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Student Loan Bubble: The Hidden Reality (It's worse than we think)
Sense on Cents ^ | 09/06/2012 | Larry Doyle

Posted on 09/06/2012 8:14:32 AM PDT by SeekAndFind

America is increasingly aware that the student loan bubble is a major problem for millions of students, families, and our nation as a whole. While far too many politicians from both sides of the aisle talk in platitudes about the need for education, few if any of these politicians are willing to pull back the cover and expose the ugly reality embedded in current data on the student loan bubble.

Yes, America knows that total student debt now exceeds all other forms of consumer debt. We also know that total student debt is now approaching $1 trillion dollars. I personally believe that the cost of education at public and private colleges and universities has to adjust downward but that reality does not appear imminent.

What don't we know about student debt and how will it hurt us? Let's navigate.

A recently released report by Demos highlights that the Student Loan Crisis Continues to Escalate,

The student loan crisis escalated further in the second quarter of 2012, as the amount of outstanding debt reached the highest level ever recorded. A new report from the New York Fed suggests that even while the rest of household debt improved since March, driven by decreasing credit card and housing debt, student loans have worsened.

Their report finds that, while overall household indebtedness declined $53 billion from the first quarter of 2012, student loan debt rose $10 billion to reach its $914 billion peak.

The picture is even bleaker than it appears.

Although the delinquency rates for student loans rose to 8.9%, that number is understated. It doesn’t account for people who are currently in a deferral period from their loans or for students currently enrolled in college, who’ve taken on more student loan debt than any preceding generation.

Should you exclude students currently in college, and who are therefore exempt from becoming delinquent, the delinquency rate rises from 8.9 to 21%. That’s a startling high number, double the amount of credit card delinquencies (10.9%).

A delinquency rate of 21% spells a near certain crash and doomsday scenario for both borrowers and lenders alike but will also serve as a serious drag on our economy as a whole.

Navigate accordingly.

Larry Doyle

I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.



TOPICS: Business/Economy; Education; Society
KEYWORDS: college; debt; studentloans
A Wall Street veteran's views and instincts on the markets, economy, and all things financial.
1 posted on 09/06/2012 8:14:36 AM PDT by SeekAndFind
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To: SeekAndFind

The Dems keep putting out hint after hint after signal after signal.

Obama IS going to propose Student Loan Forgiveness, and soon.


2 posted on 09/06/2012 8:17:20 AM PDT by Buckeye McFrog
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To: Buckeye McFrog

RE: Obama IS going to propose Student Loan Forgiveness, and soon.

Hey, while he’s at it, why not just forgive ALL loans — consumer, mortgage, small business, personal, etc.

Yeah., that’ll do the trick to revive the economy — NO MORE DEBT FOR ANYBODY !! Hallelujah.


3 posted on 09/06/2012 8:20:34 AM PDT by SeekAndFind (bOTRT)
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To: Buckeye McFrog

I read there are many profs at research universities now making $200,000+. The whole higher ed racket is a con and guess who gets left holding the bag?


4 posted on 09/06/2012 8:20:52 AM PDT by lodi90
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To: SeekAndFind
University needs to be made a co-signer to the student loan. If the student defaults, the university should be on the hook for at least a percentage.

Overnight, we will see universities cease admitting unqualified students, and stop offering worthless majors.

5 posted on 09/06/2012 8:25:17 AM PDT by PapaBear3625 (Charlie Daniels - Payback Time http://www.youtube.com/watch?v=EWwTJj_nosI)
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To: SeekAndFind

The student loan program has evolved into nothing but a massive payoff scheme to acedemia in return for their political and “junk science” support.


6 posted on 09/06/2012 8:26:06 AM PDT by circlecity
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To: SeekAndFind

Man-o-man. When the election is over and everyone gets a fresh chance to look around them, it’s gonna get ugly.


7 posted on 09/06/2012 8:26:40 AM PDT by cuban leaf (Were doomed! Details at eleven.)
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To: lodi90

“...profs at research universities now making $200,000+...”

