Tag Archives: Student Loans

The Student-Loan Fiasco: I’m Going to Wade into the Debate, But with my Boots On, by Wolf Richter

Student loans for higher education has become a very profitable racket. From Wolf Richter at wolfstreet.com:

The University-Corporate-Financial Complex is going to squeal.

OK, I’m going to wade into this debate. And I’m going to do it with my boots on.

The student loan fiasco – the pile of debt that has ballooned to $1.6 trillion – and what to do about it – particularly how much of that student debt to forgive at the expense of taxpayers – has now entered the list of presidential campaign promises.

These promises of student-loan forgiveness are efforts to buy votes at the expense of the rest of the taxpayers, whose money this is, on the principle that whoever proposes the biggest debt-forgiveness will get the most votes from those graduates and their parents.

I can’t blame them. It’s just too juicy a low-hanging fruit. If I were a politician running for office, I’d promise the same damn thing, and that’s why I’m not running for office.

But this $1.6 trillion is an asset on the government’s books. It was funded by tax receipts and debt that the government issued. If hypothetically, all students paid off their federal student loans today, the gross national debt would drop by 7%, from $22.5 trillion to $20.9 trillion.

Forgiving these student loans wipes out that asset, but the national debt that funded these student loans remains. That’s how that would work. There are no freebies, when it comes to debt.

Continue reading

11 Rage-Inducing Facts About America’s Wildly Out Of Control Student Loan Debt Bubble, by Michael Snyder

Michael Snyder exposes the student loan/higher education scam. From Snyder at theconomiccollapseblog.com:

Higher education has become one of the biggest money-making scams in America.  We tell all of our young people that if they want to have a bright future, they must go to college.  This message is relentlessly pounded into their heads for their first 18 years, and so by the time high school graduation rolls around for many of them it would be unthinkable to do anything else.  And instead of doing a cost/benefit analysis on various schools, we tell our young people to go to the best college that they can possibly get into and to not worry about what it will cost.  We assure them that a great job will be there after they graduate and that great job will allow them to easily pay off any student loans that they have accumulated.  Of course most college graduates don’t end up getting great jobs, but many of them do end up being financially crippled for decades by student loan debt.

Continue reading

Broken Promises, by MN Gordon

A lot of people are going to get screwed when the debt merry-go-round finally stops. From MN Gordon at acting-man.com:

Demanding More Debt

Consumer debt, corporate debt, and government debt are all going up.  But that’s not all.  Margin debt – debt that investors borrow against their portfolio to buy more stocks – has hit a record of $642.8 billion.  What in the world are people thinking?

A blow-off in margin debt mirroring the blow-off in stock prices. Since February of 2016 alone it has soared by ~$170 billion – this is an entirely new level insanity. The current total of 643 billion is more than double the level of margin debt at the tech mania peak and 15.4 times the amount of margin debt just before the crash of 1987. [PT]

Clearly, they’re not thinking.  Because thinking takes work.  Most people don’t like to work.  They like to pretend to work.

Similarly, people may say they care about debt.  But, based on their actions, they really don’t.  When it comes to the national debt, the overarching philosophy is that it doesn’t matter. Government debt certainly doesn’t matter to Congress.  Nor does it matter to the President.  In fact, their actions demonstrate they want more of it.

Big corporations with big government contracts want more government debt too. Their businesses demand it. They’ve staked their success on the expectation that the debt slop will continue flowing down the trough where they consume it like rapacious pigs.

The higher education bubble is also based on a faulty foundation of debt. The business model generally requires signing credulous 18 year-olds up for massive amounts of government backed student loans. From what we gather, federal student loan debt is closing in on $1.4 trillion.

Total student loans outstanding (red line – the data are only available from 2007 onward) and total federal government-owned student loans (black line). The former figure was closing in on $1.5 trillion as of Q4 2017. [PT]

Now what would happen to all these high paid professors and fancy country club style college campuses without all this government sponsored debt? The automobile business is also based on a model that demands more debt.  Outstanding auto loan debt is now somewhere around $1.2 trillion.

