The Fraud At The Heart Of Student Lending Exposed - The One Sentence Everyone Should Read

Tyler Durden's picture

A key reason why a preponderance of the population is fascinated with the student loan market is that as USA Today reported in a landmark piece last year, it is now bigger than ever the credit card market. And as the monthly consumer debt update from the Fed reminds us, the primary source of funding is none other than the US government. To many, this market has become the biggest credit bubble in America. Why do we make a big deal out of this? Because as Bloomberg reported last night, we now have prima facie evidence that the student loan market is not only an epic bubble, but it is also the next subprime! To wit: "Vince Sampson, president, Education Finance Council, said during a panel at the IMN ABS East Conference in Miami Monday that lenders are no longer pushing loans to people who can’t afford them." Re-read the last sentence as many times as necessary for it to sink in. Yes: just like before lenders were "pushing loans to people who can't afford them" which became the reason for the subprime bubble which has since spread to prime, but was missing the actual confirmation from authorities of just this action, this time around we have actual confirmation that student loans are being actually peddled to people who can not afford them. And with the government a primary source of lending, we will be lucky if tears is all this ends in.

More bullets from Bloomberg:

  • Vince Sampson, president, Education Finance Council, said during a panel at the IMN ABS East Conference in Miami Monday that lenders are no longer pushing loans to people who can’t afford them.
  • The bubble in the sector is over
  • Noted political dynamic of education funding
  • U.S. is currently 16th in the world in degree attainment
  • He notes the U.S. education secretary and U.S. president have probably looked at that number
  • Nevertheless state universities are struggling because state governments are poorer: Sampson
  • Says a sustained effort is underway at some schools to bring in out-of-state tuition, which typically pay 100% of the cost
  • Barbara Lambotte, a senior credit officer at Moody’s said during the panel that student loan lenders are chasing the same potential borrowers
  • Everybody is going after borrowers with co-signers and high FICOs, also students who may be going to the better schools: Lambotte
  • Gary Santo, a MD at First Marblehead said during the panel that borrowers too are being more conservative in theirchoice of education funding
  • Lambotte said Moody’s outlook on private student loan ABSmarket is negative, but newer loans should perform better

To be sure, when the implications of the $850+ billion student loan bubble blowing up spread through the financial markets, it will make subprime seem like a tame walk in the park.

Of course, nobody will care about it until it is too late. Just like every other time because this time is never different.

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SheepDog-One's picture

Sure student loans is a racket, you're dealing with bankers! Maybe a good lesson for the little brilliant darlings without a scholarship to learn early on right out of the gate.

Nascent_Variable's picture

We're looking at a generation of unemployed youth with the added stress of 5 to 6 figure debt incurred to pay for a worthless education.

Remind me again, what recently happened in Arab countries that were full of unemployed, desperate youths?

malikai's picture

I'm confused. How does this bubble actually pop when default is impossible? Can anyone actually explain how this bubble popping would play out?

shortus cynicus's picture

Default is always possible.

But discharging of debt by default not. At least not now yet.

Thulsa Doom's picture

The government will forgive the debt if they "volunteer" for military service in WWIII. Usury, bitchez!

Cynical Sidney's picture

why are students not allowed to default on such loans? why do our federal government provide guarantees on these loans while private companies capture all the profits? this kind of legislation does not help the students but rather enslaves them. not to mention such legislation creates conditions of fraudulent conveyance and conflict of interest, therefore it cannot and should not be constitutional; it's more reasons to hang banksters.

Ahmeexnal's picture

Is anyone pointing a gun to your head forcing you to accept a student loan?

You know FRNs are worthless pieces of paper that pass for money. Why then do you assign value to a worthless piece of paper that passes for knowledge?

Are you one of the 99% brainwashed who believe that such a piece of paper is your key to success?

Steve Jobs gave the education system the finger.  Everyone should follow such example.


topcallingtroll's picture

Bill Gates of Microsoft is also a college dropout.

