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The Student Loan Bubble In 19 Simple Charts

Tyler Durden's picture




 

A picture paints a thousand words but in the case of the world of college education (and its surrounding income, unemployment, debt burden, and pricing implications), we decided 19 charts was the simplest way to explain the path to debt servitude that an increasing share of the US population is taking - despite record delinquencies, falling real incomes for graduates, stagnant graduate employment, and rising college costs. As BofAML notes, the cost of higher education has continued to climb, fueled by debt and government aid. Over the past twenty years, tuition growth exceeded the average rate of inflation by nearly 3% annually, while both grant aid and Federal loans per full-time undergraduate exceeded by about 5% annually. This trend is not sustainable, in our view. The challenging labor market, which has left the youth population underemployed and underpaid, has put the spotlight on the burden of student debt. We expect a correction in the price of tuition and reduction in debt. There will likely be lasting effects on the economy from the high cost of education and large debt burden. Graduating during a recession leads to permanently lower earnings growth, making it that much harder to service the debt burden.

 

Enrollment in college has never been higher...

 

Which appears to have spurred a post-Lehman jump in Federal Aid and Loans...

 

And sure enough - Student debt has taken over the 'debt' lead from credit card and auto debt...

 

And as with every credit-fueled bubble - this has inflated the price of the good or service...

 

But has NOT benefited the 'student' in reality as real income of college grads has fallen just as fast as high school grads since 2007...

 

...though over a longer period - an extended academic career has paid off (so more college and more debt is better?)...

 

of course, corporations have been quick to recognize the money flow and degree granting institutions have risen dramatically...

 

and the money flows to best ranked schools - which incentivizes raising fees in a 'Prisoner's dilemma' world... (dominant strategy is to raise tuition - as indicated by the green arrows)

 

So while firms are doing well, the 'product' they are selling is not helping as employment remains low for 20-24 year olds...

 

and young adults are increasingly leaving the workforce in a hurry...

 

or taking part-time jobs...

 

leaving the burden back on the parents...

 

but the jobs that are expected to grow are the low-paying jobs...

 

But what will change after the election - especially for the for-profit education companies...

 

As the government provides an increasing share of the massive student loan market...

 

leaving the student burdened with government loans...

 

as even the lowest income grads are getting assistance in record amounts via Pell Grants...

 

but delinquencies are rising...

 

at record rates...

 

There will likely be lasting effects on the economy from the high cost of education and large debt burden. About 68% of students in private four-year schools have taken on debt, 60% in public four-year and nearly 85% in for-profit four-year. The average debt for an undergraduate upon graduation is $25,000; more than half of the average starting salary. Underutilization in the labor market and high student debt has delayed life decisions such as household formation and discouraged new credit creation. Graduating during a recession leads to permanently lower earnings growth, making it that much harder to service the debt burden.

 

Source: BofAML

 

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Fri, 09/28/2012 - 10:21 | 2838662 riphowardkatz
riphowardkatz's picture

Long tatoo parlors.

Fri, 09/28/2012 - 10:23 | 2838672 Debtonation
Debtonation's picture

Don't forget your free Obama Phone courtesy of President Obama!

http://obamaphone.net/

And the free Obama internet while your at it!

http://www.cheapinternet.com/

Fri, 09/28/2012 - 10:27 | 2838698 GetZeeGold
GetZeeGold's picture

 

 

Tommy. get on your Obama phone and get a job.

 

Now pay off your loan.....how hard is that to understand?

Fri, 09/28/2012 - 11:24 | 2839005 Joshua_D
Joshua_D's picture

Don't be silly, GZG.

Tommy, borrow some money from your parents if you have to and pay off that student loan. How hard can that be?

Fri, 09/28/2012 - 17:03 | 2840088 AldousHuxley
AldousHuxley's picture

idle young, super wealthy old

 

America is primed for either invasion by foreign powers or destruction within.

 

more debt = more power to those with capital

 

young almost never have capital.

