Colleges are the Next Big Bubble to Burst

I am going to keep this post short since it is nothing more than a “crazy” theory of mine.  The Wall Street Journal just published an article titled, “Student Loans: Default Rates Are Soaring” written by Anne Marie Chaker.

Ms. Chaker highlights the stats:

According to new numbers from the U.S. Department of Education, default rates for federally guaranteed student loans are expected to reach 6.9% for fiscal year 2007. That’s up from 4.6% two years earlier and would be the highest rate since 1998.

The situation is mirrored in the smaller private student-loan market. In 2008, SLM Corp. also known as Sallie Mae, wrote off 3.4% of its private loans that were already considered troubled, according to its latest annual report — more than double the figure in 2006. Student Loan Corp., a unit of Citigroup Inc., wrote off 2.3% of those loans in 2008, compared with 1.5% a year earlier.

As is taught in Journalism 101 Ms. Chaker has to apply this “horrible situation” (read sarcastic) to a real person with *gasp* a real name.  Our girl?

Sarah Kostecki, a 24-year-old sales associate in New York, graduated last year from DePaul University with a major in international studies and $87,000 in debt, translating to monthly payments of $685, the vast majority of which are private loans.

The payments represent more than a third of her take-home pay, and to help her make ends meet, her grandparents are giving her $200 a month toward her debt this year. Beginning in January, she’ll be on her own, and she worries about falling behind.

“It feels like I’m being punished for having gone to school,” Ms. Kostecki says. She has contemplated some of the options offered by private loan companies, such as temporary interest-only payments. But after two years, her payments would jump by almost $200 a month on top of what she’s paying now, she says. “I don’t want that.”

Who told you to go get a degree in international studies? What the hell does that even mean? Regardless this is akin to someone saying, “but the mortgage broker told me I could pay for it.”

Crazy Theory – Colleges are the Next Bubble to Burst

Hear me out – if the following information is true:

Then there must be a reduction is cost for college – or they will go bankrupt. PERIOD.

Crazy Theory or Good point?

2 Responses to Colleges are the Next Big Bubble to Burst

  1. Rob Bennett says:

    Regardless this is akin to someone saying, “but the mortgage broker told me I could pay for it.”

    I think this is a great observation. It shows how people think. We don't proceed by working our way down logic chains. We look to what others do to learn what is "acceptable" or "reasonable" and then we tinker a bit to make the concept more personally appealing and then we go with it without checking to see whether it makes sense or not.

    I'm not finding fault with the person who made the comment re school. I am saying that we all do this sort of thing far more often than we would like to admit. We think of ourselves as thinking people. But true cases of us coming to a conclusion by thinking through alternatives are rare. Our usual procedure is to go by what others suggest is "okay."

    This makes us vulnerable to marketing pitches, which aim for the emotions and which assure us (often through subtle means) that a particular expenditure is "good" or "acceptable" or "okay." We come to believe this without having any idea why. And then we don't want to see that "idea" questioned.

    Rob

Leave a reply