Student Loan Bubble

For years, America has bought into the idea that college degrees are not only badges of honor but must-have tickets that miraculously open doors for the recipients and practically guarantee lucrative careers.

Of course, they were told, you’ll have to pay off your student loans, but consider this as “good” debt – investment debt that creates value – as opposed to “bad” debt,” i.e. those car payments or travel expenses.

If that’s true, then we’re on the verge of suffocating from good debt these days.

“From where I’m sitting, the buildup of the national student loan balance looks like a massive betrayal of trust,” noted Anya Kamenetz in the Huffington Post. “People have been told for decades that this is ‘good’ debt. In fact it’s really bad debt,” she explained.

Latest figures show the “total balance of all outstanding U.S. student loans . . . is now estimated by Mark Kantrowitz of Finaid.org at more like $830 billion — $605.6 billion in federally guaranteed student loans . . .  and a further $167.8 billion in private student loans, with interest rates that hover around 18-20 percent.”

This is the first time that student loan debt has surpassed credit card debt. And while a person can opt out of extreme credit card debt through bankruptcy, the only recourse with unmanageable student loans is default, which means the government can seize “tax refunds, Social Security and disability payments until your dying day.”

Kamenetz and the HuffPo apparently believe that since the debt burden has increasingly fallen on the “nontraditional” adult, working class students attending for-profit colleges, this situation looks more and more like another mortgage bubble. “What was first depicted as an expansion of opportunity now starts to look like a massive scam perpetrated on the socially disadvantaged.”

And here’s the kicker: Apparently, the “same online sales geniuses who used to work for mortgage brokers are now employed by for-profit colleges. Their business is the same: fill out the forms, get the money, consequences be damned.”

Stay tuned.

Whether or not higher education’s bloated budgets and massive student loan debt will trigger a mortgage-like meltdown is yet to be seen. But another aspect of this story lies just under the radar – the fact that Congressional Dems and the Obama administration appear to be targeting for-profit colleges, according to John Ray in blogspot.com

“We should quickly stipulate that for-profit colleges are hardly delicate flowers of free enterprise,” wrote Andrew Ferguson in The Weekly Standard, adding that “they are creatures of government subsidies without which they would become unrecognizable. And they are happy to meet the government on its own terms.”

But Ferguson explained that articles in liberal-left publications like the Huffington Post described a Government Accountability Office report that “detailed how for-profit recruiters often promise potential students unobtainable jobs and high salaries, and tell them to lie to procure more federal financial aid.”

Sen. Tom Harkin (D-Iowa) then used the report to argue at a recent Senate Health, Education, Labor and Pensions Committee meeting hearing that “abuses in for-profit recruiting are not limited to a few rogue recruiters or even a few schools with lax oversight.”

In tarnishing for-profit schools with a broad brush, the implication is that the noose of federal regulation needs to be tightened on the entire for-profit sector.

To Ferguson, this is part of an entirely predictable process. It begins when the Obama administration takes an interest in a particular industry: “If the administration gets its way and the regulatory regime continues to tighten, the for-profit education industry won’t cease to exist. More likely, it will regress into a form of state

capitalism, as kind of a government utility: utterly dependent on government subsidy, hence utterly submissive to government authority, which can set prices and profit margins. The health care industry, with the passage of health care reform, is halfway there already.”

Deborah Lambert writes the Squeaky Chalk column for Accuracy in Academia.

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