Why is There a Student Loan Bubble of $1.5 Trillion?

Many people are upset that so many have such crippling student loan debt. In 2018, the Federal Reserve estimated that there is currently $1.5 trillion in unpaid student debt. For many, the answer is to cancel student loan debt and give free education, but is that really the answer? I think we should take a look at how we got here to try and decide where to go next.

1. In 1965 with the Higher Education Act, guaranteed student loans began. This was originally supposed to be a compassionate act, giving lower income students a chance for a higher education and a better life. There were, however, unintended consequences. Back when the Act was created, there were a lot of factory jobs and people could earn a decent living with factory work. But students were pushed towards college, being told that that was their best prospect for their futures. Many students began going to college and guaranteed student loans made it possible.

2. Like it or not, education is a business and demand drives prices. The demand caused by guaranteed student loans caused tuition to rise at an artificial inflation rate-8 times faster than wages. More and more jobs are requiring more and more degrees and credentials. What used to be on the job training for many jobs now requires college and what used to require 4 years now requires 6 or more. This works for colleges because this creates more enrollment and revenue. This works for employers who can hire someone who knows the job right off the bat and they don't have to worry about and pay for training. I personally remember when many jobs did not require a degree. The higher the masses are educated, the more jobs are requiring more and more education. Again, this works for colleges and employers. They say "It's for the kids!" But is it?

https://www.forbes.com/sites/camilomaldonado/2018/07/24/price-of-college-increasing-almost-8-times-faster-than-wages/#77c4c2bc66c1

https://fee.org/articles/how-government-guaranteed-student-loans-killed-the-american-dream-for-millions/

3. As the market became saturated with people with college degrees, the degrees themselves became worth less. You can now graduate with a great deal of student loan debt and not have a very marketable degree or skill. In 1937, just 15% of people went to college and they were from upper-income families. Today, nearly 60% of US jobs require a higher education. But which came first? And why is that so? We can talk about technology and progress but when colleges are incentivized to educate and people are lining up to be educated and the loans are guaranteed to come through, there is a great deal of reason why this has happened beyond technology and progress. Higher education can be required for less skill and easily so.

So, what happens now, if we forgive student loan debt and make education free? Aside from the fact that people took these loans out of their own free will and some used them for much more than education, if we look at what happened by making education available to more people by student loans, we can compound this by giving free education. First off, nothing is free. The "free" education will be placed on the backs of every tax paying American citizen in the form of higher taxes. More people will go to school. Taxes will go up higher. Colleges will expand. There will more more demand by employers for education. Employers, who are business people, will be using the taxpayers to train people for them thereby cutting their costs for training. With more credentialing, there will be more government control over every facet and area of business and the ability to keep those credentials will be controlled by the government which will in turn control the businesses that hire the credentialed people.

When we talk about more taxpayer funded programs, I tend to think of Guaranteed Student Loans and the Affordable Housing Act (see my blog https://www.blogger.com/blogger.g?blogID=985068716432181218#editor/target=post;postID=1369778497875336379;onPublishedMenu=allposts;onClosedMenu=allposts;postNum=1;src=postname). Both programs were well intentioned with disastrous consequences. Our present debt to GDP ratio is about 106.9%. A study by the World Bank found that countries whose debt to GDP ratios are higher than 77% for long periods experience significant slowdowns in growth. The debt to GDP compares a country's debt to it's gross domestic product. When we can pay our interest on the debt, the country is considered to be "stable". A debt to GDP of 106.9% makes me uncomfortable to say the least. You know how they say when you are flying, if there is a problem to put your own mask on first before you help someone else? Although education in general helps GDP, what happens when jobs require a 4 year degree when they really shouldn't? What happens when every job needs an "education credential"? What happens when people get educated at taxpayer dollars for degrees that are not marketable? And I believe this to be the route of guaranteed students loans and how we arrived at the student loan bubble and I believe this will be made worse by free higher education.

https://www.thesimpledollar.com/investing/college/why-you-should-consider-trade-school-instead-of-college/

https://www.investopedia.com/terms/d/debtgdpratio.asp

https://www.nasdaq.com/articles/15-trillion-student-debt-bubble-about-pop-2018-06-12