Fri, 09/28/2012 - 10:27 | 2838702 LULZBank
LULZBank's picture

Food stamps... free mobile and internet for online dating and porns. What more can you want!!!

Fri, 09/28/2012 - 11:49 | 2839110 Temporalist
Temporalist's picture

I watch porn while standing on line in for welfare.  I love Obomba.

Fri, 09/28/2012 - 10:42 | 2838791 greyghost
greyghost's picture

the only chart of the day i want to see! when the 50dma crosses over the 200dma on the $silver chart...oh yea!

Fri, 09/28/2012 - 10:50 | 2838829 magpie
magpie's picture

Lame and uncool, why no ObamaIphones or Opads ?

Fri, 09/28/2012 - 10:58 | 2838872 derek_vineyard
derek_vineyard's picture

pot prices are dropping as increased competition due to mass influx of semi-illegal college educated pot farmers can only find meaningful employment in this industry

Fri, 09/28/2012 - 13:20 | 2839393 NooooB
NooooB's picture

You know? That doesn't really bother me considering the way the cellphone and internet providers run their monopolies.. I isn't until you get cell service in another country that you realize how the American consumer is getting screwed. It also surprises me that more american households don't share internet connections. From my computer I can see at least three of my neighbors wireless at decent signal strength. If we shared, our internet bill would be $10/month...

What does bother me about it now that I think, is that there are probably Govt subsidies paid to the cell/cable companies @ their normal rates. Instead of the Govt just saying "It's our bandwith. We're paying you so much for the infrastructure and that's it.."

Not trolling on purpose I promise... Just my thoughts..... Let the downvotes commence!

Fri, 09/28/2012 - 10:25 | 2838683 slaughterer
slaughterer's picture

The student loan bubble is no secret.  The best way to trade it is however a secret.

Fri, 09/28/2012 - 10:31 | 2838727 LULZBank
LULZBank's picture

I'm sure you will share it with your ZH brothers.

Fri, 09/28/2012 - 10:26 | 2838695 urbanelf
urbanelf's picture

Long tatoo parlors, short books pair trade.

Fri, 09/28/2012 - 10:57 | 2838865 Rainman
Rainman's picture

Long scooters, bicycles and trailer parks.

Fri, 09/28/2012 - 13:09 | 2839367 otto skorzeny
otto skorzeny's picture

Long hot college chicks getting into porn to make $

Fri, 09/28/2012 - 16:31 | 2840000 Larry Dallas
Larry Dallas's picture

Long Carlton Sheets.

Fri, 09/28/2012 - 10:50 | 2838827 libertus
libertus's picture

Here is a good article that talks about the social implication of the bubble. 

http://vermont.academia.edu/RobertSkiff/Papers/1296007/Blowing_the_Last_...

It warned about this issue and told people to prepare. They just did not listen and now the whole system is about to crumble. 

 

 

Fri, 09/28/2012 - 11:32 | 2838679 LMAOLORI
LMAOLORI's picture

 

 

Upside not to worry according to Forbes the U.S. can't default (sarc).  Downside they will just make you and your children into even bigger debt slaves to bail out the rest of the loans (not covered in the obama student loan forgiveness program) for the votes

 

It Is Impossible For The US To Default

 

Obama Student Loan Forgiveness

 

 

Fri, 09/28/2012 - 10:28 | 2838706 BrigstockBoy
BrigstockBoy's picture

"I've never let school interfere with my education." - Mark Twain

Fri, 09/28/2012 - 10:30 | 2838722 becky quick and...
becky quick and her beautiful mouth's picture

eminence front, it's a put on.

Fri, 09/28/2012 - 11:02 | 2838893 foodstampbarry
foodstampbarry's picture

shares crash, hopes are dashed

people forget

forget their hiding.

 

...que Entwistle's bass

Fri, 09/28/2012 - 10:31 | 2838728 slaughterer
slaughterer's picture

OT: seems like EUR/USD has not made its bottom yet.  

