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

The 2008 Housing Bubble Burst

Many people know that a lot of people lost their houses and a lot of equity in 2008 but they have no idea how it all really happened. Many people blame Wall Street and some blame the poor that defaulted. I think it was a combination of a lot of things that made the perfect storm. As I see it, there were 4 key things that happened.

1. Clinton signed the repeal of the Glass Steagall Act of 1933. 

This act separated investment banking and commercial banking. This kept banks from taking undue risks with people's money and acted as a firewall and was instituted after the Great Depression. In 1999, Clinton repealed this act. This repeal consolidated many investment and retail banks. This opened the door to take larger and greater risks with people's money.

2. Wall Street Derivatives

Once Glass Steagall was repealed, this opened the door for Wall Street to create derivatives. The banks would loan money to people who wanted a mortgage. The banks would sell the mortgages to Fannie Mae. Fannie Mae would bundle these mortgages and sell them.

https://www.thebalance.com/role-of-derivatives-in-creating-mortgage-crisis-3970477

3. Government Forced Banks to Loan Money to People who were Underqualified

An act called the Community Reinforcement Act forced banks to loan money to people who were underqualified, wanting every American to own their own home. The Affordable Housing Act also required Freddie and Fannie to meet government quotas to where at first 30% and then eventually 55% of the loans they bought had to be had to be made to people at or below the median income in their communities. Banks who would normally reject loans to certain people were not allowed to "discriminate" to would be house buyers over what they deemed arbitrary and outdated criteria-namely, income level, verification, credit history etc. Combine this with guaranteed loans by Fannie Mae and Freddie Mac, and banks were forced to have irrational lending standards. The nice goal of "wanting every American to be able to own their own home" became disastrous.

https://www.forbes.com/2008/07/18/fannie-freddie-regulation-oped-cx_yb_0718brook.html#749afe08364b

https://www.theatlantic.com/business/archive/2011/12/hey-barney-frank-the-government-did-cause-the-housing-crisis/249903/

4. Poor People Defaulted on Loans

People defaulted on the loans they were given when their interest rates reset. People were given low interest loans to start and when their loans reset with a higher interest rate later on and they couldn't afford them any longer, they simply stopped paying the loans. This caused a domino effect as more and more people stopped paying their loans and defaulted. This is when the housing bubble burst and more and more houses became available on the market. As supply became abundant, housing prices fell and many people lost equity in their homes (at least in the short term). People who sold at that time lost money and many who bought at that time did very well.

So, what caused the bubble? Can we blame just greedy Wall Street? I don't think so. When banks are forced to loan to under qualified people, banks can hardly be blamed for doing so. I think we need to make sure that the right regulations are in place. We need reasonable firewalls to keep investments and commercial banking reasonably separate and we need to allow banks to make reasonable loans to qualified people.

Living on Minimum Wage

I often like to do my own research on subjects when I have time. I decided to look up the minimum wage and then adjust it for inflation. You can see the 2019 adjustment that I made next to the actual minimum wage for that year. This information was not easy to find online so I had to do all my own inflation adjustments!

Some thoughts I had as I read this is that when these wages were given, most families were one income earners. Most families now are earning two wages or one and a half. If it is a single person, they have the ability to rent a room etc. I am not going to say that living on minimum wage is easy but I just read a write up by a woman (I don't have permission to share the whole write up as she just wrote it in a forum) who is married with 7 children. Her husband makes slightly more than minimum wage if they both worked but they are still low enough income to qualify for SSI for disability for a handicapped child and their kids qualify for Medicaid.

They live in a house in NC that cost $115,000. They moved there after doing research on jobs and housing costs. They pay $400.00 a month for health insurance. They bought their cars with cash.

The first 2 years their child with disabilities was born, they got 80K in debt. Sometimes, they eat beans and rice because it is so inexpensive. She says things have to be "well budgeted" but that living on two minimum wage salaries for her family of nine is "completely doable". She spends about $500 a month on food. She says "read The Millionaire Next Door" (A book I also recommend!). I like her spirit and agree with her philosophy.

Redone Living Room for $426!!

I was so tired of my old dated living room. I wanted to update everything into a more contemporary look. This old couch I purchased in like new condition about 8 or 9 years ago used for $100.00. I have cleaned it a number of times but the stains were no longer coming out as well and I was just tired of the floral/cranberry. 

 I looked for months for the right living room set. I wanted a used set, brown, comfortable, smoke free, like new, preferably with recliners on at least the couch and a set that was reasonably good quality and fairly priced for used furniture. I went to a new furniture store to look around and was shocked at the thin fabric on the couches and knew I wanted something that was better quality than that and I sure wasn't willing to pay new prices for that thin fabric! 

 This glider was on the other side of the room. It is the most comfortable chair you could ever hope for. I got it for $5.00 or $10.00 at a garage sale, but it too needed to go. I am giving it away (already claimed!) where it's comfortable seat will still be put to good use!

When I saw this set on the Marketplace on Facebook, we had a family reunion that day and I almost didn't call on it but ended up calling anyway. The lady said it was spoken for, if the woman could find a trailer. I said "I have a trailer hooked up and ready to go right now!" And so she said first come, first served! Here is the couch!

Isn't it beautiful? I got the set for $325.00 The couch has recliners! (The love seat doesn't.)  I knew the colors I wanted for the pillows and accents. The rocking chair I got at a garage sale a few years ago for $10.00. The window mirror I got at a garage sale this year for $5.00. Also the antlers for $3.00 and the square aqua design for $2.00. I found some aqua pillows at Goodwill for $3.99 each and had a hunch that they had more at Wal-Mart and I was right! I got matching pillows for the love seat for full price at Wal-mart, about $15.00. Lastly, I splurged on the rug to bring it all together. I paid $70.00 for it at Wal Mart. 

