Thursday, May 31, 2012

Student loan bubble to impact Pennsylvania real estate?

We like to think that it would be useful to learn that a bubble exists before it actually bursts.  But is such knowledge really useful to us?  Would we change our investments or other behavior if we learned of a bursting bubble in advance?  While we were warned many times of the real estate bubble from 2005 to 2007, such warnings were largely ignored. Now, we are being warned of a student loan bubble from various sources, including law professor/author Glenn Reynolds:
I’ve been writing for years about a bubble in higher education: too much demand, causing sky-high prices — all because of cheap government money, much like the housing bubble. Now those warnings have become conventional wisdom — so conventional that they’ve reached The New York Times and even 60 Minutes.

Business Insider has attempted to narrow the focus of this bubble to about 18 states, including Pennsylvania. Business Insider's article also focuses on the financial harm that may befall the schools that have contributed to this bubble.

When this bubble bursts, it will affect the general real estate market by restricting liquidity and causing lending requirements to tighten further. Bankruptcies and foreclosures will tend to increase also. While the coming crisis will not directly affect those who are neither indebted for student loans nor employed in higher education, the additional downward pressure on the real estate market will affect all of us.


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