Fri, 09/28/2012 - 10:32 | 2838729 Aegelis
Aegelis's picture

As a life-long debt slave to my education, I'm sad to see that soon I'll no longer be in the minority.

Fri, 09/28/2012 - 10:32 | 2838731 ebworthen
ebworthen's picture

Don't let anyone tell you that State Colleges and Universities are not "for profit" companies.

Fri, 09/28/2012 - 11:22 | 2838998 MachoMan
MachoMan's picture

It's a term of art...  it simply means that retained earnings are handled a bit differently...  and upon its eventual liquidation, that's handled a bit differently too.

However, during its operation, its employees and handlers can pull every last dollar out of it just the same as its "for profit" counterpart.  I honestly think many, many more nonprofits will be created in the future to take advantage of quite a few glaring inadequacies in the law and law enforcement.

Fri, 09/28/2012 - 11:54 | 2839132 DUNTHAT
DUNTHAT's picture

SAME GOES FOR HOSPITALS !!!

Fri, 09/28/2012 - 10:32 | 2838735 yogibear
yogibear's picture

Government aid is helping universities to raise prices. The tuitions have become outrageous. 

Banksters keep making irresponsible loans to students who cannot pay them back because they know it's government backed.

Time for universities to cut expenses big time because the marketplace will do it for them.

People cannot afford further tuition increases. It's gonna bust! A four year state education on campus is already over $100,000. Average was 5 years. 

Fri, 09/28/2012 - 10:37 | 2838758 NumNutt
NumNutt's picture

Great, looks like the USA will be able to claim that we have the most highly educated McDonalds employees of the free world.

Fri, 09/28/2012 - 10:38 | 2838762 adr
adr's picture

I graduated in 2000 with a computer science and design degree from a major institution. Putting that on my resume is still a giant blackball. 90% of my graduating class lost thier job within one year of graduation and the majority of us did not get another job  outside of part time work for a few years while the economy recovered.

In my industry a year out of the workforce may have well been a decade. When hiring started again companies wanted to hire new graduates over the 2000 class, because the new graduates would not only work cheaper, but were more up to date with newer software.

There really is no reason to go to college anymore unless you have connections that can land you a job after you graduate. If you have the connections, you probably don't need to learn a thing in college to get that job. So college will be an endless party. This makes sure the least deserving continue to be handed everything at the expense of those who work hard.

Fri, 09/28/2012 - 10:56 | 2838863 HoofHearted
HoofHearted's picture

You do have to learn your stuff someplace and be able to complete tasks. But you don't neceessarily need a piece of paper that says you went someplace four years (or more) to learn said stuff. I've spent the last four weeks taunting my classes, telling them they need to consider whether they really need to understand the calculus or not. I ask them to constantly be thinking "Who gives a damn?" and to voice the question often. Then, we actually get someplace. Sure, I lost a quarter of the class already. See...someone with a whole stack of degrees actually does think every once in a while. (I also teach some game theory...)

Besides an inflated student body, we have a lot of dead wood on the faculty. Yes, Krugman, I'm looking at you.

Fri, 09/28/2012 - 10:38 | 2838767 lynnybee
lynnybee's picture

this is the biggest bunch of bullshit crap that's ever been perpetrated on the youth of this country, deliberately the banks suckered & swindled them into debt with the lure of easy money.   indebt countries, indebt companies, indebt families, indebt youth.   walk away from this bullshit & fight back against this deliberate debt slavery.   so, that is all we really are, real people to extract wealth from & enrich these s.o.b.'s.    banks now disgust me.

Fri, 09/28/2012 - 10:46 | 2838814 Vincent Vega
Vincent Vega's picture

Amen!

Fri, 09/28/2012 - 10:52 | 2838836 dwdollar
dwdollar's picture

Don't forget public schools... they hammer college into their heads beginning on the first day of middle school and don't relent until the last day of high school.

