Student loan bubble may be bursting

Federal government outlays hit an all-time record last month, at $429 billion, 33% higher than the $323 billion in outlays a year ago.
So what's that got to do with student loans?
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Outlays for the Department of Education rose by $31 billion (or 51 percent), because the department revised upward, by roughly $39 billion, the estimated net subsidy costs of loans and loan guarantees issued in prior years—a change much larger than last year’s $7 billion upward revision.

Overall student loan debt is $1.5 Trillion, larger than the GDP of Canada, and most of that is federal loans.
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That alone has bubble written all over it, but the default rate is beginning to say bust.

More than one million people defaulted on their student loans last year, compared to just 400,000 the year before... If the current default rate continues, we’re looking at 25% of all borrowers actually defaulting on their loans by next mid-term election.

Roughly 40% of student loans debtors are in default, 27 million people. It doesn't take a genius to see that these are unsustainable trends, but you may not realize how unsustainable.

Alan Collinge, the founder of Student Loan Justice, says that these efforts will not relieve current students of debt, nor will they protect future students from acquiring debt. He anticipates that this crisis will explode within the next 12 to 18 months. Nothing short of a student debt jubilee will work.

When this blows up a roughly $50 Federal surplus from these loans will turn into hundreds of billions of deficit.

Never fear. The Trump Administration has got this.

Step by step, the Trump administration is walking back policies and rules in higher education that its predecessor said were needed to protect students who rely on federal funding to pursue a degree.
...Another much-debated rule is “borrower defense to repayment,” which erases federal loans for students whose colleges used illegal or deceptive tactics to get them to borrow money to attend...Before those changes could take effect July 1, DeVos suspended them last month and said she would convene a committee to reconsider the matter.
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Comments

Big Al's picture

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3 users have voted.

@Big Al

Like seeing blood in the water, they're sharks

I'd compare them to a cult.
When it start to become obvious that their religion is failing the first thing a cult does is double-down by burning heretics and demanding more sacrifices.

The day they demand we all drink the poisoned koolaid is in our near future.

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24 users have voted.
Big Al's picture

@gjohnsit @gjohnsit

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3 users have voted.

@Big Al of character; merely justification of one's interests. Character is the crystallization of habitual value-giving (aka 'worship' -- the state of giving worth).

Say, the value (worship) given by someone or some types of people to any event is 'how do I get money or power from this situation?'

So actually the function is more like a cult than anything else. No different from Rev Jim Jones or Rev Moon who each had a highly detailed ideology. But the ideology exists as a mask for raw power. That's why, in practice, every ideology ends up in self-contradiction before too long; the purveyors haver to hide their real values. Intrinsic to false rationalizations.

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15 users have voted.

@Big Al
Nobody is suggesting we can work with Ted Cruz. But some of the people who voted for Trump after hearing him proclaim he knew they'd been screwed and would get their jobs back; would provide better, cheaper health care for every American; and would not cut Social Security or Medicare while Her showed every indication of contempt for their plight and sat around calculating how many suburban Republican votes she could get for one Democratic worker, just might react to what Trump is doing the way they ultimately reacted to what Obama did.

Polls show these people already oppose any decrease in social security benefits, want the cap on Social Security taxes raised, support the breakup of big banks, think rich people should pay higher taxes, and a plurality of them apparently support some form of universal health care.

After the Nazi attack on the USSR many were shocked that Churchill was sending them desperately needed supplies. He responded that if Hitler invaded hell he would at the very least make a favorable reference to the devil in the House of Commons.

Coalitions are built issue by issue. I don't think we can afford to exclude any potential ally.

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22 users have voted.
dkmich's picture

@Big Al

Hardly fair to the people who responded to them or us readers coming in late.

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12 users have voted.

*donate *follow us on Twitter *like us on Facebook

Pricknick's picture

No network associated with the MSM is reporting this.
Snark big time.
You must live a tormented life gjohn. For all you do, this middle finger is for you.
Well done.

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15 users have voted.

Regardless of the path in life I chose, I realize it's always forward, never straight.

snoopydawg's picture

Another much-debated rule is “borrower defense to repayment,” which erases federal loans for students whose colleges used illegal or deceptive tactics to get them to borrow money to attend...Before those changes could take effect July 1, DeVos suspended them last month and said she would convene a committee to reconsider the matter.

Why didn't Obama pass this legislation earlier so that the republicans couldn't have time to overturn it?
He had to know that they could overturn his legislation during a certain time period after he left office.

Didn't he campaign on making student loans more affordable by letting the government make them?
This was during his first campaign.
Wasn't it Biden's bankruptcy bill that made it so that student loans couldn't be discharged by bankruptcy?
Compare the massive amounts of these loans to the trillions that the banks received from the federal reserve after they crashed the global economy.

Imagine if the bailout money was allocated to us instead of the banks. People would have been able to pay their mortgages, pay off their car loans or buy new ones and all the other ways that money could have been used instead of only bailing out the banks. The banks would get an influx of money to help them pay off their bad debt. Or would that not work the same way?

