The College Loan Bubble - More Dangerous Than You Think

The College Loan Bubble - More Dangerous Than You Think

2008 Could Happen All Over Again
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Since the Great Recession, college attendance rates have risen dramatically. This is partly because 1) the technological upheavals of the last decade made having a college degree a necessary precondition for employment; 2) Obama administration radically transformed the student financial aid program in the US, which made getting a loan for college easier than ever; and 3) social media made the college experience more visible, and 18 year old kids found the idea of postponing their adulthood to party for 4 years rather attractive for obvious reasons.

By 2013, massive amounts of government subsidies were being directed to the college loan industry. The emphasis on ‘diversity, inclusion, and equity’ lead initiatives like the Equal Opportunity Commission to recruit applicants from areas that traditionally didn't yield many college students. These students, by no fault of their own, were coming from households that couldn’t normally support the pursuit of higher education efforts past high school. But the incentive structure has been set up as to entice these folks to take out loans – under the impression that they will get a good paying job after college. Coupled with the attractiveness of participating in the college experience, these applicants happily have, and continue to agree.

These factors have directly contributed to the staggering rise in the cost of attending college. But even as the price of attending college continues to rise, demand keeps rising.

In response to growing demand, the number of 4-year colleges has increased by more than 50% since 2008. Like the students, colleges are under the impression that enrollment rates will keep rising. In an effort to capitalize on the “irrational exuberance” of the college loan industry, universities have invested billions in making their respective institutions more attractive to high school graduates.

In response to this growing demand, it can only be expected that colleges would do this; and so long as there is the demand to meet the supply, all if fine and dandy – until it isn’t.

Black Swans - low probability but high impact events like the 2008 financial crisis - have, and will again hit at the moment we least expect it. It is an irrefutable fact of the business cycle that there will be another economic downturn in the future. We can expect either a rise in inflation, wage stagnation, and or a rise in unemployment rate to plague our economy again – maybe not all at once, perhaps not to the degree that will send us into a true recession; but maybe it will.

Consider a scenario where our economy begins to stagnate, for any reason at all. Unemployment rates rise; entry-level salaries decline or stay the same (in real terms wage stagnation means wage decline because of inflation); and new college grads suddenly find it hard to get a good paying job, let alone a job at all. Perhaps college grads, who already had decent paying jobs, get laid off, and struggle to get back on their feet.

What might happen to the heavy loan burden these people still have to shoulder? We are talking tens to hundreds of thousands of dollars per person, and the institutions that supplied the funds aren’t going to just let borrowers off the hook. So the bills keep coming, large swaths of people can’t afford to pay them, and default rates start to rise.

Now universities are faced with a troubling situation: let’s backtrack. Wanting to capitalize on the euphoria in the market and draw students to their schools, institutions invest in amenities that students find attractive, like athletics and grandiose decorum; universities, like the students they recruit, take out loans to finance the projects and offer scholarships and financial aid opportunities to people who normally wouldn't be able to afford it. Under the impression that the value of their investment will continue to go up indefinitely, universities have no incentive to stop this cycle – in fact, they have an incentive to do it more.

They don't anticipate a rapid decline in enrollment rates; after all it’s unprecedented - enrollment rates have risen every year since the end of WWII. “Irrational exuberance” ensues, perpetuating the cycle to extraordinary lengths.

But what happens if a Black Swan event occurs? What happens if enrollment rates fall by magnitudes we have never seen before? If the jobs being offered to college graduates don’t offer the return on investment necessary to take on the debt to attend, people won’t go. It’s not like everyone will say “fuck it” to the whole college idea, but the number of people receiving loans will certainly decrease.

So, enrollment rates decline. College graduates and universities alike, saddled with debt, struggle to make their payments – default rates for both go up.

Now, this situation doesn't necessarily spell out catastrophe, but here we arrive at the crux of the matter: why did the collapse of the housing market lead to a global financial collapse, rather than just the housing sector itself? The short answer is because the US had over leveraged itself with the degree of debt it took on in the housing market. In other words, we invested so much of our economy in housing that what should’ve been a relatively isolated collapse ended up having out sized affects on every sector of the economy.

This may be the case with regard to student loans: at present, total US student loan debt sits at $1.5 trillion. 44.2 million Americans, nearly 1/5 of our population, have this financial cloud lingering over their heads.

Further, the US treasury Department reports that student loans account for 31% of all US government assets. Less than a decade after the passage of the Affordable Care Act, which effectively monopolized the student loan industry, the Federal Government is now the largest creditor of student loans.

With this situation, an event like the one in 2008 could very well play out with regard to student loans. The results would be catastrophic, and taxpayers will once again be left to foot the bill.

Cover Image Credit: InsideSources

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An Open Letter To Democrats From A Millennial Republican

Why being a Republican doesn't mean I'm inhuman.
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Dear Democrats,

I have a few things to say to you — all of you.

You probably don't know me. But you think you do. Because I am a Republican.

Gasp. Shock. Horror. The usual. I know it all. I hear it every time I come out of the conservative closet here at my liberal arts university.

SEE ALSO: What I Mean When I Say I'm A Young Republican

“You're a Republican?" people ask, saying the word in the same tone that Draco Malfoy says “Mudblood."