AldousHuxley's picture

Bill Gates, Warren Buffett, Donald Trump, Koch Brothers like many who proclaim to have earned their millions were born into upper class.

"There are three ways to make money. You can inherit it. You can marry it. You can steal it."

William Henry Gates III made his best decision on October 28, 1955, the night he was born. He chose J.W. Maxwell as his great-grandfather. Maxwell founded Seattle's National City Bank in 1906. His son, James Willard Maxwell was also a banker and established a million-dollar trust fund for William (Bill) Henry Gates III.

In some of the later lessons, you will be encouraged to take entrepreneurial risks. You may find it comforting to remember that at any time you can fall back on a trust fund worth many millions of 1998 dollars.


William Henry Gates, Jr. and Mary Maxwell were among Seattle's social and financial elite. Bill Gates, Jr. was a prominent corporate lawyer while Mary Maxwell was a board member of First Interstate Bank and Pacific Northwest Bell. She was also on the national board of United Way, along with John Opel, the chief executive officer of IBM who approved the inclusion of MS/DOS with the original IBM PC.

Remind your parents not to send you to public school. Bill Gates went to Lakeside, Seattle's most exclusive prep school where tuition in 1967 was $5,000 (Harvard tuition that year was $1760). Typical classmates included the McCaw brothers, who sold the cellular phone licenses they obtained from the U.S. Government to AT&T for $11.5 billion in 1994. When the kids there wanted to use a computer, they got their moms to hold a rummage sale and raise $3,000 to buy time on a DEC PDP-10, the same machine used by computer science researchers at Stanford and MIT.


Recall that in the 1980s we venerated Donald Trump and studied his "art of the deal". If Donald Trump had taken the millions he inherited from his father and put it all into mutual funds, you'd never have had to suffer through one of his books. But he'd be just about as rich today.


In 1942, Warren Buffett's father was elected to the first of four terms in the United States Congress, and move his family to Washington D.C. Giving money to politician's kids is one way to circumvent bribery rules. Where and how do you think Buffett raised money to start his investment???


For everyone else, college is the only way to even become middle class wage slave these days. And it doesn't even guarantee your retirement either.

topcallingtroll's picture

Bill Gates of Microsoft is also a college dropout.

AldousHuxley's picture

real smart people stay in college forever and get in the payroll. See "Student Worker" making $520,000 / year for churning out grads who can't even get jobs.

