How student loan debt cheapens a college education

In the poor job market, investors in the debt bond market see recent college graduates as a bad bet

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    In this file photo, Gan Golan of Los Angeles, dressed as the "Master of Degrees," holds a ball and chain representing his college loan debt, during Occupy DC activities in Washington. French argues that skyrocketing tuition and poor job prospects make it unlikely that most recent college graduates will be able to repay their student loan debts anytime soon.
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Matt Wirz writes for the Wall Street Journal that the bond vigilantes may not be sniffing any price inflation but players in the student debt market are deeply discounting the job prospects for recent college grads.

The assumed default rate on students loans has moved from 25% to 30% upward to between 30% and 40%. Failure to graduate is the most important factor in whether a graduate pays back a loan. Over 20% of Americans between the ages of 20 and 24 without a college degree are unemployed. The rate is 8% for those of the same age with degrees.

Investors also take a dim view of buying the ever increasing debt of a perpetual student. “When you see a guy in a loan made in 2005 that is still in school, you throw that away,” said investor Rubin Bahar, of Eagle Asset Management.

So what are the best bets when buying student debt? Technical schools. Students pay the least for their education with the potential to make good money after graduation in only a couple of years.

By that arithmetic, technical colleges come out on top, Mr. [Daniel] Ades said. “We’re in a skills based economy and what we need is more computer programmers, more [nurses],” he said. “It’s less glamorous but it’s what we need.”

Meanwhile the nation’s law schools continue to over-supply the nation with lawyers. Law students are borrowing an average of $68,827 at state schools and $106,249 a private schools only to add to the glut of barristers.

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