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Comment by MattGrommes | Hacker News Reader

I'm not arguing since you know way more about this than I do but I'm curious: I've thought of a lot of the problem with the college loan situation as exactly "speculation" since people are gambling that the job they get on the other side is going to let them pay off the giant loans easily. No, people don't buy and sell degrees but isn't there a lot of speculation type behavior going on?

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I don't even understand how the notion of a "student loan bubble" makes sense, since people don't "speculate" on college like they speculate on real estate.

This is exactly what's going on. They're making the bet that they'll be in demand later and able to pay off their loans. Just like buying a house and being able to make money from it later. After all, everyone had a rationale as to why the price of their house would increase just like they do about the job market turning around for people with a degree/diploma in X.

Except that you can't declare bankruptcy and walk away from a student loan, like you can with a house. The idea of a bubble bursting is the idea that all of the money will disappear at once, but instead what will happen is people will be plagued with debt that they can't repay quickly causing long term growth problems because the college graduates will have less spending money.

I get your point at least. While one could argue that student loans are in a speculative bubble (in regards to their actual value), existing bankruptcy laws prevent the bubble from bursting.

Part of the collateral for student loans is, technically, your economic freedom. It's easier for banks to assume you will pay the principal of your debts, when government is the acting collection agency. It's very difficult to escape garnished wages.

However, if something changes and people have a way to shed their student loan debts, I think the bubble will pop very quickly.

I agree that that is exactly the gamble that a student is taking, that when finished there will be earning ability that will enable them to pay off the loans.

Is this a reasonable bet to make? What is the earning potential of someone with a college degree? Isn't it something like a $1M+ increase over one's lifetime?

The problem is that your debt, if measured at the end of your lifetime, will also balloon WAY out of control. Simple example, 30 years after college, 40k usd in debt gets you to 462k at 8.5% annual. That is, assuming you get a job immediately that truly translates in higher earnings, which a lot of times isn't true.

Well yes you have to pay it back before the end of your lifetime.

WSJ had article on student debt recently, with lots of data. Median debt load was 18-19k USD [1]

If it were all via Federal Stafford loan, the interest rate would be 3.9%. If the payback period was 10 years, the monthly payment would be a whopping $191 per month.

[1] http://online.wsj.com/article/SB1000142412788732443200457830...

I think speculation roughly encompasses anything you buy for short or medium term gain. You don't put in four years of work to speculate on German bearer bonds.

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