Here is a better view with the couch and love seat. So, I re-did the whole living room for about $426.00 and a fair amount of patience. I am so please with how it looks! 

Summer Garage Sale Finds! Pay Yourself $$ Per Hour!!

I've been busy doing summer projects and working on some garage sale finds. I found this cast iron/wooden bench at a garage sale for $10.00. Exciting! 

 It needed a coat of paint and I found this older can of paint I had in the basement. It was barn red like the bench was originally. However, veering from my usual path of using whatever was available, I decided to buy some blue paint for this project. I also decided to repaint the cast iron because there was a little bit of rust in spots. Here is the can of paint I rejected and some free painting materials I got from Menards. The paint cost me about $17.00 for both the quart of blue and one spray can of brown metallic.

I found this cast iron stand at a garage sale for $2.00. I decided to paint it matching colors.

 
It was a pretty intensive project and took me a number of hours. I needed to put a few coats on the old, dry wood. The whole bench needed to be taken apart to paint it too.

 A $10.00 bench and a $2.00 stand and $17.00 worth of paint and some elbow grease and here is the end result! I am so pleased! 

I had some paint left over and during the drying times, I moved onto some other projects. I don't have a "before" photo of this but it is a plant stand and I paid $1.00 for it last year at a garage sale. It was gray and rusty.

Here is the end result, matching my bench and stand! 

I bought this fountain at a garage sale last week for $5.00. I thought for sure it wouldn't work but it does! It has a solar panel that makes it run. The woman said she paid $70.00 for it last year. I'm glad

 I took a risk!

I bought this bench at a garage sale a couple years ago for $10.00. It needed a fresh coat of paint now so I decided to paint it blue like the other one.

 Here it is in front of my garden. I love to sit on it between weeding rows!

I bought this glider at a garage sale a few years ago for $5.00. I am going to buy another can of spray paint and paint this brown to match the rest of the outdoor furniture.

Altogether I have a cast iron garden bench: $10.00. A cast iron stand: $2.00. A garden bench: $10.00. A plant stand: $1.00. A fountain: $5.00 and a glider: $5.00. Total $33.00. Add paint: $10.00 quart of blue. $7.00 spray paint and $7.00 for another can for the glider. Call it $25.00 with tax. $58.00 for all the outdoor garden furniture shown here plus quite a bit of elbow grease! I have about 8 hours in to painting and call it 8 hours of garage saling. If the items as they are listed above cost, say, $75.00, $25.00, $12.00, $70.00, $39.00 and $79.00 new, that is a total of $300.00. Granted, the items are not new, so, lets call it $200.00 altogether for the items. Working 18 hours on the project, I was paid $12.50 an hour (or $18.75 an hour if we called it $300.00). Pretty good pay!

Happy Savings! ~

Shop for Best Medical Prices and Insurance!

I find exorbitant medical costs to be a particularly disturbing thing, especially when it's difficult to price check, comparison shop and that the government wants to cover everyone all at the same time. This looks to me like a recipe for disaster for a number of reasons. 

Thankfully, there are other people who are also disturbed by the lack of being able to price check, and they have put together a couple of websites where you can do some price checking and comparison shopping. I have not used these extensively myself but I wanted to pass them on because I think we should all be empowered to compare medical costs!

These websites offer the chance to learn about medical pricing and can give you the opportunity to "shop" for services.

healthcarebluebook.com

hospitalcostcompare.com

Remember too that stand alone clinics like a medical imaging center can be far less expensive than hospitals. When patients are not allowed to shop or even question prices, hospitals have no reason to keep prices low. We should all expect that we have the right to know prices and comparison shop.

There is also something people are now doing called medical tourism. Again, I can't personally speak to this, as I have not done it, but there are many resources out there by people who have done it with success. Medical tourism sounds scary but some assure us that it is not scary if you do your research first.

Here are a couple of books and there are many more out there!

https://www.amazon.com/Medical-Tourism-Travel-Guide-Top-Quality/dp/1934716006

https://www.alibris.com/Patients-Beyond-Borders-Everybodys-Guide-to-Affordable-World-Class-Medical-Travel-Josef-Woodman/book/28905363

Here is a group called the Medical Tourism Association:

http://www.medicaltourismassociation.com

There are also medical sharing groups that people can join instead of using regular insurance. Here are a couple of those groups:

http://www.chministries.org/

https://www.libertyhealthshare.org/

There are other groups online that you can find. They all have their own rules and guidelines.

Together, when we make it known that we care what is being offered to us and that we will comparison shop and expect good and decent prices, we can make a difference and expect the medical community to compete for our business just like any other business.

Happy Savings! ~

Scratch and Dent Gluten Free Haul!

I am very thrilled with this scratch and dent mostly gluten free haul my husband and I came upon the other day. We were in Amish country and happened upon a little scratch and dent store. I went gluten free last year and gluten free items are very pricey. This is just some of what I got. 

Look at these prices! 

Croutons for .35!

GF flour for $1.25 a bag!

Chocolate wafers for .50!

GF Vanilla Creme Cake for .85!

Breakfast Bars for $1.00!

Cereal for $1.00!

And on and on!

I wish I lived closer to this store! I hope to be in that area a couple of times a year to stock up. Some of their items are out of date but many are just dented boxes etc. I will be in stock for quite a while!

If you have an Amish or Mennonite area close to you, it pays to check out their bulk food store where things are usually less than store prices and their scratch and dent places are often pennies on the dollar. 

Happy Savings!