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Bernanke Just Assured That The Student Loan Bubble Will Be The Next "Financial Stability Issue"

Tyler Durden's picture




 

"At this juncture . . . the impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained" - Ben Bernanke, March 28, 2007

"I don’t think student loans are a financial stability issue to the same extent that, say, mortgage debt was in the last crisis because most of it is held not by financial institutions but by the federal government" - Ben Bernanke, August 7, 2012

 

Please mark your calendars accordingly as yesterday the Chairman just guaranteed that student loans will be cause for the next "financial stability issue."

Here are the facts, courtesy of a just released expose on the WSJ:

  • Rising college costs and a sagging economy are taking the biggest toll on a surprising group: upper-middle-income families.
  • According to a Wall Street Journal analysis of recently released Federal Reserve data, households with annual incomes of $94,535 to $205,335 saw the biggest jump in the percentage with student-loan debt from 2007 to 2010, the latest figures available. That group also saw a sharp climb in the amount of debt owed on average.
  • Ms. Hofmeister, an insurance broker and financial planner, says she and her husband, an operations manager, combined earn a six-figure income that puts them in the upper-middle class and were surprised by the amount they will have to borrow. She says she feels trapped in financial purgatory, between "people with lower incomes who have a lot of subsidy, and the truly affluent, for whom this isn't a problem."
  • The Journal's analysis defined upper-middle-income households as those with annual incomes between the 80th and 95th percentiles of all households nationwide. Among this group, 25.6% had student-loan debt in 2010, up from 19.5% in 2007. For all households, the portion with student loan debt rose to 19.1% in 2010 from 15.2% in 2007.
  • The amount borrowed by upper-middle-income families, meanwhile, has soared. They owed an average of $32,869 in college loans in 2010, up from $26,639 in 2007, after adjusting for inflation, according to the Journal's analysis.
  • The typical low-income family receives grants and scholarships totaling 36% of the cost, the lender says, while for higher-income families such packages total 21%.
  • More than three million households now owe at least $50,000 in student loans, up from about 794,000 in 2001 and fewer than 300,000 in 1989, after adjusting for inflation.
  • Some families are turning to loans because they spent heavily or used extra cash to save for retirement. More than one-third of parents with incomes of $95,000 to $125,000 with a child who entered college in 2011 didn't save or invest for that child's education, according to a survey by education consultants Human Capital Research.
  • With their finances strained, some higher-earning parents are making their children pick up more of the tab. Among families earning $100,000 or more, students paid 23% of their college costs in 2012 through loans, income and savings, according to Sallie Mae, up from 14% in 2009; the share covered by parents fell to 52% from 61%.

And last but not least, those ever-altruistic baby boomers:

"The boomers are the first generation shifting the cost of college to their kids," both through increased student borrowing and reduced taxpayer support for higher education, says Susan Dynarski, a professor of education and public policy at the University of Michigan.

Because leaving them with $16 trillion in public debt is not enough.

* * *

Here is the issue in a nutshell: college tuition, just like government spending, is off the charts. Both are so high, that on an unlevered basis, the payback rate is N/M. Note the use of the world "unlevered" as it is one which will never occur, before the next systemic reset, when talking about anything involving the government. And what leverage does is mask true supply and demand. If college tuition was representative of real supply and demand, prices would be tumbling on average. Instead the easy access to student debt makes college seem quite affordable at any price point and thus there is no pressure to lower the equilibrium price. Which explains this chart, where the government-funded student debt surge is merely there to fill the needs of all those kids going to college, all of whom will never be able to pay it off especially as America increasingly transitions to a part-time worker society.

But at least they too, like their parents and grandparents, are indentured debt servants, just like the government wants.

And to the perpetually wrong Bernanke, the thinking is that if more people are on the same wavelength as the US Treasury, i.e., so deeply in debt that everyone will be begging for a dollar devaluation and/or debt hyperinflation, then the Fed will be not only able, but encouraged to debase the US currency at will.

