The Spectacle Blog

Feds Are On the Hook for Student Loan Bubble

By on 11.7.11 | 12:25PM

Total student loan debt continues to skyrocket even as other kinds of consumer debt are slowly coming down in the wake of the financial crisis. It continues to get more expensive to go to college, students are leaving with a lot more debt, and they're graduating with degrees less likely to see a payoff. Oh, and the federal government owns 85% of all student loan debt.

Just like housing, many student loans were made with little or no research into whether borrowers were fit. Federal Stafford loans are basically automatic for college students, and government backing for other types of loans gave other student lenders little reason to be picky... Defaults on federal student loans jumped from 7 percent to 8.8 percent in the most recent fiscal year. That measures just recent borrowers who were already behind within two years of their first payments coming due.

One of the things that has seemed to unite a lot of the 99%ers is the complaint that a college degree isn't a ticket to universal success any more. And they're right: it's not! It used to be thought that just any college degree could get you a good-paying job in your field of choice. That's turning out not to be true. The degrees that pay are called STEM degrees: science, technology, engineering and math. Sending more kids to college to get visual arts degrees does nothing positive for the economy and is a poor individual investment decision.

Alex Tabarrok last week noted a shocking statistic: more people graduated with computer science degrees in 1985 than did in 2009. There are fewer engineers and about the same number of statisticians. But more and more kids are going to college in droves. What gives?

They're majoring in things like performing arts, communications, psychology... lots of humanities and soft sciences. And the federal government takeover of student loans - passed in the Obamacare reconciliation bill - puts the federal government on the hook for all these bad investments in humanities degrees.

There won't be a student loan bubble like there was a housing bubble. The economy won't completely collapse when it turns out that many of these degrees aren't worth the debt. But the current state of affairs, in which we think that everyone should go to college no matter what their choice of discipline, is unsustainable. Somehow, I doubt the regulators are going to catch this one either.

Send to Kindle

Like this Article

Print this Article

Print Article