To continue reading: Broken Promises

 

Millions Of Millennials Could Be Trading Sex For Their Next Debt Payment – Here’s How, by Tyler Durden

Sugar Daddies, Sugar Mommies, and Sugar Babies; the explosion in student debt is creating a whole new set of relationships. From Tyler Durden at zerohedge.com:

As the storm clouds of peak stupidity gather over the heads of the millennial generation who were conned by banks, government, and universities to take out excessive amounts of leverage in auto loans, credit cards, and student debt; millions have flocked to a new website seeking ‘Sugar Daddies’ and or even ‘Sugar Mommies’ to pay off their debt amid an economic environment where wage growth remains non-existent.

Today’s real simple get-out-of-debt option for the broke college/post college millennial is through an unconventional dating website called SeekingArrangement.com.

In 2016, the website identified some 2.5 million college students who turned to the site in an act of desperation to find a ‘Sugar Daddy’ or even a ‘Sugar Mommy’ in exchange of personal time for straight cash.

The website’s mission is to “delivers a new way for relationships to form and grow. Sugar Babies and Sugar Daddies or Mommas both get what they want, when they want it”.

We find it hard to believe the intention of the website, when created by MIT graduate Brandon Wade in 2006, was to have 25% of the 10 million users—broke college millennials.

According to Business Insider,

 A couple years ago, the site noticed an uptick in the number of members signing up with a university email address, Alexis Germany, a spokesperson for SeekingArrangement.com, told Business Insider.

It decided to launch a marketing campaign – dubbed Sugar Baby University – targeting indebted college students and young people who are interested in college but afraid of taking on massive loans.

In total, Americans owe more than $1.3 trillion in student loan debt to federal government agencies and or private lenders.

To continue reading: Millions Of Millennials Could Be Trading Sex For Their Next Debt Payment – Here’s How

Student Loans and Healthcare – Two Issues that Will Define American Politics Going Forward, by Michael Krieger

Krieger is undoubtedly correct that student loans and healthcare are and will continue to be defining issues. It’s no coincidence that government’s involvement in both is extensive. From Krieger at libertyblitzkrieg.com:

Poverty demoralizes. A man in debt is so far a slave; and Wall-street thinks it easy for a millionaire to be a man of his word, a man of honor, but, that, in failing circumstances, no man can be relied on to keep his integrity.

– Ralph Waldo Emerson, Wealth

Liberty Blitzkrieg readers know that I’ve been extremely critical of our modern U.S. economy for nearly a decade now. I’ve used harsh, but entirely appropriate language, such as rent-seeking, parasitic and criminally corrupt to describe our current financial/economic system. These are not words I use lightly.

I have absolutely no problem with wealth differences within a society, even large discrepancies are fine as long as the general population is benefits substantially from overall growth trends. This is not the case in today’s economy.

I support a real free market economy where barriers to entry are low, and in which small business and competition thrives. Unfortunately, this is not the case in today’s economy. Rather, America has largely become a neo-feudal society where a mass of debt slaves are lorded over by government protected, monopolistic, rent-seeking oligarchs and racketeers.

Societies work when people think the system is fair enough and have genuine opportunity for success and standard of living improvement. Societies work when the people who become fabulously wealthy are individuals who have created a product or service that benefits society at large. In contrast, people shouldn’t become wealthy by preying on their fellow citizens and driving them into destitution and debt bondage, but that’s precisely what is happening in many industries today. Our society rewards the worst sort of behavior, and as we observed in the aftermath of the financial crisis, protects and further empowers white collar criminals for destroying the global economy.

To continue reading: Student Loans and Healthcare – Two Issues that Will Define American Politics Going Forward

 

This new bubble is even bigger than the subprime fiasco, by Simon Black

There are now more student loans outstanding than there were subprime loans at the height of the housing bubble. And just like those subprime loans, student loan repayment rates are faltering. From Simon Black at internationalman.com:

In 1988, a bank called Guardian Savings and Loan made financial history by issuing the first ever “subprime” mortgage bond.

The idea was revolutionary.

The bank essentially took all the mortgages they had loaned to borrowers with bad credit, and pooled everything together into a giant bond that they could then sell to other banks and investors.

