{"id":1112710,"date":"2019-04-25T17:33:31","date_gmt":"2019-04-25T17:33:31","guid":{"rendered":"https:\/\/dailyreckoning.com\/?p=107268"},"modified":"2019-04-25T17:33:31","modified_gmt":"2019-04-25T17:33:31","slug":"what-really-caused-the-student-loan-bubble","status":"publish","type":"post","link":"https:\/\/juniorminingnews.com\/?p=1112710","title":{"rendered":"What Really Caused the Student Loan Bubble"},"content":{"rendered":"

This post What Really Caused the Student Loan Bubble<\/a> appeared first on Daily Reckoning<\/a>.<\/p>\n

In case you missed part I yesterday, I was talking about Elizabeth Warren\u2019s new plan to erase outstanding college debts for roughly 45 million Americans and then make college \u201cfree\u201d for everyone going forward.<\/span><\/p>\n

Now, there\u2019s no doubt that spiraling college costs \u2013 and a rapidly-growing pile of student loan debt \u2013 IS <\/i>a problem.<\/span><\/p>\n

Indeed, as I pointed out yesterday, the average tuition and fees at a four-year public college rose 66% between the 2006-2007 and 2016-2017 school years.<\/span><\/p>\n

That\u2019s pretty incredible, especially when you consider that the period included the Great Recession!<\/span><\/p>\n

What\u2019s equally incredible is another fact I pointed out yesterday: Namely, that Senator Warren and her husband were both Harvard professors during that period pulling in as much as $700,000 a year for teaching there! <\/span><\/p>\n

(Her husband continues to make hundreds of thousands teaching there to this very day, in fact.) <\/span><\/p>\n

Of course, outlandish spending by universities is still just a symptom, or perhaps a byproduct, of the real root cause of the student loan bubble.<\/span><\/p>\n

The Real Culprit<\/b><\/span><\/h2>\n

The real root cause is the U.S. government.<\/span><\/p>\n

Shocking, I know!<\/span><\/p>\n

See, your typical family doesn\u2019t have $30,000 or $40,000 saved for each of their kids to go to a public or any other college for that matter. <\/span><\/p>\n

Nor do they have hundreds of thousands for private colleges and universities.<\/span><\/p>\n

Enter the huge market for student loans, which aim to make college “more affordable.”<\/span><\/p>\n

You know, kind of how a 10-year car loan makes a Mercedes more affordable.<\/span><\/p>\n

Or how zero-money-down, adjustable-rate mortgages made McMansions way more affordable during the last housing boom.<\/span><\/p>\n

The similarities are so glaringly obvious that I can\u2019t understand why more Americans don\u2019t see them. Sure, it\u2019s true that a college education may<\/i> be a better long-term investment than a luxury car \u2026 but it certainly isn\u2019t a guarantee.<\/span><\/p>\n

Yet that idea hasn\u2019t prevented lawmakers like Senator Warren from perpetuating the myth that a college education is a sure-fire way to a better lot in life and find new ways to subsidize the costs.<\/span><\/p>\n

During first two decades of the new millennium, the government has largely done this through various federal student loan programs and guarantees.<\/span><\/p>\n

Warren\u2019s plan would just make it direct from taxpayers. <\/span><\/p>\n

Why It\u2019s Like Any Other Bubble<\/b><\/span><\/h2>\n

For the record, I am not saying private lenders have been blameless in this whole mess. Far from it!<\/span><\/p>\n

But as with any other bubble, this process has become self-fulfilling \u2026 <\/span><\/p>\n

Money gets easier. <\/span><\/p>\n

Prices go higher. <\/span><\/p>\n

As prices go higher, people need to borrow more money. Or other \u201caffordability\u201d measures are put in place. <\/span><\/p>\n

Then the cycle continues until it bursts.<\/span><\/p>\n

The governmental backstops are precisely what allows private lenders to go wild. The easy money is what allows colleges to continue spending more and more money in a never-ending marketing arms race to attract more students.<\/span><\/p>\n

And the government\u2019s insistence that a college education is not just a necessity \u2013 but a natural born right \u2013 convinces everyone to continue participating in the madness. It is literally identical to the housing bubble. <\/span><\/p>\n

So yes, higher education is still a noble pursuit that can be a good investment for many students.<\/span><\/p>\n

Academically-qualified Americans should be able to attend universities regardless of their current financial situations.<\/span><\/p>\n

Changing the Student Loan Market<\/b><\/span><\/h2>\n

The more we can make the student loan market similar to other lending models, the better \u2014 including giving borrowers the ability to refinance.<\/span><\/p>\n

At the same time, let\u2019s recognize that schools squander plenty of money on outrageous athletic programs \u2026 grandiose buildings and facilities \u2026 and bloated administrative salaries, which are then passed along via cost hikes.<\/span><\/p>\n

Senator Warren and her husband were massive beneficiaries of the largesse itself!<\/span><\/p>\n

Let\u2019s also acknowledge that plenty of students use their easy-money loans to rent luxury apartments and eat at nice restaurants rather than pay for tuition and books. <\/span><\/p>\n

Is it hard to imagine many people viewing their savings from Warren\u2019s proposed program as \u201cfree money\u201d to use for a vacation or some other discretionary spend?<\/span><\/p>\n

At the end of the day, there is actually no such thing as free college tuition \u2026 someone is paying for it now or in the future. <\/span><\/p>\n

Bottom Line<\/b><\/span><\/h2>\n

When my father was considering college in the 1960s, his family didn\u2019t have the money for it. So he worked his way through school. It took longer than the usual four years, but he did it.<\/span><\/p>\n

Meanwhile, perhaps because of that, my dad always impressed upon me the importance of good grades and hard work throughout my school days. And as I mentioned yesterday, that ultimately paid off for me in the form of an academic merit scholarship to attend a private university.<\/span><\/p>\n

I came from a very middle class background \u2026 worked my butt off \u2026 and graduated from an expensive college without any debt at all. <\/span><\/p>\n

Young people are still doing the same thing right now, no matter what Senator Warren seems to think.<\/span><\/p>\n

So from my perspective, the idea of \u201cfree college\u201d for all raises a number of serious questions and will simply fan an already-massive fire.<\/span><\/p>\n

Meanwhile, imposing a retroactive, shotgun-approach forgiveness of loans already undertaken is grossly unfair to too many groups of Americans to list.<\/span><\/p>\n

To a richer life,<\/p>\n

\"Nilus<\/p>\n

\u2014 Nilus Mattive
\nEditor, The Rich Life Roadmap<\/i><\/p>\n

The post What Really Caused the Student Loan Bubble<\/a> appeared first on Daily Reckoning<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

This post What Really Caused the Student Loan Bubble<\/a> appeared first on Daily Reckoning<\/a>.<\/p>\n

In case you missed part I yesterday, I was talking about Elizabeth Warren’s new plan to erase outstanding college debts for roughly 45 million Americans and then make college “free” for everyone going forward.<\/p>\n

The post What Really Caused the Student Loan Bubble<\/a> appeared first on Daily Reckoning<\/a>.<\/p>\n","protected":false},"author":55,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""}},"footnotes":""},"categories":[924,366,626,2453,2468,475,2455,923,927],"tags":[],"_links":{"self":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/1112710"}],"collection":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/users\/55"}],"replies":[{"embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1112710"}],"version-history":[{"count":1,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/1112710\/revisions"}],"predecessor-version":[{"id":1112711,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/1112710\/revisions\/1112711"}],"wp:attachment":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1112710"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1112710"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1112710"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}