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

Sense on Cents ^ | 09/06/2012 | Larry Doyle

[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.

[SeekAndFind]

A Wall Street veteran's views and instincts on the markets, economy, and all things financial.

[Buckeye McFrog]

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

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

[SeekAndFind]

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.

[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?

[PapaBear3625]

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.

[circlecity]

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

[cuban leaf]

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

[Born to Conserve]

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

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

[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)

[rdcbn]

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.

[Plumres]

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.

[cuban leaf]

—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!

[Baynative]

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.

[trapped_in_LA]

“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.

[Springfield Reformer]

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.

[PeterPrinciple]

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)

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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.

[PGR88]

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.

[Buckeye McFrog]

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.

[cableguymn]

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

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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%.

[cherry]

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....