The idea caught on, and pretty soon, everyone was doing it.

As Bethany McLean and Joe Nocera describe in their excellent history of the financial crisis (All the Devils are Here), the first subprime bubble hit in the 1990s.

Early subprime lenders like First Alliance Mortgage Company (FAMCO) had spent years making aggressive loans to people with bad credit, and eventually the consequences caught up with them.

FAMCO declared bankruptcy in 2000, and many of its competitors went bust as well.

Wall Street claimed that it had learned its lesson, and the government gave them all a slap on the wrist.

But it didn’t take very long for the madness to start again.

By 2002, banks were already loaning money to high-risk borrowers. And by 2005, all conservative lending standards had been abandoned.

Borrowers with pitiful credit and no job could borrow vast sums of money to buy a house without putting down a single penny.

It was madness.

By 2007, the total value of these subprime loans hit a whopping $1.3 trillion. Remember that number.

And of course, we know what happened the next year: the entire financial system came crashing down.

Duh. It turned out that making $1.3 trillion worth of idiotic loans wasn’t such a good idea.

By 2009, 50% of those subprime mortgages were “underwater”, meaning that borrowers owed more money on the mortgage than the home was worth.

To continue reading: This new bubble is even bigger than the subprime fiasco

 

Government is the Problem, by Jim Quinn

Some people have trouble connecting dots. Jim Quinn helps them with an article on rising costs and rising government involvement and incompetence in the fields of medical care and financing higher education. From Quinn at theburningplatform.com:

Here are two charts that show how successful, government solutions are for the citizens of this country. First off, even according to the manipulated and under-reported CPI figures, you have lost 65% of your purchasing power since 1978. Using a real measure of inflation, its closer to 85%, but why quibble. You are slowly but surely being impoverished by the Federal Reserve (aka Wall Street bankers) and the corrupt politicians you elected to represent your interests.

Doug Short presents the cost of college tuition, medical care and new cars over the last 38 years. One of these things is not like the other. The second chart shows the growth in Federal loans to students since 1995. You may notice that prior to the Federal government getting involved in college education, college tuition rose steeper than overall inflation but only by a moderate amount. My tuition at Drexel University in the mid-1980s was in the mid $5,000 range. I was able to work and pay the majority of my tuition, with only a couple thousand dollars in loans.

If you are perceptive (that leaves out all libs and government employees) you will notice that as the Federal government has doled out more loans, the cost of college tuition has skyrocketed. You see, just like welfare, you get more of what you subsidize. If the federal government is willing to give your tax dollars to every Tom, Muhammed, or Laquesha to go to college, demand will rise. Since the supply is limited, colleges can raise prices dramatically as they know the Feds are supplying the paper.
The truth is that more than 50% of the dolts matriculating into college using government debt are intellectually incapable of college level studies. If the Federal government kept their hands out of higher education and stopped loaning money they don’t have to idiots who can’t add, subtract, or multiply, the fly by night for profit diploma mills would collapse overnight. Without an endless stream of government debt, only kids who really wanted and were capable of getting a college education, would enroll. Tuition costs would plummet as the demand dried up and institutions had to compete on price.

Medical care costs have risen at more than twice the level of general inflation over the last 38 years. Again, the Federal government is the cause. The Great Society Medicare and Medicaid programs are a major factor. The massive level of government regulations, bureaucracy, and corruption does not allow a free market in medical care. Obamacare is a national clusterfuck or rules, regulations, fines, and incentives to drive up costs. The government colludes with mega-insurance companies to destroy any competition based on prices. Prior to 1964 sick people dealt directly with doctors and hospitals. Inserting the government and insurance companies between patients and doctors has destroyed free market competition and driven prices higher.

The proof that industries without major Federal government intervention keep prices low is seen in the new car data since 1978. The cost of a new car has risen at about one-third the rate of overall inflation and far lower than medical care or college tuition. Despite the GM and Chrysler bailouts by the Feds, there has been cut throat competition between automakers from around the world. They must compete on quality and price. Americans have a multitude of choices when buying a new car. They also have a choice to buy a used car. This truly free market keeps prices down.

