patrick.net

I think it is tough to say how this will unwind. Unlike the housing, once purchased you cannot sell your 'education' to someone else. Also, with student debt, there will probably not be a mass default spike, like with the subprime mess. I would expect that default rates will steadily increase until some sort of equilibrium is reached between employment (or rather, 'debt-slavery') and graduation rates.

And why do you think that the student loan spigot will be turned off anyhow?

One pertinent factor: you cannot clear student loan debt through bankruptcy. Student loans are much stickier than housing loans. You pretty much have to die to get rid of them. I don't know how that will play out over the next several years.

I could imagine that students might choose to generate less debt. I know at least one who has chosen the local community college over the University of Phoenix, and that's looking like a smart move. I know another who seems to be attending a state school one semester a year while working and saving in between. Students who really think through the problem can find a way, though it may take longer or start more modestly. Of course, reduced funding for state schools will make the budget approach more of a challenge. The UC system let in far fewer Californians this year--they need the extra money out-of-state students will bring, so there is less room for the in-state students.

Those who do generate massive student loans will have difficulty buying other things later, and it may delay them in starting their lives. The wife of one friend refused to marry him until he cleared his (substantial) student loan debt. It took ten years. Of course, given their good habits they are chipping away at their mortgage rather quickly, but, still...ten years.

terriDeaner says

And why do you think that the student loan spigot will be turned off anyhow?

I'm just speculating that with republican in charge of congress and budget deficit reduction is top priority for republican, any potential bailout program will be difficult to gain approval. If Sallie Mae goes belly up, it will need government bailout, which republican will probably oppose it.

FHA in housing is very much like Sallie Mae in education. They both aiming at providing funding for lower income family to buy a house or get through the college. We may have a glimpse of Sallie Mae's fate when FHA gets into trouble.