Sadly, Bernanke is and always has been wrong, and when the student loan bubble does pop, and it will, the cost will once again fall squarely on the shoulders of that one nearly extinct species: America's middle class, which not only generates positive cash flow, but, gasp, saves a little money here and there.

Make no mistake: they are squarely in Bernanke's bulls eye, and are slated for extermination at all costs. In a world in which everyone is broke and defecting from every game theory equilibrium possible, those who still play by the rules are the system's mortal enemies.

In the meantime, we can't wait for Obama's next brilliant contraption: cash for flunkers.

 

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Wed, 08/08/2012 - 23:07 | 2689894 otto skorzeny
otto skorzeny's picture

john_connor-so you're the snobby douchebag riding around in your Volvo SUV with the "hey everybody look at me I went to Douchebag U." sticker in your back window. is that so you and some other elitist d-bags that went to the same University can recognize   one another and pull over and sodomize the other like in your good ol' fraternity days?

Wed, 08/08/2012 - 23:11 | 2689913 fxrxexexdxoxmx
fxrxexexdxoxmx's picture

Fraternity sodomizing is not held against a member. In some cases it actually helps in career advancement. Frat brothers will always brothers. Those darn silly boys will be boys.

Wed, 08/08/2012 - 23:14 | 2689929 john_connor
john_connor's picture

I don't drive a Volvo, don't have a sticker, and worked my way thru school.

Didn't belong to a frat. I eat nails for breakfast, live frugally, can fix stuff, and generally know how to problem solve and make stuff work.

In a nutshell, I carry losers like you.

Wed, 08/08/2012 - 23:11 | 2689914 sangell
sangell's picture

It is our own fault by over credentialling our economy and letting academia set the terms of what education is. Why require a pre med or engineering student to take an English course e.g. If they can't read and write at college level they won't pass their own goddamned courses.

The good news is that, unless Obama keeps softening the repayment requirement, these loans are mostly money good down the road as they can be deducted from income tax refunds and social security benefits. Apply it to food stamps, medicaid and other welfare benefits and there might even be a profit as deadbeats are denied any further government entitlements until they pay their loans off.

Thu, 08/09/2012 - 02:36 | 2690182 Lednbrass
Lednbrass's picture

Engineers are often great guys, but quite of them can't express an idea clearly to save their lives. I've worked with quite a few in various manufacturing jobs that passed their courses just fine but their ability to explain or communicate something often doesn't match the technical ability.

Wed, 08/08/2012 - 23:21 | 2689949 Jumbotron
Jumbotron's picture

"I don’t think student loans are a financial stability issue to the same extent that, say, mortgage debt was in the last crisis because most of it is held not by financial institutions but by the federal government"

DID HE JUST HONEST TO GOD SAY THAT !!!!??????

AS IF THE FEDERAL GOVERNMENT IS SOME INFINITE SPONGE FOR DEBT THAT WILL NEVER GET REPAID.

YOU FUCKING MORON.....WHO WILL THE FEDERAL GOVERNMENT LOOK TO TO BAIL THEM OUT....YOU...YOU STUPID PRICK.

CHUCK SCHUMER HIMSELF WILL COME SCREAMING AT YOU IN YOUR VERY OFFICE SAYING....

"PRINT MOTHERFUCKER PRINT !!!!!!!!!! "  AT THE SAME TIME HE AND HIS MINIONS ON BOTH SIDES WILL BE LOOKNG TO PICK OUR POCKETS EVEN MORE.

You know....I still believe the whole Reptilian Alien theory is bullshit......but I'm beginning to wonder now.

Thu, 08/09/2012 - 01:24 | 2690134 tekhneek
tekhneek's picture

1. They are going to inflate your "money" away.

First by debt, then by mortgages, then by taxes, then by education, next by equality, who the hell knows honestly? The game will be rinsed and repeated until every last critically massive social wet-dream has been fulfilled and your "middle-upper" or, whatever is completely -- totally -- royally -- fucked.

Make no mistake about it. This is spiraling out of control, but it's a central kind of control.

