Student Loan Bubble: The Hidden Reality (It's worse than we think)

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.

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.

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.

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.

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.

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.

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.

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The Kenyan must go.