Bob Lawless, “Student Loans Now Greater Than Credit Card Debt“.
One analyst calculates $605.6 billion in federal loans and $167.7 billion in private loans (total $830 billion according to the article, but that figure’s off by $56 billion so consumer debt is still higher) compared to $824 billion in revolving consumer debt. The good news is that Americans are paying off their consumer debt, but they’re “retooling” for an economy that won’t need their training because no one thought to create the jobs in the first place. Lawless opines:
All of these facts suggest more questions than answers for me. Should we be concerned as a policy matter about rising levels of student debt, or is this just an indication of a populace investing in human capital during a financial downturn? Are growing levels of student loan debt sustainable? If not, what are the implications for universities (and, gasp, law schools)?
Human capital is only as useful as there are jobs for the humans. You can’t have an economy filled with nuclear engineers for example; at best people would be drastically underemployed and would need retraining as police officers and convenience store clerks. Because student loans aren’t dischargeable in bankruptcy, banks have no incentive to conduct market analyses of the industries related to what students major in. If they found that many potential students would be unemployed for prolonged periods after graduation, they’d invest their money more productively. Instead, they underwrite the loans, content that they’ll never see an automatic stay. Consequently, Congress must enact the Private Student Loan Bankruptcy Fairness Act (U.S. House) or the Fairness for Struggling Students Act (Senate version) and extend it to federal loans because taxpayers deserve to not have their money wasted. The situation for legal education is particularly bad because fewer and fewer new lawyers’ starting salaries are at the calculated breakeven return-on-investment point of $65,000 per year.
Bob Lawless: Welcome to the Law School Tuition Bubble.