Student Loans

More tips for the most-indebted graduate class ever...

With the class of 2015 graduating with a record amount of debt, one hopeful student appears to recognize her fate all too well...

As we have pointed out for a number of years, according to the payroll jobs reports, the complexion of the US labor force is that of a Third World country. Most of the jobs created are lowly paid domestic services. No economist should ever have accepted the claim that the economy was in recovery while participation in the labor force was declining. Having looked at the actual details of the payroll jobs report, which are seldom if ever reported in the financial media, let’s look at what else goes unreported in the media.

The graduating class of 2015 is the most heavily-indebted college class in history and the chart is "up and to the right," which in the case of student loans, is anything but encouraging. Fortunately, we have some advice for this year's graduating seniors...

In a quarter in which US GDP is set to decline consumer credit, according to the latest update from the Federal Reserve, increased by just over $45 billion. But how is it possible that with such a massive expansion in household credit there was no actual benefit to the underlying economy? Simple: 98% of the credit lent out in the first quarter, or $44.3 billion, went to student and car loans!

To paraphrase H.L. Mencken, anyone who wants the government and Federal Reserve to create a housing recovery, deserves to get it good and hard, like a four by four to the side of their head. Subprime mortgages, subprime auto loans, and subprime student loans driven by preposterously low interest rates are the liquefying foundation of this fake economic recovery. Most rational people would agree that loaning money to people who will eventually default is not a good idea. But it is the underpinning of everything the Fed and government apparatchiks have done to keep this farce going a little while longer. It will not end well – Again.

The past few years have been a period of relative stability for the U.S. economy.  A lot of people have been lulled into a false sense of security during that time.  These people have become convinced that our problems have been fixed.  But they haven’t been fixed at all.  In fact, our problems are far, far worse than they were just prior to the last financial crisis. Don’t let this next recession take you by surprise.

Although nearly 93% of parents say they expect their children to attend college, only 57% have either saved money or plan to save money for tuition. Those two figures don't match up, meaning someone will have to step in and fill the education funding void. Can you guess who it will be? 

We thought that at least the federal government would be interested in keeping the employment dream alive for the millions of students to whom it has loaned hundreds of billions of dollars in tuition money, which is why we assume this graphic is simply the result of someone making a very poor design choice...

Texas A&M Professor Irwin Horwitz was fed up with what he perceived to be disrespect and general incompetence on the part of his strategic management class so he did what many a college professor across the country has at one time or another dreamed of doing: he failed everyone.

Honest price discovery is essential to capitalist prosperity since it is the miraculous mechanism by which capital is raised from savers and investors and efficiently allocated among producers, entrepreneurs and genuine market-rate borrowers. What the central banks have generated, instead, is a casino that is blindly impelled to churn the secondary capital markets and inflate the price of existing assets to higher and higher levels - until they ultimately roll-over under their own weight. The Easy Button addiction of our central bankers is thus not just another large public policy problem. It is the very economic and social scourge of our times.

The sudden closure of Corinthian Colleges' remaining campuses has displaced some 16,000 students. If all of their student debt is canceled — which is possible — it will cost taxpayers more than $200 million. With the government cracking down on the for-profit education space and with nearly 90% of students at for profit-colleges dependent on loans, the demise of the for-profit model could end up costing taxpayers quite a pretty penny.

Some borrowers are allowed to remain in a perpetual state of default even as they avoid actual payment default and in the end, their loans are legally discharged at the expense of the US taxpayer. Meanwhile, the payments they aren't making appear to be classified by the Department of Education as both "in repayment" and "current." 

Operating and reported earnings have turned sharply lower over recent quarters which has historically been associated with major market peaks. As shown below, it is also important to notice that revenue has tended to lag these downturns in earnings previously. This is because the measures used to substantially boost profitability from each dollar of revenue generated through accounting gimmickry, share repurchases, and cost cutting are finite in nature. When the effect of those manipulations fade, so does the inflated profitability generated from each dollar of revenue. This will be something worth watching closely over the next few quarters particular as the commentary of a "continued secular bull market" continues to hit the headlines.

Moments ago the NY Department for Financial Services announced that, in what is the largest Libor settlement in history, Deutsche Bank would pay $2.5 billion "in connection with the manipulation of the benchmark interest rates, including the London Interbank Offered Bank ("LIBOR"), the Euro Interbank Offered Rate ("EURIBOR") and Euroyen Tokyo Interbank Offered Rate ("TIBOR") (collectively, "IBOR")."  Most importantly for DB's 98,138 employees is that while DB will "terminate and ban individual employees who engaged in misconduct" nobody will go to jail. Again. In other words it just cost DB's about $25,474 per employee to keep its Libor-manipulating employees (and thus, senior level management because the stench always goes to the very top) out of prison.