I don't know if it's a "bubble" (I am not qualified to say that), but I can't imagine that the current trend with student loans will continue. Looking at the numbers for someone entering college in 2017, it feels nearly predatory what a good portion of private and out of state colleges are charging. Even with financial aid, $30-40k a year for 4-5 years is insane.
I was fortunate enough to have parents who made saving for my college a priority, but watching them go through the same dance with my younger brother makes me wonder how most people get it done.
There's a huge value in going to higher education, but the ever increasing cost and amount of debt people are taking on is setting everyone but the top 10% of graduates up for a life of being in debt, which is kind of horrifying. Especially since they are debts that are impossible to shed through bankruptcy.
It sure feels like a bubble to me. I don't know how many friends I have with six figures of student loans and no career, but it's a lot. Considering that those loans don't even go away with bankruptcy, it's waaaay too many.
I've noticed that younger students are starting to realize how much risk there is in something like that and shy away when my generation didn't. Maybe it's that I grew up in a "striving" middle class, but a lot of my friends were told "just go to the best college no matter what and don't think about cost you'll make tons later," which ended up to be only partially true, and only for some people.
I'm hoping that http://lambdauniversity.com will help overcome some of those things and extend opportunities to folks who can't afford that kind of risk. It's full-time computer science training for free up front, paid back as a percentage of income for a couple years after you graduate. If you don't make more than $50k/yr you never pay back.
I truly don't understand the USA sometimes. Don't you guys know that in Europe higher education is free? Well where I'm from there was a very low nominal cost but my father was a public servant so cost was waived, I literally studied CS for 0 cost. And these countries are able to afford it all! Magic!
I don't understand how people in USA are not aware of this and literally rioting in the streets. At the very least swing public opinion and voting. Don't even start talking about the we are americans we don't like taxes BS, you really think being a young adult with a 200K student loan and a $6K deductible for healthcare insurance is better than an extra ~5-10% of tax? It's truly mind boggling.
An alternative view, and one I happen to subscribe to: a balance sheet analysis shows that US debt must go up over time to support exogenous capital flows.
Whether US debt grows in the housing sector, student loans, revolving debt, etc is a function of internal, domestic dynamics (including laws, local economic structure, etc). But the total capital flow into the US exceeds the outflow; that money ends up on a balance sheet somewhere.
It's sort of the flipside to our conventional notion of trade balance, that the capital account must be equal and opposite. The difference is that capital flows are now 4-5x what's necessary to account for trade, so it's really capital movements wagging the trade dog.
The net effect of inbound capital flow into the US is people must consume more than they produce, to absorb the additional capital. That is debt. And that debt ends up somewhere, either on the government's balance sheet, in the corporate sector, or households.
It's just as likely the moral hazards of yesterday were never properly dealth with, market corrections didn't properly happen during the downturn, and we're seeing a continuation of misplaced capital. ie, far too much going into residential real estate and student loans, not enough being invested in business. I remember reading that small/medium business growth and capitalization has flatlined as the housing market flourished.
In Canada where we have a similar housing crisis nearing a peak SMB growth actually declined recently.
The thing people often forget with these 'bubbles' is that it's not just risky because people lose money in their investments, but it's a massive misallocation of capital away from productive assets. Productive things like job growth and developing new industries and expanding old ones, to increase job growth and wages... which the US desperately needs, as the whole NAFTA/globalization debate highlighted.
Yes. Pettis. Anyone on HN commenting on economics must read Pettis. In very brief his simplified thesis: One country's public policy decision to subsidize export-led growth requires another country's public policy decision to also subsidize that growth through import consumption and debt. The accounts must balance.
The US economy has been based on debt since the 1970s. The more debt increases, more goods gets imported from other countries. One other important debt is government debt, which was one of the reasons we got off the gold standard in the first place. The more government agencies such as the NSA spends, the more money gets printed. Now you see why Medicare can't negotiate drug prices too. Of course, I suspect that things like derivatives was designed to take advantage of the growth through increasing debt.
I'd like to understand this better. There's two villages. A businessman from village B comes to village A and buys a store from Bob for 100$. Bob keeps the money for a rainy day. Where is debt increasing?