 

Thu, 08/09/2012 - 02:21 | 2690173 dominating
dominating's picture

Lol I have been around here a long time and this is my first post... I just needed to thank the above poster for cracking me up.

Wed, 08/08/2012 - 23:45 | 2689997 DavosSherman
DavosSherman's picture

 

Ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha

And housing won't crater either~Bernanke (2005) http://www.youtube.com/watch?v=HTzMY5lYlJk

 

Thu, 08/09/2012 - 00:30 | 2690079 Monedas
Monedas's picture

http://trololololololololololo.com          The "I just paid off my Kentucky home and my student loan !" song !

Mon, 08/13/2012 - 09:03 | 2700535 MeelionDollerBogus
MeelionDollerBogus's picture

That's a real fucking URL

Epic bi-winning for you, good sir

Wed, 08/08/2012 - 23:45 | 2690000 squexx
squexx's picture

Thank God I only owe $60,000 on my BA in Gender Studies!!!!!!

Wed, 08/08/2012 - 23:48 | 2690008 Cynical_Observer
Cynical_Observer's picture

People are stupid. How the hell has society been sold the bill of goods that they have to pay for their kids education? You've been totally brainwashed if you believe that. Tuition fees have only increased because demand side of the supply/demand paridyme is sponsored be easy credit and stupid parents. I say that once the kid is 18, they're responsible for themselves. My kids know that as long as they're in school, they get free room and board. I don't know.... maybe I'm too old school.

Thu, 08/09/2012 - 02:39 | 2690183 Lednbrass
Lednbrass's picture

I would imagine the same way they were sold the idea that they need to pay for the comfortable retirement of the older folks who spent their lives screwing around instead of saving. Both should be the responsibilities of families and individuals, not government programs.

Thu, 08/09/2012 - 08:30 | 2690456 shovelhead
shovelhead's picture

I agree.

And I make sure that Grandma cleans her own litter box. That shed in the back yard gets really smelly if she slacks off.

Mon, 08/13/2012 - 08:54 | 2700524 MeelionDollerBogus
MeelionDollerBogus's picture

I agree. I would have a better work ethic, better career history and would have saved a lot of money had I worked for my university education before paying for it, 100%. I would have understood where the fundamental problems were and in doing so I would have missed graduating into the dot-com bubble.

Thu, 08/09/2012 - 00:10 | 2690052 dolph9
dolph9's picture

The country is being destroyed, people.

It was always going to end this way, if you really think about it.  One final blaze of glory.

Thu, 08/09/2012 - 00:40 | 2690078 dwdollar
dwdollar's picture

I'd wager the student loan bubble has a ways to go yet. College Education is one of the sacred cows of the American dream (or nightmare as some of us realize). Uncle Scam will parade it as long as possible. However, it will be one of the first sacred cows slaughtered to keep the others like Defense, Retirement, and Health-care well fed.

Thu, 08/09/2012 - 00:39 | 2690092 jonjon831983
jonjon831983's picture

Tried to find a proper link, but located the below blog post instead.  Sell shares... of yourself!

 

http://rigotnomics.blogspot.ca/2010/05/selling-shares-of-yourself.html

Thu, 08/09/2012 - 00:39 | 2690093 Flatchestynerdette
Flatchestynerdette's picture

hahahahaha

ya know, i remember when bear sterns sold for $2 a share and the gov't backstopped them to the tune of $30 billion.

 

NOW WE"RE TALKING HUNDREDS OF BILLIONS AND CLOSE TO A TRILLION.

 

hahahahahaha

we're so f!cked.

Mon, 08/13/2012 - 08:53 | 2700520 MeelionDollerBogus
MeelionDollerBogus's picture

you forgot the other 75 trillion

http://dailybail.com/home/holy-bailout-federal-reserve-now-backstopping-...

just a friendly reminder

Thu, 08/09/2012 - 00:44 | 2690100 Never One Roach
Never One Roach's picture

"Cash for Flunkers"

 

Brilliant !!

