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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I Am A College Student, And I Think Free Tuition Is Unfair To Everyone Who's Already Paid For It

Stop expecting others to pay for you.

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I attend Fordham University, a private university in the Bronx.

I commute to school because I can't afford to take out more loans than I already do.

Granted, I've received scholarships because of my grades, but they don't cover my whole tuition. I am nineteen years old and I have already amassed the debt of a 40-year-old. I work part-time and the money I make covers the bills I have to pay. I come from a middle-class family, but my dad can't afford to pay off my college loans.

I'm not complaining because I want my dad to pay my loans off for me; rather I am complaining because while my dad can't pay my loans off (which, believe me, he wants too), he's about to start paying off someone else's.

During the election, Bernie frequently advocated for free college.

Now, if he knew enough about economics he would know it simply isn't feasible. Luckily for him, he is seeing his plan enacted by Cuomo in NY. Cuomo has just announced that in NY, state public college will be free.

Before we go any further, it's important to understand what 'free' means.

Nothing is free; every single government program is paid for by the taxpayers. If you don't make enough to have to pay taxes, then something like this doesn't bother you. If you live off welfare and don't pay taxes, then something like this doesn't bother you. When someone offers someone something free, it's easy to take it, like it, and advocate for it, simply because you are not the one paying for it.

Cuomo's free college plan will cost $163,000,000 in the first year (Did that take your breath away too?). Now, in order to pay for this, NY state will increase their spending on higher education to cover these costs. Putting two and two together, if the state decides to raise their budget, they need money. If they need money they look to the taxpayers. The taxpayers are now forced to foot the bill for this program.

I think education is extremely important and useful.

However, my feelings on the importance of education does not mean that I think it should be free. Is college expensive? Yes -- but more so for private universities. Public universities like SUNY Cortland cost around $6,470 per year for in-state residents. That is still significantly less than one of my loans for one semester.

I've been told that maybe I shouldn't have picked a private university, but like I said, I believe education is important. I want to take advantage of the education this country offers, and so I am going to choose the best university I could, which is how I ended up at Fordham. I am not knocking public universities, they are fine institutions, they are just not for me.

My problems with this new legislation lie in the following: Nowhere are there any provisions that force the student receiving aid to have a part-time job.

I work part-time, my sister works part-time, and plenty of my friends work part-time. Working and going to school is stressful, but I do it because I need money. I need money to pay my loans off and buy my textbooks, among other things. The reason I need money is because my parents can't afford to pay off my loans and textbooks as well as both of my sisters'. There is absolutely no reason why every student who will be receiving aid is not forced to have a part-time job, whether it be working in the school library or waitressing.

We are setting up these young adults up for failure, allowing them to think someone else will always be there to foot their bills. It's ridiculous. What bothers me the most, though, is that my dad has to pay for this. Not only my dad, but plenty of senior citizens who don't even have kids, among everyone else.

The cost of living is only going up, yet paychecks rarely do the same. Further taxation is not a solution. The point of free college is to help young adults join the workforce and better our economy; however, people my parents' age are also needed to help better our economy. How are they supposed to do so when they can't spend their money because they are too busy paying taxes?

Free college is not free, the same way free healthcare isn't free.

There is only so much more the taxpayers can take. So to all the students about to get free college: get a part-time job, take personal responsibility, and take out a loan — just like the rest of us do. The world isn't going to coddle you much longer, so start acting like an adult.

Cover Image Credit: https://timedotcom.files.wordpress.com/2017/04/free-college-new-york-state.jpg?quality=85

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Pride? Pride.

Who are we? Why are we proud?

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This past week, I was called a faggot by someone close to me and by note, of all ways. The shock rolled through my body like thunder across barren plains and I was stuck paralyzed in place, frozen, unlike the melting ice caps. My chest suddenly felt tight, my hearing became dim, and my mind went blank except for one all-encompassing and constant word. Finally, after having thawed, my rage bubbled forward like divine retribution and I stood poised and ready to curse the name of the offending person. My tongue lashed the air into a frenzy, and I was angry until I let myself break and weep twice. Later, I began to question not sexualities or words used to express (or disparage) them, but my own embodiment of them.

For members of the queer community, there are several unspoken and vital rules that come into play in many situations, mainly for you to not be assaulted or worse (and it's all too often worse). Make sure your movements are measured and fit within the realm of possible heterosexuality. Keep your music low and let no one hear who you listen to. Avoid every shred of anything stereotypically gay or feminine like the plague. Tell the truth without details when you can and tell half-truths with real details if you must. And above all, learn how to clear your search history. At twenty, I remember my days of teaching my puberty-stricken body the lessons I thought no one else was learning. Over time I learned the more subtle and more important lessons of what exactly gay culture is. Now a man with a head and social media accounts full of gay indicators, I find myself wondering both what it all means and more importantly, does it even matter?

To the question of whether it matters, the answer is naturally yes and no (and no, that's not my answer because I'm a Gemini). The month of June has the pleasure of being the time of year when the LGBT+ community embraces the hateful rhetoric and indulges in one of the deadly sins. Pride. Marsha P. Johnson and Sylvia Rivera, the figures at the head of the gay liberation movement, fought for something larger than themselves and as with the rest of the LGBT+ community, Pride is more than a parade of muscular white men dancing in their underwear. It's a time of reflection, of mourning, of celebration, of course, and most importantly, of hope. Pride is a time to look back at how far we've come and realize that there is still a far way to go.

This year marks fifty years since the Stonewall Riots and the gay liberation movement launched onto the world stage, thus making the learning and embracing of gay culture that much more important. The waves of queer people that come after the AIDS crisis has been given the task of rebuilding and redefining. The AIDS crisis was more than just that. It was Death itself stalking through the community with the help of Regan doing nothing. It was going out with friends and your circle shrinking faster than you can try or even care to replenish. Where do you go after the apocalypse? The LGBT+ community was a world shut off from access by a touch of death and now on the other side, we must weave in as much life as we can.

But we can't freeze and dwell of this forever. It matters because that's where we came from, but it doesn't matter because that's not where we are anymore. We're in a time of rebirth and spring. The LGBT+ community can forge a new identity where the AIDS crisis is not the defining feature, rather a defining feature to be immortalized, mourned, and moved on from.

And to the question of what does it all mean? Well, it means that I'm gay and that I've learned the central lesson that all queer people should learn in middle school. It's called Pride for a reason. We have to shoulder the weight of it all and still hold our head high and we should. Pride is the LGBT+ community turning lemons into lemon squares and limoncello. The lemon squares are funeral cakes meant to mourn and be a familiar reminder of what passed, but the limoncello is the extravagant and intoxicating celebration of what is to come. This year I choose to combine the two and get drunk off funeral cakes. Something tells me that those who came before would've wanted me to celebrate.

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