Name     Position     Department     Salary     Year
Dennis B Erickson     Head Coach Football     Ica Administration     $1,275,000     2008
Herbert J Sendek     Head Coach Men's Basketba     Ica Administration     $900,000     2008
Shay Marie Masterson     Student Worker V     Res Life Rha     $520,000     2008
Michael M Crow     President     Office Of The President     $475,000     2008
George Henry Poste     Dir AZ BioDesign Institut     Biodesign Institute     $456,825     2008
Robert Mittelstaedt     Dean     W. P. Carey School of Business     $456,502     2008
Charli Turner     Head Coach Women's Basket     Ica Administration     $400,000     2008
Elizabeth D Capaldi     Exec V Pres & Provost     Office/Exec Vp/Provost Of Univ     $385,000     2008
Jane Catherine Christie     Student Worker V     Res Life Rha     $353,600     2008
Robert Greenes     Chair (FSC)     Biomedical Informatics     $330,000     2008
Jeffrey Coles     Chair (FSC)     WPC Finance     $326,482     2008
Lisa Lee Love     V Pres University Athleti     Ica Administration     $325,306     2008
Sethuraman Panchanathan     Director, F (FSC)     School Computing & Informatics     $321,515     2008
Carol N Campbell     Exec V Pres & Chief Finan     Exec Vp Business And Finance     $320,882     2008
Richard H Stanley     Sr V Pres & University Pl     Srvp & University Planner     $313,857     2008
Jonathan Fink     Dir Global Inst Sustainab     Institute Of Sustainability     $310,500     2008
Subhash Mahajan     Director, F (FSC)     School Of Materials     $301,790     2008
James Arvid Ohlson     Professor     WPC Accountancy     $301,001     2008
Deirdre Ruth Meldrum     Dean     Fulton School of Engineering     $300,000     2008
Alejandro M Manelli     Professor     WPC Economics     $294,999     2008
Richard D Rogerson     Professor     WPC Economics     $294,724     2008
Patrick T Murphy     Head Coach Baseball     Ica Administration     $294,218     2008
David A Young     Senior VP for Academic Af     Office/Exec Vp/Provost Of Univ     $294,000     2008
Michael Tracy     Dir Strategic Planning     Biodesign Institute     $291,601     2008
Edward C Prescott     Regents Professor     WPC Economics     $283,244     2008
Patricia Denise White     Dean     College of Law     $282,000     2008
Anthony Bown Sanders     Professor     WPC Finance     $273,000     2008
Crocker H Liu     Professor     WPC Finance     $273,000     2008
Gerald Villanueva Bohulano     Student Worker V     Res Life Rha     $270,400     2008
Christopher Matthew Gast     Student Worker V     Res Life Rha     $270,400     2008
Hayley Roxanne Umphrey     Student Worker V     Res Life Rha     $270,400     2008
Vikram K Nanda     Professor     WPC Finance     $268,022     2008
Christine A Wilkinson     Sr V Pres & Secretary of     Senior Vice President     $261,695     2008
George Hynd     Dean     Fulton College of Education     $260,000     2008
Robert E Hoskisson     Professor     WPC Management     $259,434     2008
Robert John Kauffman     Professor     WPC Information Systems     $256,366     2008
Dennis L Hoffman     Assoc Dean     WPC Seidman Research Inst     $252,424     2008
Luc E Anselin     Dir, FA (FSC)     Geography     $252,000     2008
Philip Roger Regier     Exec Dean     W. P. Carey School of Business     $251,640     2008
James A Rund     V Pres Univ Student Initi     Univ Student Initiatives     $250,502     2008
Vincent Kerry Smith     Professor     WPC Economics     $246,809     2008
Mernoy E Harrison     V Pres & Exec V Provost     VP/Exec Vice Provost DPC     $245,080     2008
Sunil Wahal     Professor     WPC Finance     $242,026     2008
Robert Eugene Page Jr     Dir School of Life Scinc     Sols Administration & Faculty     $241,662     2008
Ajay Shreekrishna Vinze     Professor     WPC Information Systems     $240,224     2008
Quentin Duane Wheeler     V Pres/Dean College Lib A     College Of Lib Arts & Sciences     $240,000     2008
Charles W Christian     Dir Sch of Accountancy (F     WPC Accountancy     $240,000     2008
Kip Vernon Hodges     Dir, FA (FSC)     School Of Earth & Space Explor     $237,500     2008

ElvisDog's picture

Because everyone from your elementary school teacher to Obama drills into students' and parents' heads that the only way to succeed is to go to college and it's your obligation to "do whatever it takes" to pay for juniors 5-8 years at college. That meme is accepted as the gospel truth by I would estimate 98% of all students and parents in the U.S.

AldousHuxley's picture

they forgot to add in one detail:

"go to a good college and major in practical studies"


if you major in bull shit studies at southern mississippi columbia college, what did you expect? well ok, you can still run for political office.


It is time to get rid of bottom 50% of colleges who let idiots dilute the value of college degree.

Silver Bully's picture

'Is anyone pointing a gun to your head forcing you to accept a student loan?'

No, but this is the only debt where someone points a gun at your head if you don't pay. ALL of the debt, plus the interest, is paid with the barrel of a gun at your head. Why is that remotely significant? Think about other 'lifetime' debt you can acrue. Bad mortgage? Bad business? Bad marriage (with no kids, in a no fault state)? Lose billions in your hedge fund? Lose $500+ million in solar panel subsidies? Forget to take back a library book? No problem. You can settle for pennies on the dollar, or walk away.