Government grants, and private grants that are a tax reducing mechanism. There is no “education”.


8 posted on 09/06/2012 8:29:10 AM PDT by Born to Conserve
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To: SeekAndFind
Hey, while he’s at it, why not just forgive ALL loans — consumer, mortgage, small business, personal, etc.

I think you've just summarized Elizabeth Warren's platform. They'll claim it's a Republican idea (since Pat Robertson first proposed it on The 700 Club in 1984)


9 posted on 09/06/2012 8:29:10 AM PDT by Buckeye McFrog
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To: lodi90
The majority of those loans were not to University students.

They were made to people going to beauty school, dubious vocational schools, diploma mills and places that are outright frauds - they get you the loan and you split the money with them and never actually attend school at all.

Abuse of the student loan programs is massive and any who took them never had any intention of paying them back int he first place.

10 posted on 09/06/2012 8:29:15 AM PDT by rdcbn
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To: SeekAndFind
The loans are a big problem, but the loan shark rates the banks are charging for the loans is outrageous. My daughter is being charged 11% for a private student loan. The rates should be more in line with a mortgage rate. She is lucky enough to have a great job because of her degree, but one big thing holding up the recovery is the young do not have much left after paying their loans to move out from mom and dad.
11 posted on 09/06/2012 8:30:32 AM PDT by Plumres
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To: SeekAndFind

—Yeah., that’ll do the trick to revive the economy — NO MORE DEBT FOR ANYBODY !! Hallelujah.—

And raise the minimum wage to $100 per hour. We’ll all be rich!

Double hallelujah!


12 posted on 09/06/2012 8:40:12 AM PDT by cuban leaf (Were doomed! Details at eleven.)
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To: SeekAndFind

If the gubmint would get out of the student loan business college tuitions would drop. The scam will not end as long as the gubmint can feed their pals in academia.


13 posted on 09/06/2012 8:41:40 AM PDT by Baynative
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To: lodi90

“I read there are many profs at research universities now making $200,000+. The whole higher ed racket is a con and guess who gets left holding the bag?”

Ha that’s peanuts compared to what the administrators at these places make, Presidents are well into the 7 figure range and even fairly low level administrators like the ever present dictator/chancellor of diversity typically makes around $400,00-$500,000 a year plus bonuses. Add in the generous state provided pensions and you’ve got a gravey train that will keep these guys set for ever.


14 posted on 09/06/2012 8:43:21 AM PDT by trapped_in_LA
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To: rdcbn
any who took them never had any intention of paying them back int he first place.

Not true. I took out student loans for my undergraduate and paid them back. We have new student loans for my children and we intend to pay them back. The difference is, this time, the debt is astronomical, and job prospects are very weak, even for good, practical degrees, like accounting and computer science. It's a very bad situation, and if you think there are no good, honest student loan borrowers who might be severely tempted by an offer of forgiveness, you would be sadly mistaken.

15 posted on 09/06/2012 8:43:45 AM PDT by Springfield Reformer (Winston Churchill: No Peace Till Victory!)
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To: Buckeye McFrog

Hey, while he’s at it, why not just forgive ALL loans — consumer, mortgage, small business, personal, etc.

I think you’ve just summarized Elizabeth Warren’s platform. They’ll claim it’s a Republican idea (since Pat Robertson first proposed it on The 700 Club in 1984)


God had the same idea, it was called the year of jubilee............... I hate to say it but there is some merit in the idea.


16 posted on 09/06/2012 8:45:34 AM PDT by PeterPrinciple ( (Lord, save me from some conservatives, they don't understand history any better than liberals.))
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To: Buckeye McFrog
Obama IS going to propose Student Loan Forgiveness, and soon.

the US Gov't controls all student loans now. You can bet your life that loan adjustment or in other cases, total forgiveness (income, skin-color being factors of course), will happen. This is way too tempting for a redistributionist, pandering politician to pass up.