Help me understand: what does 'exogenous capital flows' mean? What does 'capital flow into the US' mean? Investment in stuff physically in the borders of the US, where the money comes from outside the US?
$600B additional student debt over 10 years sounded high to me, so I did the ballpark check.
$600B over 10 years is $60B/year.
There are about 20 million college students [1].
That means $3000 per student per year on average.
If loans are paid back over 10-20 years, this really says that students are borrowing $3000 more per year than they were 10-20 years ago.
The article suggested that borrowing was about $600B total, 10 years ago, so essentially it has doubled. FWIW, CPI inflation over the last 20 years is ~50%, the other 50% is either real increase in borrowing or due to the fact that college tuition rates have been increasing faster than inflation.
$13.6 trillion is a ton of debt (literally?). At the same time, I think debt versus net worth is a more descriptive metric.
Back in 2008, household net worth (HNW) was about $56 trillion, so household debt was about a quarter of HNW. With HNW at about $93 trillion, reaching $14+ trillion in household debt doesn't sting as much.
At the same time, interest rates are still near historic lows, and may assets have appreciated because of this. I wouldn't be surprised to see real estate drop a bit as the Fed raises rates, which would take a chunk out of HNW.
Why is student loan debt not dischargable in bankruptcy? If it were, banks would be far less likely to issue them, students would find cheaper education alternatives, and universities would be forced to provide greater assistance.
Keep in-mind this household debt is above and beyond each household's share of their municipal, county, state and federal debt.
If you live in LA County, CA:
- about $4,200 in State Debt.
- roughly another $4,000 or in LA County debt.
- $161,000 in federal debt.
- $16,000 in credit card debt on average.
- Car loan, home payment, etc.
And on average your savings are minimal. Most importantly, if this isn't you, its still someone you'll be bailing out through higher taxes and/or some other shared burden.
Ironically, the more indebted we become the more dependent we are on our government to address the problems widespread indebtedness creates. This may explain why efforts to enact economic growth policies that restore 5-6% GDP growth are met with all talk and no action in most state capitals and Washington, D.C. Its almost as if they wish to intentionally drive the the country over the fiscal cliff.
What economic growth policies could we enact that would result in 5-6% GDP growth? From my admittedly limited understanding, that seems to be quite the stretch.
This appears to be an even worse situation than 2008 because housing debt has gone down not because homes are cheaper, but that people can't buy homes. And other forms of debt with far smaller effect on net-wealth and GDP as well far harsher discharge terms are eating up the difference. This makes for the same (or more) debt load in an even riskier, more individually onerous, combination.
I think it's going to hit housing hard (again), but probably not anytime soon. A lot of my friends have student loan debt that will never be paid off. They either can't get a job that pays enough to pay it off in a timely fashion or they choose not to grind for 5-8 years to pay it off. Instead, the plan is to do as little as possible for the next 25 years until it's forgiven, and try to keep as much cash off the books as possible so they can live a life worth living. I can't say I blame them. We can probably ride the debt train for the next decade or so, but at some point there will be too few buyers with capital because they spent the last two decades intentionally not building assets.
This is only possible in certain situations for certain borrowers who borrowed a certain kind of loan.
Too many people think there's forgiveness light at the end of the tunnel. I feel really bad when they realize there isn't. Except death, maybe. I bet we'll see some of that, too.
This is basically not possible in my country since there is basically no cash. Most people I know don't carry cash at all if it's not absolutely necessary for some reason.
Why not go to Germany, get a degree there (many universities offer english speaking courses) for free? You end up with much less debt (if any) and have some additional experience.
I studied in Germany in English and there were a lot of people from all over the world in my course (only 20% from Germany) but there wasn't a single person from the US. Maybe the Uni wasn't as good as Harvard but certainly better than many colleges you'd find in the US.
What keeps US students from coming to Germany and study there? It shouldn't be a visa problem nor language.
I think you underestimate how difficult it is to move to another country. Language, visas (and other bureaocracy) are indeed issues, as are uprooting one's life and moving to a foreign place; no friends, family, familiarity. Of course studying in Germany or the NL or another country where the education is taking place in English is less of a barrier than moving to a place where that isn't the case, but it is a barrier nonetheless. It can be nervewracking and overwhelming. It's a major step; much more so than simply moving to another US state for college, for example.
