds of students graduated with debt in 2008 — up from 45 percent in 1993. The average debt load is $24,000, according to the Project on Student Debt.

In some respects, the student loan crisis looks remarkably like the subprime mortgage crisis. First, outstanding student loan debt has ballooned: It grew roughly four-fold in the last decade to $833 billion as of June — surpassing outstanding credit-card debt for the first time.


Secondly, defaults have soared amid a difficult job market. In 2008, the most recent year for which data are available, nearly 3.4 million borrowers began repayment, and more than 238,000 defaulted on their loans. The number of loans that went into forbearance or deferment (when borrowers receive temporary relief from payments) rose to 22 percent in 2007, from 10 percent a decade earlier, according to The Chronicle of Higher Education. Over a 15-year period, default rates range from 20 percent for federal loans to 40 percent on loans to students who attend for-profit schools, The Chronicle found.

Just as lenders offered easy no-money-down mortgages to unqualified borrowers during the housing boom, private student loan firms offered instant online approval for up to 100 percent of college costs to students, in some cases for four consecutive years. In early 2007, half of loans made by Sallie Mae, one of the industry's biggest players, were to students with no co-signers, according to Mark Kantrowitz, founder of informational Web site finaid.org.

As tuition costs have outpaced the caps on federal loans, more families have turned to private loans, which carry higher interest rates and stricter repayment rules. Last year private lenders supplied about $10 billion in loans (compared with $100 billion in federal loans). A study by the College Board found about a third of graduates in 2007-2008 had private loans. About two dozen private lenders offer student loans, and their business is growing at 25 percent annually, after a temporary decline amid the recent credit crisis, according to finaid.org.

Space, for instance, took out $12,000 in federal loans and borrowed $189,000 from private lender Sallie Mae. In an email interview, Space said she spent the money on tuition and room and board for four years; two summer semesters; a three-month study abroad program in Ireland; and books for three semesters. Some $20,000 of her debt is accrued interest. (Interest rates on her loans range from 3 percent to 9 percent.)

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RELATED ARTICLE:
4 Reasons to Change the Way We View Education



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22 comments:

Anonymous said...

Why would someone think an almost useless degree like a bachelor's in sociology is worth $200K? Sorry, but that's just plain dumb.

Anonymous said...

SOUNDS TO ME LIKE SHE HAD QUITE A LOOOOONG FUUUUUN VACATION; AND NOW WANTS OTHERS TO PAY HER WAY!

TELL HER TO GO WORK FOR THE VETERANS ADMINISTRATION; THEY'LL PAY HER $160,000 A YEAR WITH THAT DEGREE TO SIT AROUND DRINK COFFEE ALL DAY AND EUTHANIZE DISABLED VETERANS!

SHE'S PERFECT FOR THEM AND WILL FIT RIGHT IN...

Anonymous said...

I bet the same people that donate to her site would walk past a bum on the street and tell him to get a job without so much as tossing a dime his way. But, she is a college degreed beggar ... so she is worthy. People shouldn't take out huge loans for expensive schools if they aren't going into a career where they can make enough money to be able to afford to pay it back. She could have chosen a community college and gotten some training that would actually make her marketable. Or she could have just skipped school and got a job at McDonalds. Either way she wouldn't have to resort to begging ...

Anonymous said...

I agree with all the comments. I am a graduate student with upwards of $80,000 in loans. However I choose to pursue a career that will pay(hopefully), physics. It sounds to me like this is some yuppy who partied for four years off someone else's money. She took out loans to spend three months abroad in Ireland?!?!? This person is ridiculous and doesn't deserve a dimes worth of hand outs.

Mike said...

A degree in sociology? This sort of thing is what makes the US a laughing stock to other industrialized nations. (Most of which offer university education up to a PhD to their citizens for free!) If there is a system out there that is set up to screw you supremely and leave you so far under in debt, it's in the USA! The student loan issue is a ruthless scam, designed to punk people before they can even get a foothold on their life! On top of that, degrees in sociology, theology, performing arts and the like, although useless in any way to help pay back the loan taken to help pay for it, require the same tuition fees as everyone else! Parents who save for their kids college tuition are better off giving their kid that saved sum so they can start a small business, travel the world and/or invest it than to send them off to receive several more years of useless education that has nothing to do with their career aspirations. This country SUCKS!

Anonymous said...

$200,000 to be forcefed weepy holocaust fairytales by the jews that have bullied their way to the top of the education foodchain. Don't bother enslaving yourselves to jews, they're the worst tribe that Earth (more like Satan) has ever spawned.

Anonymous said...

Wrong Mike, it's not free. The tax payers pay for it. It's essentially like you and the other four commentators sending me 100 bucks each so I can go to school.

Anonymous said...

Obviously this chick is retarded.

Anonymous said...