I know that not all Democrats feel about Republicans this way. Honestly, I can't even say for certain that most of them do. But in my experience, saying you're a Republican on a liberal college campus has the same effect as telling someone you're a child molester.

You see, in this day and age, with leaders of the Republican Party standing up and spouting unfortunately ridiculous phrases like “build a wall," and standing next to Kim Davis in Kentucky after her release, we Republicans are given an extreme stereotype. If you're a Republican, you're a bigot. You don't believe in marriage equality. You don't believe in racial equality. You don't believe in a woman's right to choose. You're extremely religious and want to impose it on everyone else.

Unfortunately, stereotypes are rooted in truth. There are some people out there who really do think these things and feel this way. And it makes me mad. The far right is so far right that they make the rest of us look bad. They make sure we aren't heard. Plenty of us are fed up with their theatrics and extremism.

For those of us brave enough to wear the title “Republican" in this day and age, as millennials, it's different. Many of us don't agree with these brash ideas. I'd even go as far as to say that most of us don't feel this way.

For me personally, being a Republican doesn't even mean that I automatically vote red.

When people ask me to describe my political views, I usually put it pretty simply. “Conservative, but with liberal social views."

“Oh," they say, “so you're a libertarian."

“Sure," I say. But that's the thing. I'm not really a libertarian.

Here's what I believe:

I believe in marriage equality. I believe in feminism. I believe in racial equality. I don't want to defund Planned Parenthood. I believe in birth control. I believe in a woman's right to choose. I believe in welfare. I believe more funds should be allocated to the public school system.

Then what's the problem? Obviously, I'm a Democrat then, right?

Wrong. Because I have other beliefs too.

Yes, I believe in the right to choose — but I'd always hope that unless a pregnancy would result in the bodily harm of the woman, that she would choose life. I believe in welfare, but I also believe that our current system is broken — there are people who don't need it receiving it, and others who need it that cannot access it.

I believe in capitalism. I believe in the right to keep and bear arms, because I believe we have a people crisis on our hands, not a gun crisis. Contrary to popular opinion, I do believe in science. I don't believe in charter schools. I believe in privatizing as many things as possible. I don't believe in Obamacare.

Obviously, there are other topics on the table. But, generally speaking, these are the types of things we millennial Republicans get flack for. And while it is OK to disagree on political beliefs, and even healthy, it is NOT OK to make snap judgments about me as a person. Identifying as a Republican does not mean I am the same as Donald Trump.

Just because I am a Republican, does not mean you know everything about me. That does not give you the right to make assumptions about who I am as a person. It is not OK for you to group me with my stereotype or condemn me for what I feel and believe. And for a party that prides itself on being so open-minded, it shocks me that many of you would be so judgmental.

So I ask you to please, please, please reexamine how you view Republicans. Chances are, you're missing some extremely important details. If you only hang out with people who belong to your own party, chances are you're missing out on great people. Because, despite what everyone believes, we are not our stereotype.

Sincerely,

A millennial Republican

Cover Image Credit: NEWSWORK.ORG

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Why The Idea Of 'No Politics At The Dinner Table' Takes Place And Why We Should Avoid It

When did having a dialogue become so rare?

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Why has the art of civilized debate and conversation become unheard of in daily life? Why is it considered impolite to talk politics with coworkers and friends? Expressing ideas and discussing different opinions should not be looked down upon.

I have a few ideas as to why this is our current societal norm.

1. Politics is personal.

Your politics can reveal a lot about who you are. Expressing these (sometimes controversial) opinions may put you in a vulnerable position. It is possible for people to draw unfair conclusions from one viewpoint you hold. This fosters a fear of judgment when it comes to our political beliefs.

Regardless of where you lie on the spectrum of political belief, there is a world of assumption that goes along with any opinion. People have a growing concern that others won't hear them out based on one belief.

As if a single opinion could tell you all that you should know about someone. Do your political opinions reflect who you are as a person? Does it reflect your hobbies? Your past?

The question becomes "are your politics indicative enough of who you are as a person to warrant a complete judgment?"

Personally, I do not think you would even scratch the surface of who I am just from knowing my political identification.

2. People are impolite.

The politics themselves are not impolite. But many people who wield passionate, political opinion act impolite and rude when it comes to those who disagree.

The avoidance of this topic among friends, family, acquaintances and just in general, is out of a desire to 'keep the peace'. Many people have friends who disagree with them and even family who disagree with them. We justify our silence out of a desire to avoid unpleasant situations.

I will offer this: It might even be better to argue with the ones you love and care about, because they already know who you are aside from your politics, and they love you unconditionally (or at least I would hope).

We should be having these unpleasant conversations. And you know what? They don't even need to be unpleasant! Shouldn't we be capable of debating in a civilized manner? Can't we find common ground?

I attribute the loss of political conversation in daily life to these factors. 'Keeping the peace' isn't an excuse. We should be discussing our opinions constantly and we should be discussing them with those who think differently.

Instead of discouraging political conversation, we should be encouraging kindness and understanding. That's how we will avoid the unpleasantness that these conversations sometimes bring.

By avoiding them altogether, we are doing our youth a disservice because they are not being exposed to government, law, and politics, and they are not learning to deal with people and ideas that they don't agree with.

Next Thanksgiving, talk politics at the table.

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