I say this as someone who left the US years ago to study. I adapted quite well, but I recognize what a big shift it can be.
Excellent. Which group of poor decision makers will I get to bail out soon (oh, students, superb!) while reading my daily "The Death of the Middle Class" article?
When looking at this in relation to the fact that the united states is bigger than it was 10 years ago in a number of regards. See these for less dour views:
The 100% chart is quite deceptive. Student loans take a larger share of the debt. Is that because increased tuition fees (probably), is that because more young people have become students (ie. higher education available to more people), is it because young graduates won't buy a house and still live with their parents (and thus stay in the Student Loans category instead of moving to the Mortage category) and opt for a car instead (thus moving part to the Auto Loans category)? Is it because houses (and thus underlying loans) are cheaper?
Basically all this 100% chart says is that people are taking out less of a loan for a house.
I would disagree with your last statement. The chart is ambiguous (which is just poor reporting on the part of NYTimes). It's unclear if auto loans have grown, student loans have grown, the average home loan has shrunk (or just gotten paid down since 2008), or if there is another effect in play. The 'percentage share of consumer debt' each item is isn't a useful fact on it's own.
FYI, it's not adjusted for inflation so in real terms we're likely under the peak.
The article talks a lot about debt with no mention of the income supporting it, which is a glaring oversight for any kind of financial analysis. All I can find quickly are median real numbers through 2015. It's not pretty. https://en.wikipedia.org/wiki/Household_income_in_the_United...
Germany provides excellent educational opportunities in many fields for American citizens at close to zero out of pocket expense for the student. Google "Germany Erasmus".
True... If you are a qualified American applicant you should definitely consider getting your degree in Europe/England. It's a different system, perspective but worthwhile in the end. Certainly cheaper.
I work at a major state university that is claimed to be one of the most efficient in the US. On the administrative side it is a disorganized cluster bomb, full of frivolous spending, wasteful processes, and is years behind in technology and software. The things I've seen people manually doing on a computer all day... Throw on top the spending on social justice initiatives and you have your self a fat burden to pass on to students.
The last paragraph makes the whole article seem like an advertisement:
"That made last month feel like an opportune time for Caitlin Farrell, 34, and her husband to buy their first home, a 1,500-square-foot, two-bedroom house in Sacramento. Ms. Farrell, who works as an education policy researcher, got her home loan from SoFi, a start-up online lender that moved into the mortgage market last year."
[+] [-] manacit|8 years ago|reply
I was fortunate enough to have parents who made saving for my college a priority, but watching them go through the same dance with my younger brother makes me wonder how most people get it done.
There's a huge value in going to higher education, but the ever increasing cost and amount of debt people are taking on is setting everyone but the top 10% of graduates up for a life of being in debt, which is kind of horrifying. Especially since they are debts that are impossible to shed through bankruptcy.
[+] [-] austenallred|8 years ago|reply
I've noticed that younger students are starting to realize how much risk there is in something like that and shy away when my generation didn't. Maybe it's that I grew up in a "striving" middle class, but a lot of my friends were told "just go to the best college no matter what and don't think about cost you'll make tons later," which ended up to be only partially true, and only for some people.
I'm hoping that http://lambdauniversity.com will help overcome some of those things and extend opportunities to folks who can't afford that kind of risk. It's full-time computer science training for free up front, paid back as a percentage of income for a couple years after you graduate. If you don't make more than $50k/yr you never pay back.
[+] [-] lz400|8 years ago|reply
I don't understand how people in USA are not aware of this and literally rioting in the streets. At the very least swing public opinion and voting. Don't even start talking about the we are americans we don't like taxes BS, you really think being a young adult with a 200K student loan and a $6K deductible for healthcare insurance is better than an extra ~5-10% of tax? It's truly mind boggling.
[+] [-] ryandamm|8 years ago|reply
Whether US debt grows in the housing sector, student loans, revolving debt, etc is a function of internal, domestic dynamics (including laws, local economic structure, etc). But the total capital flow into the US exceeds the outflow; that money ends up on a balance sheet somewhere.