Kellie go bankrupt chum, sell all your surplus consumerist crap, hide whats really precious and go bankrupt.
To the cynics: Allowing a 19 year old access to unimaginable credit is purely the fault of snivelling shylock b(w)anker greed. So to you tough! No child should be subjected to the world as it is just now!
Kellie walk away and start again. Not your fault at all

Anonymous said...

Student loans don't go away in bankruptcy. They just keep growing with interest and penalties until someone bails you out. Find a rich man to marry or just be good in the sack.

Anonymous said...

Student Loans are exempt from bankruptcy discharge. Bankruptcy won't help.

Anonymous said...

we had 8 kids in our family. we were always about broke. i joined the military and earned educational benefits. one benefit was free CLEP tests. i took 7 of these in one day. i earned 21 college credits. almost one full year of college in one day. total cost? $0.00. CLEP tests now cost a non-military person about $77 per. Anyone savy enough to get into college can easily cut a full year (that is 1/4 of the time/expense but trying CLEP). America's greatest educational bargain and secret. $200,000 for a lib arts BA? that is madness. she coulda saved 50,000 at least of that real easy by taking CLEP test, just sayin'...

Anonymous said...

oh yeah...one here in illinois cannot enter a casino until age 21 under penalty of law, but 18 year olds can sign on for multiple 100 thou of debt. madness.

Anonymous said...

To the idiot commenters here: college should be free, because education is a human right, and it is free in all nations where humans are a majority of the population, such as Europe and many nations in Asia. However, Americans are mostly sub-human market-worshiping social Darwinist trolls.

The solution to student debt was well described in the novel 'Fight Club.'

Anonymous said...

The bigger point is this: "Easy" money in the form of student loans drives the cost of tuition, room and board, and textbooks up. Just as home prices soared when a bubble was fueled by government intervention and the consequent maladjustments. Health care, housing, education, cash for clunkers; other peoples money collected and redistrobuted raises cost.

Mfskinner said...

This country now has no jobs for the newly graduated to take. This is the case with almost any degree, Education is the new host for the banker class parasites. We lost our jobs, manufacturing base, currency valuation, constitution and freedoms. What else would you like to give? You will give more and you know you will, because having a back bone and the will to say no and mean it just is not the American way.
Take wussy way, that is the American way. I am sickened to live here, where the women are more manly than the men.

Anonymous said...

Why hasn't anyone questioned why college costs so much? It[s because the vast majority finances it. Same goes for homes, cars and beds. The moment people start REFUSING to finance these items, the price will come down to what the average person can AFFORD. Not everyone is entitled to college. Since the recent "everyone should go to college" philosophy started, they are pumping out graduates that have no place as architects, engineers, etc. It has lowered the bar. We NEED laborers. We NEED auto mechanics, etc. Now we are left with an undereducated, debt-ridden society that is incapable of doing anything useful outside of the confines of a textbook. G-d help us (and learn to speak Mandarin).

Anonymous said...

Students need to be more educated in the major they're interested in during high school. I didn't know what I wanted to do after high school and I racked up almost $150K going through 3 different college majors before I found one in an industry that might actually pay my student loans.

It's all BS, the colleges shouldn't even offer the degree if the industry can't afford the jobs or opportunities for the student to pay back their education. Or, if those particular majors produce lower incomes, the cost of that degree should be significantly lower. Education is grossly mismanaged and college is not worth it anymore.

woody188 said...

I racked up a whopping $1,600 in loans in 5 years of college. Kellie, in the words of the immortal Bugs Bunny, is an ultra maroon.

Had a friend while I was in school that bought a Jeep Wrangler with his college loans. I'd imagine Kellie isn't being totally honest with all her expenses either.

Anonymous said...

It's scary how many kids think racking up any degree and big loans is all going to work out!... I was a dirt poor student and not inclined toward math=$, so my options have been limited as well. However, I worked, scored and maintained many scholarships, and lived very cheap. It STILL has been difficult, but I'm solvent and even got a professional degree for a fraction of what most people pay. Kids do not know how hard it is now. You must find a practical, necessary field--even if it's working as a mortician. And don't think it will "all work out." Things have changed. I frankly think it's disgusting for young people to be taking such risks.

Anonymous said...

To add, college and grad school admissions programs need to be toughened up considerably. I went to prestigious schools with rich kids whose parents basically bought them a berth in the class. They were afforded "untimed testing" procedures to get in and stay in...whatever that is?...and even had their parents or tutors do their homework.
If you don't have the capacity for real intellectual inquiry, YOU SHOULD NOT BE IN COLLEGE. College should NOT be for everyone. There are many other options and skilled trades that may be more lucrative and stable anyway!
-Tired of dealing with dummies

Indian T.v Serials said...

What was this rant about? College costs, French students, jobs for law school grads were all mentioned then dropped. This is a great example of the author doing what he complains of. Focus man and tell us what the point is. I felt like I read half of a middle shcooler's text conversation

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