Thu, 08/09/2012 - 04:37 | 2690251 HungrySeagull
HungrySeagull's picture

Cash for Flunkers.

 

Trade mark this thing before they take it and run with it.

 

Seriously. We had cash for clunkers and now we have cash for flunkers.

Thu, 08/09/2012 - 00:46 | 2690101 Dareconomics
Thu, 08/09/2012 - 01:45 | 2690152 Me_Myself_and_I
Me_Myself_and_I's picture

I am stuck trying to hire people with analytic skill sets and we have a hard time locating suitable candidates.  These six-digit colleges do everything but provide young adults with practical skills that can be used by industry.. so we are left hiring people with degrees who then have to be retrained and educated all over again.

Universities are by and large stuck in outmoded educational paradigms.. unable to "shift" gears to the modern world, and thereby do a massive disservice to our country, to the students, their parents, and the taxpayers who subsidize the lot.

Note I am not blasting arts degrees, philosophy, or the like.  I am blasting the system, that young adults are entrusting with their education and money, to guide them with instruction that will help them make a decent living. 

I attended an Ivy League, had some good courses .. but for the most part was subpar with respect to providing the vast bulk of its students with practical skills worthy of their intellect.

Thu, 08/09/2012 - 08:18 | 2690423 madcows
madcows's picture

Amen brother.  I'm an engineer.  Nearly everything I learned in college has no application in my daily activities.  Just got loaded up with lots of course requirementss b/c more courses means more money for the fat cats.

Mon, 08/13/2012 - 08:50 | 2700513 MeelionDollerBogus
MeelionDollerBogus's picture

Then maybe your company should, and all companies should, openly scorn universities that cost too much and do not train your next employees while you also clearly advertise you hire based on skill and ability to learn.

Your company is not academic? So why would a university know how to train your next employee? It's your proprietary company.

Thu, 08/09/2012 - 04:26 | 2690164 EscapingProgress
EscapingProgress's picture

The baby boomers...for the most part a worthless bunch of gov't tit suckers.

Anyway, the student debt bubble is small potatoes. The real end game is the re-re-re-re-ad infinitum-hypothecation explosion. Hyperdeflation will win the day and you silver and gold bugs will not be able to buy a loaf of bread with a wheelbarrow full of metal. Don't worry though. The Bernank and his pals will buy it all off of you for a penny an ounce and your home for a dollar. Pay off your debts now because when hyperdeflation sets in the adjusted real cost will probably be in the billions. Did you really think that Bernank and friends were going to let you all get away with hoarding gold and silver and other hard assets? C'mon now... The deflation in late '08 early '09 was just a taste. You can't indefinitely hold back the massive deflationary pressure of an unwinding shadow banking system valued at many times more than the GDP of earth with a little bit of money printing.

Thu, 08/09/2012 - 08:14 | 2690411 madcows
madcows's picture

Thumbs up for the 1st line.  Not sure about PM's.

Boomers have been running the country for the last 20 years.  Therefore, they are responsible for the utter lack of preparation.  They never put enough into SS.  They want to retire early and have us pay for it for 30 years.  They spent and spent and borrowed and borrowed and left us with the Debt.  A$$holes.  They are the Children of the Greatest generation.  Apparently the greatest generation reared the Least Generation.  Pathetic.

Thu, 08/09/2012 - 14:45 | 2691824 EscapingProgress
EscapingProgress's picture

I should have expanded on my deflationary hypothesis. Deflation will scare all of the sheep out of hard assets and they will all try to sell. When the time is right the central banksters will begin a massive printing spree and use the newly created credit to purchase all of the hard assets from the sheep for pennies and will come out owning most of the world. People need to hold on to their hard assets if deflation does occur and not be spooked because hard assets have real value, paper does not. Deflation followed by inflation to buy the world. I believe that is the end game.

Mon, 08/13/2012 - 08:48 | 2700507 MeelionDollerBogus
MeelionDollerBogus's picture

Right now the biggest deflationary event possible without total bankruptcy of the USA is to raise the fed funds rate around 2% short-term only or some equivalent nastiness. Anything more than that and the USA economy will collapse so completely it won't be deflation, it will be riots and mass emigration.