Despite the fact that competition keeps prices low, the socialists think they can run education, health care, and the entire economy better than the free market. That’s why we’re $20 trillion in debt, with $200 trillion of unfunded liabilities. And the solution is to elect Crooked Hillary? WTF???

http://www.theburningplatform.com/2016/08/05/government-is-the-problem/

These Debt Slaves are the Government’s Largest Asset Class, and it will Haunt the Economy for Years, by Wolf Richter

Student loans are the gift that keeps on taking. Not only do they burden graduates with debt loads that in many instances they have trouble repaying, or are unable to, but they have propelled the price of college faster and higher than virtually any other price in the US economy the last 48 years. From Wolf Richter at wolfstreet.com:

“One of the biggest threats to our economic outlook.”

Endless discussions of how important inflation is to the US economy, and how there hasn’t been enough of it in recent years, and how more inflation would be a godsend, has become the standard. The threat of lethal deflation is being brandished to rationalize all kinds of absurd monetary policies. And we know why: inflation is good only for debtors, in an over-indebted country.

But that’s not true either. Because a lot of debtors, particularly those who funded their education with loans, are being strangled by … inflation.

“College Tuition and Fees constitute one of the biggest threats to our economic outlook,” writes Jill Mislinski at Advisor Perspectives, which runs an excellent series of analyses and updates on the topic.

The chart below (by Advisor Perspectives) shows the Consumer Price Index sub-component for college tuition and fees (red line) going back to 1978. It also shows the price increases of autos (blue line) and medical care (purple line), “both of which pale in comparison”:

Mislinski at Advisor Perspectives:

During the decade of the 1990s, when real out-of-pocket funding declined 25%, tuition and fees rose 92%, which sounds substantial … until you compare it to the 1272% across the complete data series. For early boomers (a decade before the time frame in the chart above) paying for college was sort of like buying a car. But in recent decades, it has become more like buying a house, for which the strategy of a minimum down payment is commonplace for first-time buyers.

The annual stair-step rise in college costs seen above is probably the most dramatic visualization of inflation data we routinely produce.

In a separate analysis, Advisor Perspectives today reported on the outstanding student loan balances for the first quarter, based on federal loans to students from the Fed’s Z.1 Financial Accounts of the United States. At $986 billion, the outstanding student loan balances have soared 853% since Q4 2007, when the Great Recession began — because there was never any recession for student loans:

But it’s even worse: This chart only shows data for federal loans to students. It does not include non-federal loans to students. No hard data exists for this. The New York Fed, which tracks household debt and credit via surveys, estimates that, based on its survey results, total student loans from federal and private lenders has reached a record $1.26 trillion. And it considers 11% of the outstanding balance in default!

Which begs the questions, as Advisor Perspectives puts it, “What line item is the largest asset in Uncle Sam’s financial accounts?”

Student Loans. They’re a liability for students and former students, often for decades to come. They crimp their spending behavior, delay home purchases, and trigger credit problems. Even hopelessly indebted student-loan debtors cannot get their student loans discharged in bankruptcy. But these loans are an asset to the other side.

To continue reading: These Debt Slaves are the Government’s Largest Asset Class, and it will Haunt the Economy for Years

Department of Education Wonders “Why 40% of Student Borrowers Don’t Make Payments”; Blame Bush (Seriously)! by Mike Mish Shedlock

From Mike Mish Shedlock at mishtalk.com:

Over 40 percent of those in student loan programs have stopped making payments. Many borrowers have never made any payments.

The department of education (a useless body that I would eliminate in one second if given the chance), cannot figure out why this is happening.

“We obviously have not cracked that nut but we want to keep working on it,” said Ted Mitchell, the Education Department’s under secretary.

The Wall Street Journal reports More Than 40% of Student Borrowers Aren’t Making Payments.

More than 40% of Americans who borrowed from the government’s main student-loan program aren’t making payments or are behind on more than $200 billion owed, raising worries that millions of them may never repay.

While most have since left school and joined the workforce, 43% of the roughly 22 million Americans with federal student loans weren’t making payments as of Jan. 1, according to a quarterly snapshot of the Education Department’s $1.2 trillion student-loan portfolio.