Fri, 09/28/2012 - 11:00 | 2838887 Rainman
Rainman's picture

no wonder I can't find a competent plumber !

Fri, 09/28/2012 - 13:07 | 2839364 SamAdams1234
SamAdams1234's picture

Goldman Sacks vocational training schools took up the vocational training 'slack.'

Fri, 12/21/2012 - 12:25 | 3087065 kall
kall's picture

Good point! I actually don't think we needed 19 charts to see the situation explained, I think one chart would have been enough, we all live in the same economic times, we're aware with the student loan related disasters. My kid is already setting a life purpose that doesn't involve any type of loan, I don't blame him...

Fri, 09/28/2012 - 10:40 | 2838782 Chump
Chump's picture

Gonna be lots of 20-24 year olds with nothing to do when the riots start, and nothing to lose.

Fri, 09/28/2012 - 13:05 | 2839357 Totentänzerlied
Totentänzerlied's picture

Indeed! We youth are civic-minded, politically competent, and passionate about --- oops Here Comes Honey Boo Boo Season 2 Season Premiere is on (followed by all new Dancing with The Stars: All Stars), I'm out y'all!

--Sent from my iPhone5

--Like this on Facebook

Fri, 09/28/2012 - 14:22 | 2839607 r3phl0x
r3phl0x's picture

I predict at least a 1:1000 drone:student kill ratio.

Fri, 09/28/2012 - 10:43 | 2838796 Village Smithy
Village Smithy's picture

A lot of work went into this excellent slidedeck, thank you. Young people are adjusting to this unfortunate new reality. They are lowering their expectations and their desire to consume. They are hooked on their smartphones, yes, but that is about it. Sorry Wall Street, you've killed the goose.

Fri, 09/28/2012 - 10:44 | 2838800 Fix It Again Timmy
Fix It Again Timmy's picture

Take out a student loan and buy physical gold and silver with the money; that's a good way to begin real education...

Fri, 09/28/2012 - 11:44 | 2839097 MachoMan
MachoMan's picture

In how prison works?  (student loan fraud)

Fri, 09/28/2012 - 11:01 | 2838842 “Rebellion to t...
“Rebellion to tyranny is obedience to God.”-ThomasJefferson's picture

Historically, when the 18-25 year old male unemployment level creeps up into the mid 20's, the banksters/crony capitalists/political whores start a war and try to kill off a good percentage of these hapless victims.

Now, the USA, with a volunteer fighting force of Phllipinos, Central Americans, and a sparse assortment of American citizens, along with some very heavy handed use of weaponized drones; our "esteemed" leaders are going to have to figure a new way to kill off a shitload of our unemployed young men here, and throughout the world.

My guess is in the coming months, some government laboratory will dream up something diabolical, and tens, if not hundreds, of millions world wide will die off because of some unknown and incurable virus.

 

Fri, 09/28/2012 - 10:52 | 2838843 slaughterer
slaughterer's picture

The institutionally-analyzed and recommended selective QE3 trade is still on: we are observing rotation into all the "quality" QE3 assets even today.  AAPL is not one of them.    

Fri, 09/28/2012 - 10:54 | 2838853 57-71
57-71's picture

See now here is where the government and education systems brainwashing really shines.

Get these young people to pony up borrowed $$ for something that is rapidly becoming redundant.

The alternative (which learning institutions rarely acknowledge) is the always highly sought after mechanical trades - specifically electrical, instrumentation, mechanic, millwright, welder fabricator. There will always be a need to repair equipment.

The real rub? People get paid for the training. After 4 or 5 years of training and practical experience, complemented by progressive increases in pay, the student has earned many times over what his peer has in educational debt.

And, the pay rate for the occupations is more than most degreed people earn for many years.

As an example, a qualified diesel mechanic or electrician willing to work a few years in harsh remote environments, and overtime hours, can easily pull in $225,000p/a.