Mon, 08/13/2012 - 08:46 | 2700504 MeelionDollerBogus
MeelionDollerBogus's picture

hyper-deflation? Srsly?

O rly?

Printing has never failed to cause inflation in all history.

 

Thu, 08/09/2012 - 01:59 | 2690165 EscapingProgress
EscapingProgress's picture

Dbl post...my bad.

Thu, 08/09/2012 - 05:56 | 2690280 draghithebearslayer
draghithebearslayer's picture

maybe BB's sending a secret message to his pals: student loan bubble about to burst in your face! gtfo now!!

Thu, 08/09/2012 - 06:28 | 2690293 papaswamp
papaswamp's picture

The reason Berspankme doesn't think it's an issue is because the bubble is STILL growing. The aspect I think people miss is unlike walking away from a home loan....the student loan never goes away.
No school should cost $50000 a year....the education being put out is crap. ( insert title here ) Studies? Seriously? Useless crap. Kids would be better off learning how to repair a car, electrician, plumbing, pipe fitter etc.. Time to bring back apprenticeships.

Thu, 08/09/2012 - 07:17 | 2690338 kornholio
kornholio's picture

bullish

Thu, 08/09/2012 - 07:56 | 2690386 Canoe Driver
Canoe Driver's picture

It's not discussed on ZH so far, but some cities and towns, San Diego for example, are sustaining their entire local economy on student loan money.  That's one reason why the bubble continues.

Thu, 08/09/2012 - 09:11 | 2690596 Gnosis Nag Hammadi
Gnosis Nag Hammadi's picture

This. Pittsburgh comes to mind for me. Everything is built around it. The planning is really astonishing. I wonder if that was a thought when doing early urban planning, that the money getting fleeced out of suburbia would be poured into near defunct cities. Yes there is more in PGH than just the universities but... they bring in so much C. I am glad I switched sides. Just gonna join the others and hustle stupid college kids and their families. 45k a month in pizza sales lol. I think academia will continue. Good place for the clone army to get more clones. And more debt. Also all those kids in one spot would make for a convenient emergency of some kind.

Thu, 08/09/2012 - 08:27 | 2690447 yogibear
yogibear's picture

Surprise, Ben Bernanke's own son is running maxing out his school debt.

Over $400,000.00 in school debt.

Surely, Bernanke and his wife could have been paying for the debt.

Does Ben Shalom Bernanke know what's coming? 

 

 

 

Thu, 08/09/2012 - 08:41 | 2690485 toomanyfakecons...
toomanyfakeconservatives's picture

Three sad words: Student Loan Suicides

Thu, 08/09/2012 - 09:58 | 2690827 Hedgetard55
Hedgetard55's picture

What kills me is the mindset that it is not as big a problem because Joe Taxpayer is backing it up, like Fannie and Freddie. Sick bastard that Bernanke.

Fri, 08/10/2012 - 17:51 | 2695504 fatlibertarian
fatlibertarian's picture

Actually, most Americans will defer their loans, often through false claims, so very few will ultimately pay the loans back, but what's new?

Statists gonna state, they just won't live up to their own thug government rules. I love how the Ben Bernanke confirms that this WILL be a problem, by stating unequivocaly that it won't. 

lol

Mon, 08/13/2012 - 08:43 | 2700498 MeelionDollerBogus
MeelionDollerBogus's picture

Clearly not a single Libertarian understands what is at risk here.

We can't let our jobs and education be destroyed by Paleo-libertarians and free-market lies.

Therefore to save all the children we must...

you guessed it...

bail out all the banks.

Just stop asking why, slave.

Wed, 08/15/2012 - 11:15 | 2706803 lizloansbest
lizloansbest's picture

Have heard that the financial authorities have already acted upon the issue of student loan will this still be considered as a big issue on a borrowers financial stability? I wonder when would this student loan bubble ends.

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