The banks got much more than the $700 billion that people think they got. The federal reserve gave them trillions and many banks were foreign ones. Why was it our government's responsibility to help them?

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29 users have voted.

The Democrats are beyond morally bankrupt. The Party’s very soul has been replaced with pure ratfuckery.

@snoopydawg It's this big club. Obama has achieved a platinum status for his unswerving loyalty to his constituents. (ie, other club members).

Proud Demexit here.

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19 users have voted.
snoopydawg's picture

@exindy before Hillary blames Comey, Russia and the voices in her head, she should blame Obama for Trump's sitting in the Oval office instead of her.
After all, it was Obama's failure to prosecute Wall Street that set the stage for Trump sitting in the White House instead of her.

But his failure to prosecute Wall Street executives for causing the collapse of the housing market ushered in an era of populist rage that cleared the path for a demagogic reality-TV star to take the Oval Office, according to Jesse Eisinger’s new book, The Chickenshit Club, which hit shelves on Tuesday.

“If they had, the history of the country would be different,” Eisinger, a veteran financial reporter at ProPublica whose investigation on shady crisis-era Wall Street practices won a Pulitzer Prize in 2011, told HuffPost by phone. “We would think of the financial crisis differently, think of the Obama administration differently; there would be a sense that the government was legitimate. There would be a sense of accountability after the crisis, the reforms would be tougher.”

There it is. One of the biggest reasons that Hillary is lost in the woods drinking wine, while Trump is sitting in the place that she imagined she would be her whole life.

Has anyone seen the Clintons and the Obamas hanging out since Barry danced out of the Oval office to reap his reward for allowing the banks to foreclose on over 9 million homes while he stood in front of the pitchforks for them?

Gawd, to think that I believed his 'Hopey Changing' bullshit bait and switch campaign promises.
Oh well, he at least saved us from having the Clintons back in the WH to finish what Bill couldn't.
BTW, she could blame her husband too for her loss since he was responsible for this shit to happen in the first place when he purposely blew up Glass-Steagal that set the stage for the global economic crash.
Or she could just blame herself since she was on board with all of Bill's policies that damaged this country.
Yep. I'm going with that.

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19 users have voted.

The Democrats are beyond morally bankrupt. The Party’s very soul has been replaced with pure ratfuckery.

snoopydawg's picture

@snoopydawg
Bush I prosecuted 1,000 people after the Savings & Loan scandal and look what Bush the Lessor did:

That year, President George W. Bush, eager to steady a quivering economy, signed an executive order establishing the Justice Department’s Corporate Fraud Task Force. The team of prosecutors would ultimately bring down Enron in what became the world’s most infamous accounting-fraud scandal. But before toppling the energy-services company and sending its top executives to prison, DOJ investigators would snag another big fish, catching Arthur Andersen shredding its audits of Enron. In June 2002, the world’s fifth-biggest accounting firm effectively shut down after a conviction for obstructing justice

Even if those convictions didn't stand, at least Bush tried to hold them accountable.

It looks like Wall Street smartened up after that and instead of risking prosecution for their many crimes, they bought their own president and then picked his cabinet for him.

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14 users have voted.

The Democrats are beyond morally bankrupt. The Party’s very soul has been replaced with pure ratfuckery.

@snoopydawg to "reach across the aisle" and snuggle with his Republican friends. Typical Obama: everyone had to love him before he could proceed.

He also assumed Hillary would win. Hence, no problem with last minute rule changes.

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12 users have voted.

@snoopydawg

Wasn't it Biden's bankruptcy bill that made it so that student loans couldn't be discharged by bankruptcy?
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13 users have voted.
Meteor Man's picture

@gjohnsit And Diane Feinstein pushed it out of her committee so it could be voted on. Good Old Joe and Princess Di were the Democratic whips. Here's the timeline:

2005: The US Supreme Court upholds the government's ability to collect defaulted student loans by offsetting Social Security disability and retirement benefits without a statute of limitations. See Lockhart v US (04-881, December 2005).

2005: An amendment enacted by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (P.L. 109-8, 10/17/2005) added an exception to discharge for qualified education loans, which includes most private student loans. Before this amendment only private student loans made under a "program funded in whole or in part by a governmental unit or nonprofit institution" were excepted from discharge. However, most private student loans included a nonprofit organization as the guarantor, and the courts have interpreted such loans as excepted from discharge.

http://www.finaid.org/questions/bankruptcyexception.phtml

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12 users have voted.

Cali Kush: a bowl a day keeps the doctor away.

Sandino's picture

The federal government has all the money it needs, it is only constrained by potential inflation; deficits don't matter, so a student debt jubilee would be an awesome thing... I mean, won't somebody think of the housing markets?

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16 users have voted.
mimi's picture

I mean why not just not get a college education anymore? That seems to be smart, don't you think?