It's sort of the flipside to our conventional notion of trade balance, that the capital account must be equal and opposite. The difference is that capital flows are now 4-5x what's necessary to account for trade, so it's really capital movements wagging the trade dog.
The net effect of inbound capital flow into the US is people must consume more than they produce, to absorb the additional capital. That is debt. And that debt ends up somewhere, either on the government's balance sheet, in the corporate sector, or households.
Major hat tip to Michael Pettis for his work describing this. His writings are dense but very digestible (http://carnegieendowment.org/chinafinancialmarkets/).
[edited a typo]
[+] [-] dmix|8 years ago|reply
In Canada where we have a similar housing crisis nearing a peak SMB growth actually declined recently.
The thing people often forget with these 'bubbles' is that it's not just risky because people lose money in their investments, but it's a massive misallocation of capital away from productive assets. Productive things like job growth and developing new industries and expanding old ones, to increase job growth and wages... which the US desperately needs, as the whole NAFTA/globalization debate highlighted.
[+] [-] rrggrr|8 years ago|reply
[+] [-] yuhong|8 years ago|reply
[+] [-] ced|8 years ago|reply
[+] [-] spenczar5|8 years ago|reply
[+] [-] thinkling|8 years ago|reply
$600B over 10 years is $60B/year.
There are about 20 million college students [1].
That means $3000 per student per year on average.
If loans are paid back over 10-20 years, this really says that students are borrowing $3000 more per year than they were 10-20 years ago.
The article suggested that borrowing was about $600B total, 10 years ago, so essentially it has doubled. FWIW, CPI inflation over the last 20 years is ~50%, the other 50% is either real increase in borrowing or due to the fact that college tuition rates have been increasing faster than inflation.
[1] https://nces.ed.gov/fastfacts/display.asp?id=372
[+] [-] Spellman|8 years ago|reply
https://inflationdata.com/Inflation/Inflation_Articles/Educa...
CNBC has a fun infographic interactive from 2014 to look at where those increases are going.
http://www.cnbc.com/2015/06/16/why-college-costs-are-so-high...
[+] [-] swyx|8 years ago|reply
[+] [-] omgwtfbyobbq|8 years ago|reply
Back in 2008, household net worth (HNW) was about $56 trillion, so household debt was about a quarter of HNW. With HNW at about $93 trillion, reaching $14+ trillion in household debt doesn't sting as much.
https://www.federalreserve.gov/releases/z1/current/z1.pdf
At the same time, interest rates are still near historic lows, and may assets have appreciated because of this. I wouldn't be surprised to see real estate drop a bit as the Fed raises rates, which would take a chunk out of HNW.
[+] [-] AnimalMuppet|8 years ago|reply
IIRC, in $100 bills, $100 million is a ton. $13.6 trillion is 136,000 tons of $100 bills.
[+] [-] hiddencost|8 years ago|reply
[+] [-] rsync|8 years ago|reply
It depends ... if trillion dollar coins only weigh an ounce, that could be less than a single pound of debt:
https://en.wikipedia.org/wiki/Trillion_dollar_coin
[+] [-] redblacktree|8 years ago|reply
[+] [-] david927|8 years ago|reply
But over time debt will inflate the economy and make net worth look like it has been raised, when in fact, it's the effect of the debt itself.
[+] [-] mdorazio|8 years ago|reply
[+] [-] libria|8 years ago|reply
[+] [-] loeg|8 years ago|reply
[+] [-] rrggrr|8 years ago|reply
If you live in LA County, CA:
- about $4,200 in State Debt.
- roughly another $4,000 or in LA County debt.
- $161,000 in federal debt.
- $16,000 in credit card debt on average.
- Car loan, home payment, etc.
And on average your savings are minimal. Most importantly, if this isn't you, its still someone you'll be bailing out through higher taxes and/or some other shared burden.
Ironically, the more indebted we become the more dependent we are on our government to address the problems widespread indebtedness creates. This may explain why efforts to enact economic growth policies that restore 5-6% GDP growth are met with all talk and no action in most state capitals and Washington, D.C. Its almost as if they wish to intentionally drive the the country over the fiscal cliff.