About 1 in 6 borrowers, or 3.6 million, were in default on $56 billion in student debt, meaning they had gone at least a year without making a payment. Three million more owing roughly $66 billion were at least a month behind.

Meantime, another three million owing almost $110 billion were in “forbearance” or “deferment,” meaning they had received permission to temporarily halt payments due to a financial emergency, such as unemployment. The figures exclude borrowers still in school and those with government-guaranteed private loans.

Navient Corp. , which services student loans and offers payment plans tied to income, says it attempts to reach each borrower on average 230 to 300 times—through letters, emails, calls and text messages—in the year leading up to his or her default. Ninety percent of those borrowers, which include federal borrowers as well as those who hold private loans, never respond and more than half never make a single payment before they default, the company says.

Crisis Easy to Explain

Carlo Salerno, an economist who studies higher education and has consulted for the private student-lending industry, noted that the government imposes virtually no credit checks on borrowers, requires no cosigners and doesn’t screen people for their preparedness for college-level course work. “On what planet does a financing vehicle with those kinds of terms and those kinds of performance metrics make sense,” he said.

To continue reading: Department of Education Wonders “Why 40% of Student Borrowers Don’t Make Payments”

The Great Student Loan Scam, by Doug Short

From Doug Short, on a guest post from theburningplatform.com, introduction from The Burning Platform:

Doug Short quantifies the amount owed to the government for student loans, but he doesn’t discuss the absolute fact that hundreds of  will never be repaid. The Obama administration is solely responsible for this disaster and they don’t give a shit. Keeping millions of morons in school artificially lowers the already fake unemployment figures. Doling out billions in loans to functionally illiterate dumbasses is a perfectly acceptable liberal solution.

The government is hiding the true disaster in plain sight. Obama has the balls to declare that “only” 11.6% of student loans are in default. Now that’s funny. Here are the facts:

•  Total student loan debt outstanding of $1.32 trillion.
•  The Federal government is owed $972 billion, up from the $945.6 billion in Doug’s article.
•  Loans in official default of $51 billion.
•  Loans officially in repayment of $400 billion – the other $500 billion isn’t due because the students are still in school or the government says they don’t have to pay because they have a good excuse (like the dog ate their homework).

According to the government that makes the default rate a high, but reasonable 11.6%. One problem. The total amount of debt that should be in repayment is $600 billion, not $400 billion. There is $200 billion of student loan deb that should be being paid back, but the government has either allowed forbearance or deferment. The reasons allowed for these categories are unemployment, non-full time job, or the ever popular financial hardship.

So in layman terms, that means that $200 billion is in DEFAULT. They aren’t paying because they can’t pay. Therefore, the true default rate is 38%, not 11.6%. Obama and his minions prefer the BIG LIE when reporting any statistic. And what’s worse, this is after shifting $200 billion of debt to their new and improved repayment programs with Orwellian names like: Income-contingent plan, Income-based plan, Pay As You Earn.

Obama and his Keynesian acolytes are doing everything in their power to shift hundreds of billions in bad loans onto the backs of taxpayers. Every time one of these fraudulent for profit diploma mills goes bankrupt or is charged with fraud by the government, they relieve the debt of the morons who were stupid enough to enroll in these criminal institutions. Relieving their debt means you pay. Easy peasy. Who could have possibly figured out the University of Phoenix, Corinthian, Devry, ITT, and the rest of the for profits were a fraud?

Obama continues to dole out over $100 billion per year in future bad debt to people intellectually incapable of succeeding in college, with no oversight, no realistic chance of getting repaid, and no concern for the massive budget implications. The losses to taxpayers will be in excess of $300 billion. So it goes.

Guest Post by Doug Short

Pop Quiz! Without recourse to your text, your notes or a Google search, what line item is the largest asset in Uncle Sam’s financial accounts?

A) U.S. Official Reserve Assets
B) Total Mortgages
C)Taxes Receivable
D) Student Loans

The correct answer, as of the latest quarterly data, is … Student Loans.

To continue reading: The Great Student Loan Scam