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6 users have voted.

"History is what the present chooses to remember" - Eric Foner

the college degree is to be a class symbol worn by the elite.

exceptions made for "useful people" but the preference will be technical training by employers.

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11 users have voted.

The student loan "crisis" is a symptom of the problem. The higher education industry in this country has been privatized and profitized to the point where it is causing the failure of the capitalistic model.

It's an example of a variation of Gresham's Law... that if cheating isn't penalized after a while only cheaters who cheat the best remain.

The cost of higher education has gotten out of control. The market cannot bear the cost so they turn to loans. (Which gets them into the other cheating market.) As an example, look to the textbook situation. That's a place where the collusion between the educators, the publishing industry and the retail outlets has reached RICO proportions. And absolutely no regulatory oversight.

And that goes for the "fees", the funneling of money into the sports programs which provides returns to investors, all the baksheesh for developments, housing.

It's a grand racket and results in an extreme exploitation of a desperate consumer who has no alternative.

Which gets me to this grand idea of "free" college. Watta crock. Nothing more than a blind eye to extortion by the investor class and a shift of those exorbitant costs to a taxpayer who is being pulled by all the other markets. Unless that "free" college includes an extreme correction to the profit-oriented education industry we'll just dig even deeper until eventually the whole thing collapses.

Same, same for "Net Neutrality" -- the solution to that is broadband as a public utility.

Same, same for health insurance -- the solution to that is single payer, medicare to all, with a regulatory correction to the profit oriented medical care system.

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25 users have voted.
gulfgal98's picture

@exindy First this:

The student loan "crisis" is a symptom of the problem.

The problem is the privatization of the public commons.

The cost of higher education has gotten out of control. The market cannot bear the cost so they turn to loans. (Which gets them into the other cheating market.) As an example, look to the textbook situation. That's a place where the collusion between the educators, the publishing industry and the retail outlets has reached RICO proportions. And absolutely no regulatory oversight.

The overall problem is that our government has been completely and wholly captured by corporations. We cannot solve the symptoms of the problem without defining and solving the underlying causes of it. The education loan system is simply another horrendous problem created by our legislators who are more beholding to corporate influence than to representing the people who elected them.

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18 users have voted.

"I don't want to run the empire, I want to bring it down!" ~Dr. Cornel West "...isn't the problem here that the government takes on, arbitrarily and without justification, an adversarial attitude towards its citizenry?" ~CantStoptheMacedonianSignal

Meteor Man's picture

Another sub prime bubble disaster.
Two articles from May comparing sub prime auto loans to the housing bubble:

Auto loan Fraud Soars:
https://www.google.com/amp/s/www.bloomberg.com/amp/news/articles/2017-05...

Liar Loans And Auto Loan Backed Securities:
https://www.google.com/amp/s/seekingalpha.com/amp/article/4075987-liar-l...

Here we go again. A bigger and better economic collapse, coming soon to a theater near you!

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17 users have voted.

Cali Kush: a bowl a day keeps the doctor away.

@Meteor Man
the auto loan bubble still has a ways to go because the default rates are still low.

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8 users have voted.
Meteor Man's picture

@gjohnsit Thx

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7 users have voted.

Cali Kush: a bowl a day keeps the doctor away.

CB's picture

fryer at McD's? I understand that a three year Bachelor's Degree in Culinary Arts is now required to flip burgers.

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8 users have voted.

link

College tuition hikes and the resulting increase in student debt burdens in recent years have caused a significant drop in homeownership among young Americans, according to new research by the Federal Reserve Bank of New York.

The study is the first to quantify the impact of the recent and significant rise in college-related borrowing—student debt has doubled since 2009 to more than $1.4 trillion—on the decline in homeownership among Americans ages 28 to 30. The news has negative implications for local economies where debt loads have swelled and workers' paychecks aren't big enough to counter the impact. Homebuying typically leads to additional spending—on furniture, and gardening equipment, and repairs—so the drop is likely affecting the economy in other ways.

As much as 35 percent of the decline in young American homeownership from 2007 to 2015 is due to higher student debt loads, the researchers estimate. The study looked at all 28- to 30-year-olds, regardless of whether they pursued higher education, suggesting that the fall in homeownership among college-goers is likely even greater (close to half of young Americans never attend college).
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In fact, most recent college students are struggling with their loans, according to the New York Fed. More than half of students who left college in 2009 had either defaulted, missed at least four months of required payments, or were facing higher loan balances five years later.

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4 users have voted.

The conservative (Repub and Dem) plan to destroy higher education is finally revealed.

Step by step, the Trump administration is walking back policies and rules in higher education that its predecessor said were needed to protect students who rely on federal funding to pursue a degree.

Create a bubble in student debt, and use it's collapse as the excuse to shut down federal education funding.

That will normalize the high default rates and lack of funding. No family in their right mind will consider borrowing for college if this happens. Voila, elimination of higher education for the poor & middle classes as been achieved.

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