 

 

Fri, 09/28/2012 - 11:33 | 2839048 GeezerGeek
GeezerGeek's picture

Train to be a blacksmith. There aren't many left, and sooner or later making horseshoes and swords by hand will be back in demand. Alternatively, become an armorer/gunsmith. Same logic.

Fri, 09/28/2012 - 12:03 | 2839163 Thisson
Thisson's picture

Not many twenty-somethings want to repair excavation equipment in the artic circle.  Nor should they.

The kids should be getting an education, but the price is wrong.  Get government credit out of the equation, and a college education shouldn't cost more than about $20,000.  It should actually cost much LESS because all the texts and lectures should be available online, similar to how Khan Academy does it.

Fri, 09/28/2012 - 19:21 | 2840428 57-71
57-71's picture

And then what?

40k p/a to input data? Or sell Obama phones?

Fri, 09/28/2012 - 10:55 | 2838855 EvlTheCat
EvlTheCat's picture

Tyler Friday chart porn, bitchez!

Fri, 09/28/2012 - 11:01 | 2838888 nbsharma
nbsharma's picture

Great post.

Fri, 09/28/2012 - 11:06 | 2838923 The Reich
The Reich's picture

18 charts to much. That simple is it.

Fri, 09/28/2012 - 11:24 | 2839003 DavosSherman
DavosSherman's picture

Chart 19 is the only chart I need to see.

Fri, 09/28/2012 - 11:57 | 2839143 SyntheticFriday
SyntheticFriday's picture

So... chart 6 is labeled wrong, right?

Fri, 09/28/2012 - 12:48 | 2839317 clagr
clagr's picture

Can you imagine what the unemployment rate would be if all these 'new-old' students were out there looking for work instead of off the unemployed rolls?

Brilliant on Obamo's spin planners

Fri, 09/28/2012 - 12:49 | 2839320 clagr
clagr's picture

talk bout buying votes with taxpayer's money

Fri, 09/28/2012 - 12:57 | 2839340 gloogle
gloogle's picture

This god-damned crap is really pissing me off.  How in the hell are kids and their parents supposed to pay off all of this crushing debt?  Someone needs to rot in hell for this....

Fri, 09/28/2012 - 14:36 | 2839664 dolph9
dolph9's picture

Young people of America, are you starting to understand?

Your parents partied and now want to discharge their debts onto you.  Meanwhile, they offshored jobs to China and invited millions of illegals Mexicans to depress wages here.  They started wars in the Middle East so your brains could get blown out for the benefit of a few connected Jewish bankers and oil corporations.

And when their grand plans failed, they took trillions of your future money and handed it to the banks.

Not only that, but they think they're going to live forever, and collect retirement income forever.

And if you ever mention any of this?  "Let them eat iPads."

 

Now, I don't really know what the response to all of this should be.  But I know it does deserve some response or another.

 

Fri, 09/28/2012 - 16:29 | 2839991 Larry Dallas
Larry Dallas's picture

I see a terrific opportunity for the government to declare war and put these unemployed minions overseas in battlefields.

War is a very lucrative business for the government and all related entities. It has been and will be for several generations.

 

Fri, 09/28/2012 - 19:24 | 2840436 ZaphodBeeblebrox
ZaphodBeeblebrox's picture

Plz refresh me (I was in high school and perhaps not fully aware or remembering) what was going on in 1985 that the FPs (for profit schools) made a showing, that is noted in the first chart? Was that the real estate crash/S&L crisis (TX see-through buildings) driving people into school and presenting the opportunity for the FP schools to make a buck?

Fri, 10/19/2012 - 05:09 | 2903662 AmeliaV
AmeliaV's picture

If a college charges $20,000 for a four-year degree and a student cannot afford such an enormous sum of money then that institution loses a student.  Therefore, more and more students would not go to college and this would lead to these facilities to lower their tuition rates. A poorer education and costs have skyrocketed because of inflation and they don’t have jobs.  There’s nothing more dramatic failing than that program requiring additional instant payday advances.

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