Default on a student loan? Major problem.

If a person defaults on their loans, their paycheck is garnished 15%, and their tax returns are taken until the loan (with interest) is 100% discharged. If any money is STILL not paid for by the time you retire, YOUR SOCIAL SECURITY BENEFITS ARE GARNISHED. What bad mortgage does this? What failed marriage does this? Even filing for bankruptcy doesn't ruin your life like this. Our 'wiser' parents always assumed we would have perpetual growth (and jobs) to pay for this debt. Now the piper is coming due for such arrogance, but it isn't the parents paying the majority of the price (unless they co-signed) . . . it is their children.

The rules WILL be changed before long . . . or else there will be bloodshed over this. Celente is right. People who have lost everything, lose it.

AldousHuxley's picture

people have lost more than everything. recent grads don't even get unemployment and interest rates are 7%!


It is the baby boomer generation working as college admins ripping off the next generation while selling the dream. College admins are the real state snakeoil salesmen. They need to be reined in as well as banksters making profit off of no-risk loan products and quasi-government fucktards at Sallie Mae.


they are in debt for life!

Spirit Of Truth's picture

The banksters are schooling future generations.  Let's hope the youngters turn around and school banksters.

AldousHuxley's picture

See Occupy Wall Street.


Maybe they are naive young hippies, but hippies with $50k college loans made by banksters who knows government will bail them out for bad loans. At least allow them to declare bankruptcy and stick the loss on the banks, not some kids.


You let illegal aliens walk away from $500k house after living in it for couple years with $20/hour cash income, but baby boomers want to blame and punish college kids for $50k student loan? What a selfish old fucks we have in this country. Also the college presidents and admins (not professors) are one of the most overpaid paperpushers.


Sallie Mae (SLM) is the next Fannie /Freddie disaster.


Highest earners at private colleges (in millions, not including college presidents) not to include near tenured nature of the position:

1 Pete Carroll, head football coach, USC $4.4 2 David Silvers, clinical professor, dermatology, Columbia $4.3 3 Michael Johns, executive VP, health affairs, Emory $3.7 4 Arthur Rubenstein, executive VP and dean, School of Medicine, University of Pennsylvania $3.3 5 Zev Rosenwaks, professor, Center for Reproductive Medicine and Infertility, Cornell $3.1 6 David Swensen, chief investment officer, Yale $3.0 7 Harry Jacobson, vice chancellor health affairs, Vanderbilt $2.6 8 Jeffrey Moses, professor of medicine, Columbia $2.5 9 Norman B. Urmy, former executive vice president for clinical affairs, Vanderbilt $2.4 10 James Grifo, professor, obstetrics and gynecology, NYU $2.4
AldousHuxley's picture

Steve Jobs gave the education system the finger.  Everyone should follow such example.


College degree is required these days for even mundane jobs. You can't even become a secretary without a college degree.

Not everyone wants to become a tech entreprenuer.An I don't think you want your doctors, lawyers, accountants, etc. to just wing it and not have a college degree at all.

Your chances of getting richer is far better if you have a degree than not. For every 1 Steve jobs, there are thousands of college drop outs who are probably homeless versus, college degree will at least give you a chance at some non-labor intensive job.

FrankDrakman's picture

why are students not allowed to default on such loans

Blame their parents. Back in the late 1970's, once the "progressives" had buried shame and honour as concepts, a whole bunch of Boomer students realized that if they went bankrupt immediately after graduation, before they had a job, their student debt would disappear. Since there was no longer a stigma attached to bankruptcy, nobody gave a flying f*** if it was on their record. This concept spread like wildfire around campuses across the nation. Students started declaring bankruptcy in record numbers.

So, government took the then unprecedented step of making it impossible to discharge student loan debt through bankruptcy. One more reason for Generation Z (Y? X? I've lost track...) to hate the parents that have saddled them with huge debts and huge entitlements GenZ will never get, but will have to pay for.