17 posted on 09/06/2012 8:49:36 AM PDT by PGR88
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To: PGR88

And when every Democrat speech incorporates rhetoric about “crushing student debt”, while their sycophants in the media keep publishing articles about the “crisis”, and the astroturfed OWS movement makes it their only coherent demand....you know this plan is in the works.


18 posted on 09/06/2012 8:51:57 AM PDT by Buckeye McFrog
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To: Plumres

My daughter is being charged 11% for a private student loan. The rates should be more in line with a mortgage rate.


Why?

Lets look at the differences..

I default on my mortgage the bank can take the house.

I default on a student loan (I have none) the bank can take... Oh crap. they can’t take anything.

The interest rate reflects the risk taken. She defaults on the loan and there is nothing the bank can take to recover the money loaned. She even gets to keep what the bank has paid for.

Perhaps she should re-fi her loan to the government backed ones. My wife has hers through “direct loans” the rate is around 4%.


19 posted on 09/06/2012 8:53:44 AM PDT by cableguymn
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To: lodi90
the college industry is just an industry....it has raised its rates up for decades far exceeding the CPI and they get away with it....

everyone needs a college degree to "get ahead".....

well no....MOST people do not....

there are lots and lots of people out there who have common sense and work ethic and intelligence that a college degree will not enhance whatsoever except take their money and delay their careers....

20 posted on 09/06/2012 9:02:53 AM PDT by cherry
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To: SeekAndFind

My understanding is that in OBAMACARE if you don’t pay back the student loans you are required to serve the country for 2 years. (Probably military.)
I can’t remember the pages this ‘new law’ is on but we had to ‘pass the bill in order to find out what is in it.’


21 posted on 09/06/2012 9:04:15 AM PDT by PastorJimCM (truth matters)
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To: cableguymn
I don't think you can default on student loans...they're not bankruptable...

however, good old uncle sammy will help pay off your loans if you agree to work for him or are a congressional aide or some such...

22 posted on 09/06/2012 9:06:22 AM PDT by cherry
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To: Plumres

My daughter is being charged 11% for a private student loan.

Well now, she is getting two educations. The first at the school. The second from learning to read and understand what she signed for. Works for me.

My family and I came to the conclusion the only way I could attend college was to live at home, commute to the local private college and work virtually full time as “loans” were not an option at that time. I did, got degreed, and then enlisted in the army, something foreign to most of our entitled youth these days. After the army, I used my newly acquired skills with my degree, found a great occupation and never looked back.


23 posted on 09/06/2012 9:15:17 AM PDT by Mouton (Voting is an opiate of the electorate. Nothing changes no matter who wins..)
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To: rdcbn; All

Plus there are these fly by night schools that you see on TV with claims that you can get a good job real fast.


24 posted on 09/06/2012 9:24:25 AM PDT by KevinDavis (Romney / Ryan 2012)
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To: cableguymn

Why?

Lets look at the differences..

I default on my mortgage the bank can take the house.

I default on a student loan (I have none) the bank can take... Oh crap. they can’t take anything.

The interest rate reflects the risk taken. She defaults on the loan and there is nothing the bank can take to recover the money loaned. She even gets to keep what the bank has paid for.

Perhaps she should re-fi her loan to the government backed ones. My wife has hers through “direct loans” the rate is around 4%.


They can garnish up to 15 percent of your paycheck if you default on a student loan.


25 posted on 09/06/2012 9:30:21 AM PDT by AmericanSamurai
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To: cherry

You can’t discharge them in Bankruptcy, you can default on them, and if you don’t take care of it they can garnish up to 15 percent of your paycheck.


26 posted on 09/06/2012 9:33:19 AM PDT by AmericanSamurai
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To: cherry
there are lots and lots of people out there who have common sense and work ethic and intelligence that a college degree will not enhance whatsoever except take their money and delay their careers....

The problem as I see it is that employers have totally drunk the kool aid and do not even want to consider your point. They want to see a degree, and if it's from an elite school all the better. Don't talk to them about anything else.

