My wife and I have been watching Parenthood, and we found ourselves in total agreement with Adam Braverman’s insistence that his daughter not take out student loans in order to finance a Cornell undergrad degree. Thanks to recent changes in bankruptcy laws that make it practically impossible to default on student loans, it would be insane to finance an undergraduate education this way — a professional or trade school degree might be another matter, but only just barely.
At any rate, in that light I read with interest the following part of a Yves Smith post on problems in the mortgage market:
Finally, the 30 year mortgage does not fit with job tenures that now (per a Yankelovich survey commissioned by McKinsey in the mid 2000s) of under 3 years. The traditional mortgage assumes that the borrower has a rising, or at least stable, income over his working years. We now have shorter jobs and longer periods of unemployment, which sap savings and make defaults more likely. And that’s before you factor in that the mortgage was normally a household’s top priority payment, but the inability to discharge student debt in bankruptcy effectively makes it “senior” to mortgage payments. All this suggests that it may be necessary to go against the pet wishes of the mortgage industrial complex and implement housing policies that do more to promote rentals. [emphasis added]
The idea that people may be defaulting on mortgage debt in favor of student loan debt makes a lot of sense, and it’s yet another reason why we need to radically overhaul the student loan industry.