Maybe Brokaw's next book should be about the Boomers - "The Greediest Generation".

tarsubil's picture

God help us all, that is exactly what I was thinking. What a mess.

Libertarian777's picture

yep. Just because you legally owe the balance of the loan, if you cannot pay, you cannot pay.

When you owe the bank $10,000 it's your problem.

When 1 million kids owe the bank $10 billion, its the banks problem.

MachoMan's picture

Given the ability to garnish wages, etc., it basically means perpetually having no net worth...  no surplus...  And, if you take your sweet time with it, it probably means never touching the principal. 

SWRichmond's picture

Yep.  The payoff, with interest, is more money than most of these people will ever see = debt peonage.  That was the purpose all along.

AldousHuxley's picture

It is an extra "TAX" by the banksters on the productivity gain of your education.


Dental schools debt in NY are at $300,000.


And you know what happens when the young professionals get out with such big debt? They rip you off so they can pay back these loans.


And you wonder why healthcare costs keep going up...

PrintingPress's picture

No problem for the banks.   They can just garnish your wages until you die. 

Dental Floss Tycoon's picture

Banks don't have problems.  If a bank has a problem it becomes your problem.

JohnG's picture

I smell a business opp in staged deaths.......

JohnG's picture

And insurance fraud to boot (fuck I'm talking to myself again....)

Isn't Obongo jibber jabbering later I already need a drink.

monoloco's picture

That's the big difference between this and the housing bubble, with student loans, there will be no strategic default, just millions of people with a massive debt overhang that will hold back their careers, their access to credit, and their standard of living. The universities are no different than drug dealers who prey on children. "Hey kid, want some free money? Just sign here, don't worry you won't have to pay it back until you're making 6 figures with your high powered degree in social studies. It's a sure thig."

tarsubil's picture

Honestly, I had a date night with the wife where we went and painted (and I drank a bottle of expensive wine), I'm a real sensitive guy, and the girl instructing the group was paid by the state to go back to school to "re-tool". She got a free ride to a very expensive private school to get a degree in ... wait for it ... you're not going to believe this ... are you sitting down?... Art! I'm not kidding, probably close to 6 figures to give a chick an Art degree which she uses to make $10 an hour instructing drunk rubes like me on how to paint something Bob Ross did. The whole educational system is fubar.

Blano's picture

LOL thanks for the laugh and the visual.

AldousHuxley's picture

you need $10,000 for even the beauty school.


You won't get Bob Ross today with so much pressure to make money because everyone is in debt. These days you HAVE to make a lot of money to stay in middle class. Money has too much power and won't let future Bob Ross to try something other than making money at all costs.


Bob Ross did his show on public TV for FREE.


tarsubil's picture

Actually, I've been to Bob Ross's warehouse in northern VA. I believe all of his original paintings from the show are there. Bob did the show as advertising for his painting products and services. His family seems to be doing fine with living off his legacy.

AldousHuxley's picture

funny thing is Bob Ross was in the military for a long time and got started in painting mountains in Alaska when he was from sunny Florida.


He didn't wants to work at a place where they yell at you and you yell at other humans.

Ag Star's picture

Really good movie.  In 1994 I graduated with an AA/Registered Nursing degree, paid as I went, got out with no debt.  Started work right away making $350/shift and in 2011 I retired from nursing making $744/shift (agency work in Los Angeles) I was suckered into going back to college for a BSN and after paying $900 a class for one year I said fuck it, this cost too much and I was already making more money than  RN's with bachelors.  I was also making more than nursing instructors with Masters degrees, WTF?  Sounds hard to beleive but I tell no lies.  That's why there's a nursing shortage, it stems from not paying instuctors well (masters degrees cost a lot) so no one wants to teach when they can make more money elsewhere.  Also, I was better prepared to take care or pt's and had more hospital experience though my AA program than nurses who went through  bachelor programs.  They took bullshit classes just to support the football team or other unnecessary university crap. While they were paying back school debt, I was buying property--yes

I have lost equity but at least I can live in it.