When I was a kid I applied to, and amazingly, got accepted by a fairly elite college. I did not go there because my dad felt it was too expensive. I have always regretted that decision, after years of watching employers fawn all over pinheads with Ivy League degrees while low-paid Common Sense types ran around trying to fix all their mistakes, getting neither recognition nor thanks for their efforts.

Hindsight being 20-20 I should have borrowed an arm and a leg and part of the other arm and gone there. My days of having to work for a living would be over. Employers see that on your resume, they have their multiple orgasm, and they cut you a check.

Sadly one of life's lessons has been that you will never go broke underestimating how shallow people can be.


27 posted on 09/06/2012 9:35:03 AM PDT by Buckeye McFrog
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To: SeekAndFind

That is exactly what Iceland did. The Iceland govt essentially allowed all underwater home mortgages to be written off so the home loan matched the property value.

It kept people in the homes, It kept the loans on the books. It just forced the Banks to eat the housing crash.

This is EXACTLY what needs to happen with student loans. However how do you place a market value on what is unsecured debt?

If I was the President I would solve the Student loan situation by:
1. Allow Bankruptcy to dispatch a student loan and treat it the same as all other forms of unsecured debt.

2. Establish a market value for all degrees with sliding scales of depreciation based on age of degree or time since education. Allow former students to write of the portion of their debt that is evaluated to be “underwater”.

3. Get the government OUT of the loan business.


28 posted on 09/06/2012 9:35:19 AM PDT by RC51
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To: KevinDavis

The Kenyan must go.

29 posted on 09/06/2012 9:38:15 AM PDT by ex91B10 (We've tried the Soap Box,the Ballot Box and the Jury Box; ONE BOX LEFT!)
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To: lodi90
I read there are many profs at research universities now making $200,000+. The whole higher ed racket is a con and guess who gets left holding the bag?

Yep. As financial aid became more available, loans/grants/scholarships, the schools kept raising their rates way beyond inflationary increases. The schools kept growing and spending every dime they brought in and bloating the salaries of the establishment.

So a given student should have his school paid for with grants and scholarships, but due to these steep increases in tuition, etc., he has to take out students loans anyhow.

In the meantime, the schools cry that they do not have enough money. -rigged game and ripoff.

30 posted on 09/06/2012 9:47:26 AM PDT by VRW Conspirator (We were the tea party before there was a tea party. - Jim Robinson)
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To: lodi90

Professors aren’t the biggest problem. Look at what top administrators make, and look at the sweetheart deals they get when they leave, and that is usually after being provided mansions and nice cars while at the universities.


31 posted on 09/06/2012 9:51:07 AM PDT by pallis
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To: SeekAndFind
Should you exclude students currently in college, and who are therefore exempt from becoming delinquent, the delinquency rate rises from 8.9 to 21%. That's a startling high number, double the amount of credit card delinquencies (10.9%).

Huh? You can't call people delinquent if they are exempt from paying. One would have to assume these people would have a delinquency rate similar to the 8.9%. If I call all the people who don't pay off their creidt cards in full every month 'delinquent,' I could add a whole lot to that 10.9%. But, I can't because they aren't delinquent; they are following the agreement.

32 posted on 09/06/2012 9:51:42 AM PDT by tnlibertarian (Government's solution to everything: Less freedom.)
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To: AmericanSamurai

ya.. They can.

so if your a unemployed OWS type you get 15% of nothing.

a house is a house, if they destroy it the bank knows the home owners insurance is up to date because they require escrow.

No matter how you cut it, student loans are more of a risk.


33 posted on 09/06/2012 6:03:36 PM PDT by cableguymn
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To: cherry

No. you can’t file chapter 7 on them.

however, you can get on an income based repayment plan.

When we where down on our luck we used the plan. As long as our income remained low (less than 30K I think it was for a family of 4) the payment was 0.00 a month.

So there are MANY ways to avoid paying on the loan.


34 posted on 09/06/2012 6:06:28 PM PDT by cableguymn
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