A thinking person would assume that, after experiencing the ravages of the tech boom and then the real estate boom and bust, most people and bureaucrats would shy away from obvious bubbles for a while. Well, the stage is fully set for a major disaster in student loans, brought to you once again by that oh-so-special blend of Wall Street greed and government idiocy.
Few would argue with the idea that a college education is a good thing, though some are challenging whether most grads get a positive return on the large investment that is required to attend college. Certainly, accountants, doctors, engineers, and numerous other occupations require a college degree, and college students learn a lot both academically and personally from attending a university. Education in general is most definitely a good thing. However, at what point does the cost of college justify considering other avenues to get a job?
The 2010 class has a smaller number of graduates working and a lower average wage than those graduates of just a couple of years ago. According to the John J. Heldrich Center for Workforce Development at Rutgers University, 22% of the 2010 graduates are not working and another 22% are working in jobs that do not require a college degree. So, nearly half of the graduates have, at least so far, not been able to take advantage of having that shiny diploma in hand. Meanwhile, this large percentage of graduates has no way to repay their student loan obligations.
The country has many fine universities, yet for-profit paper mills are not among them. The companies that run these for-profit “colleges” have made a tidy profit for their owners and investors. The benefits for most of the students are slim. “Students at for profit institutions represent only 9% of the all college students, but receive roughly 25% of all Federal Pell Grants and loans, and are responsible for 44% of all student loans defaults.” (Source: Pew). The Federal Government and Sallie Mae own hundreds of billions of dollars of student loans, but a large percentage of them will never get repaid. Of course, you and I as the taxpayers end up bearing the cost of defaulted loans, which are soaring. The graduates pay a heavy price too, as student loan debt cannot be forgiven.
So, why does a mortgage note buyer like me care about the student loan scam (other than being a concerned citizen) and how could that bursting bubble affect property values and mortgage notes? Well, if recent college graduates can’t get jobs and yet still have a huge student loan burden hanging over their heads, how can they possibly afford to buy a house! We could lose an entire generation of potential home buyers! A young family’s only options to get into a starter home may be with parental assistance or to find a property owner willing to sell using owner financing and then create a mortgage note.
So, what is the solution to this looming student loan debacle? It would seem to me that a good starting point is to crack down on for-profit schools and other institutions that have a combination of poor graduate success in the job market or a large percentage of student loan defaults. A more general and difficult problem to solve is educating the masses without further straining government budgets. Of course, I’m sure that our politicians are up to the task … right!?!