HoofHearted's picture

Any idea of how to find a CDS (or some proxy) on student loans? I could be the next Kyle Bass!!!!!! (except those Eurocrat bitchez will probably try to ban naked CDSs on student loans also. Bitchez!)

By the way, is it time to cue the deer?

Mudduckk's picture

Please limit your use of bitchez to one per post.  Biatch.

Ghordius's picture

LOL - hungry for risk!?
You too will have to retool, methinks... ;-)

DormRoom's picture

Did government not learn from the real estate fiasco?  Government incentived homeownership for those who couldn't afford it using Fannie Mae/Freddie Mac.  Wall Street took that bag of money, securitized it, and damned our parents.


Government incentives higher education with more funding in Pell Grants.  Wall street took that bag of money, and created an industry (Online education [Phoneix University/Devry ....]] that prints diplomas.  But the quality of education is questionable, and offers unemployable  skill sets. This misallocation facillitates structural unemployment, because of the mismatch in skills, and what the market wants.


Wall Street took that bag of money, and damned our young.


Like I said, Wall Street is the mechanism in which capital is distributed, and if it becomes broken, corrupted, or utilizes a false incentive schema, we witness, imbalances, price distortions, and misallocation.


clean up wallstreet.



been there done that's picture

Let's not forget the whole "selling crappy stocks they knew were crap" thing. Wall Street sold shit stocks then shit mortgages.... what's next?

AldousHuxley's picture

Sallie Mae = Fannie Mae


Meanwhile, "non-profit" college "executives" get paid millions of dollars + all kinds of bennnies including job security, dirt cheap cost of housing and sometimes paid for in comparison to private sector.


Even at shitty party school like Arizona STate University, you have many admins making north of $200k+


Not only limited to universities. Even Jewish non-profits!

No wonder Yale's MBA specialty is in NON-PROFIT, because that's where the cushy money jobs are these days.


These days, private workers are the SUCKERS!!! no job security, profit driven stress, outsourcing, global labor market salary and competition, little to no retirement funding, high cost of living, after taking out massive student loans.



This is why OWS is angry. This is why young Americans are angry.

MachoMan's picture

What consequences has anyone had to learn yet, really?  Many, many haven't even felt the real pain of the downturn...  especially not those associated with the government.

Further, all of these bubbles sprang forth contemporaneously...  the mechanism for all being cheap credit...  the genesis of which is the desire to vote one's self the benefits of the treasury (although the vote might have resembled more of a check/bundle of cash/favor than a vote).

AldousHuxley's picture

government subsidies only end up inflating shitty assets just like they did with housing.


if you want government policies to be effective, make it cut costs with productivity gains by introducing competition. but democrats just throw more money at their friends to overinflate shitty assets which makes fiscal conservatives angry and they end up cutting elsewhere.


MachoMan's picture

This is the paradox of central planning...  as soon as you decide the winner, it inevitably becomes a loser (ninny of the nanny state)...  unless it is the decider self-dealing...

It's not a democrat or republican thing...  it's a government thing...  and if you want government policies to be effective, then the best way is to reduce the size and scope of the government...  because it cannot implement viable and beneficial policies...  whether usurped by the few or overcome by the tyranny of the majority, it will fail.  The trick is to get it the fuck out of transactions unless absolutely necessary and even then to do it on a shoestring budget.

MillionDollarBonus_'s picture

You can trust that mean libertarians will rally against anything descent. A college education is a HUMAN RIGHT and all Americans should have the opportunity to get a college degree. One of the reasons our economy is lagging is because there is a serious lack of good education in this country. Education is one of the most noble virtues, and no price is too high for a good college degree. Don’t worry about employment, just study what you are interested in and the jobs will come. That is the only way we are getting out of this economic crisis.

TuesdayBen's picture

MDB, you are hilarious.  I know damn well you are simply playing devil's advocate here on ZH, and that it is all tongue-in-cheek.  +1

DaveyJones's picture

anything descent - very nice