[+] [-] seoguru|8 years ago|reply
The monopoly issuer of the dollar is the federal government. https://www.youtube.com/watch?v=c4sD-JDVwwQ
and for the conspiracy theorists who deny the US government as the monoploy issuer: http://elliswinningham.net/index.php/2016/12/30/ridiculous-n...
[+] [-] tupshin|8 years ago|reply
[+] [-] godtoldmetodoit|8 years ago|reply
[+] [-] tsunamifury|8 years ago|reply
[+] [-] Retric|8 years ago|reply
PS: Inflation only shows up once as "The household debt figures are not adjusted for inflation" but that still renders the headline meaningless.
[+] [-] tantalor|8 years ago|reply
[+] [-] themagician|8 years ago|reply
[+] [-] thatwebdude|8 years ago|reply
Too many people think there's forgiveness light at the end of the tunnel. I feel really bad when they realize there isn't. Except death, maybe. I bet we'll see some of that, too.
https://studentloanhero.com/featured/federal-student-loan-fo...
[+] [-] staticelf|8 years ago|reply
[+] [-] dx034|8 years ago|reply
I studied in Germany in English and there were a lot of people from all over the world in my course (only 20% from Germany) but there wasn't a single person from the US. Maybe the Uni wasn't as good as Harvard but certainly better than many colleges you'd find in the US.
What keeps US students from coming to Germany and study there? It shouldn't be a visa problem nor language.
[+] [-] cr1895|8 years ago|reply
Increasingly more Americans are studying in Germany (and elsewhere).
http://www.dw.com/en/leaving-the-us-for-a-german-degree/a-18...
But,
I think you underestimate how difficult it is to move to another country. Language, visas (and other bureaocracy) are indeed issues, as are uprooting one's life and moving to a foreign place; no friends, family, familiarity. Of course studying in Germany or the NL or another country where the education is taking place in English is less of a barrier than moving to a place where that isn't the case, but it is a barrier nonetheless. It can be nervewracking and overwhelming. It's a major step; much more so than simply moving to another US state for college, for example.
I say this as someone who left the US years ago to study. I adapted quite well, but I recognize what a big shift it can be.
[+] [-] WatchDog|8 years ago|reply
[1]: https://data.oecd.org/chart/4Qct
[+] [-] NTDF9|8 years ago|reply
[+] [-] tacct142|8 years ago|reply
[+] [-] cyfihyfi|8 years ago|reply
[+] [-] rrggrr|8 years ago|reply
[+] [-] zedzedb5|8 years ago|reply
http://www.fanniemae.com/portal/media/financial-news/2017/st...
[+] [-] thetwentyone|8 years ago|reply
https://fred.stlouisfed.org/series/HDTGPDUSQ163N https://fred.stlouisfed.org/series/TDSP
[+] [-] nomercy400|8 years ago|reply
Basically all this 100% chart says is that people are taking out less of a loan for a house.
[+] [-] danesparza|8 years ago|reply
[+] [-] cheriot|8 years ago|reply
The article talks a lot about debt with no mention of the income supporting it, which is a glaring oversight for any kind of financial analysis. All I can find quickly are median real numbers through 2015. It's not pretty. https://en.wikipedia.org/wiki/Household_income_in_the_United...
[+] [-] jjawssd|8 years ago|reply
[+] [-] pilsetnieks|8 years ago|reply
However, they should look at German universities in general because they are practically free for anyone.
[+] [-] sjg007|8 years ago|reply
[+] [-] dhf17|8 years ago|reply
[+] [-] thatwebdude|8 years ago|reply
When they wanted me to pay a parking ticket. They had that shit down to an exact science.
[+] [-] mleonhard|8 years ago|reply
"That made last month feel like an opportune time for Caitlin Farrell, 34, and her husband to buy their first home, a 1,500-square-foot, two-bedroom house in Sacramento. Ms. Farrell, who works as an education policy researcher, got her home loan from SoFi, a start-up online lender that moved into the mortgage market last year."
[+] [-] theprop|8 years ago|reply
Another stunning data point is that in the wealthiest, most productive society that's ever existed, over 40 million people are on food stamps!