Student loan bubble bursting

Yesterday Charles Stross Tweeted a link to a CNBC article pointing out that JPMorgan Chase will, as of October, no longer be making student loans.  The article makes the case that this decision, as well as the language and context by which JPMorgan Chase announced it, closely resemble the first signs of the subprime mortgage bubble bursting in 2007.

There is over $1 trillion in outstanding student loans, making it the second largest source of household debt after mortgages. Just 10 years ago, student loans stood at $240 billion. About $150 billion of the total is comprised of private student loans made by banks and other financial institutions, according to a report issued by the Consumer Finance Protection Bureau last year.

This is seriously bad news, at least in the short-term.  I'm not exactly sure how it's going to end up manifesting, but I suspect a lot of people in the middle of a degree program in 2014 are going to have to drop out.  Schools will probably lose huge chunks of revenue; will probably end up downsizing or closing. The already labyrinthine and oppressive system of laws holding down people with a large amount of student debt will probably become an even bigger burden, unless and until Congress is able to enact some emergency reforms.

In the long term, this could be another step towards comprehensive class stratification in the US: the universities that survive may just be the fancy, expensive ivy league ones and universities approaching that scale.  We may lose even the pretense that America's government and economy are set up to give the poor an opportunity to work their way out of poverty.

On the other hand, maybe this time America will snap out of the hypercapitalist fantasy that letting the people with the most money set all the rules will work out for the people with less money.  Maybe we'll get some real reform:

  • After the second bubble-burst in less than 10 years, the government may decide to try a more regulatory approach to recovery and lock down banks' ability to recklessly gamble with the fabric of the economy
  • Forced to admit that an educated populace is a non-negotiable asset, America might restructure the education system to treat higher education as a basic right and help all Americans get the education that will make them as useful as possible in the workforce and in civic life
  • Amid the collapse of pressure on colleges to extrude uniform profitable-education-product, experimental teaching methods that achieve higher rates of comprehension and practical utility might flourish, maybe even further down from college in K-12
  • By virtue of the associated collapses, the college textbook racket might collapse and students' won't have to pay $200 for a $50 book, or $50 for a $10 one
  • The government might decide that the best approach to get citizens functioning within the economy again, and simultaneously punish banks for their irresponsible lending, is to absolve all student debt. I've got my fingers crossed for this one, on behalf of several of my close friends who have unfairly large burdens for pursuing a better life

More likely, none of that will happen, and things are just going to get worse until we're dragged through a Soviet Russia style blight of poverty.