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Inside The Student Loan Debt Bubble

Tyler Durden's picture


We have long discussed the rapid rotation of credit growth from housing and credit card to auto loans and now student debt as the US is not deleveraging in reality at all. A recent report from the Kanasas City Fed notes that in the last 7 years, student loan debt has grown at a staggering 13.9% annual rate. This rise in debt has been accompanied by a notable rise in the percentage of delinquencies (over 10.5% and 8.8% over 120 days past due) as the complex web of the student loan market structure strangles hope for many willing learners. The clear message is that student loans present problems for some borrowers, though, at the same time, the analysis suggests that student loans do not yet impose a significant burden on society from their fiscal impact - even though rather stunningly the Federal government is now 93% of the market. We would add that high student loan debt and its associated payment burdens have left many wondering if the value of a college education outweighs the costs - especially as we note that less than 40% of borrowers are under 30 and more than a third still owe in their 40s.

The 'simple' market structure of the student-loan business - though we note at its root, 93% of loans are funded by the Federal government...


As the crisis hit in 2007, so the rate of enrollment rose notably and has accelerated...


and at the same time, delinquencies have surged...


Full report here:

rwp 12-05

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Wed, 09/12/2012 - 14:08 | 2786637 vmromk
vmromk's picture

Keep blowing those bubbles Ben !

You motherless piece of dog shit.

Wed, 09/12/2012 - 14:12 | 2786658 Ruffcut
Ruffcut's picture

Is it benny's fault or kids with parents thinking they are entitled to go away for college and rack up thousands of debt.

Partying is over and the fat lady is singing in b flat.

Wed, 09/12/2012 - 14:20 | 2786698 LMAOLORI
LMAOLORI's picture



Logic I like that no one twisted their arms to sign on the dotted line.  And before all the people come along saying they should be forgiven the debt remember it's your children and grandchildren who have to pay that off with interest.

Wed, 09/12/2012 - 14:30 | 2786756 Ahmeexnal
Ahmeexnal's picture

"education" should be called what it really is: serfducation.

Wed, 09/12/2012 - 14:56 | 2786884 Sauk Leader
Sauk Leader's picture

Where is the block on the flow chart that shows all the money flowing into the American Federation of Teachers?  

Wed, 09/12/2012 - 15:51 | 2787146 economics9698
economics9698's picture

On line learning will blow this bubble out in the near future.  And all the for profits with it.

Wed, 09/12/2012 - 17:57 | 2787615 soccerballtux
soccerballtux's picture

don't forget that you can only get counted delinquent if you actually made a payment to begin with.

If you graduate, can't find a job, and can't make a payment, you don't fall into the "delinquent" category.

Wed, 09/12/2012 - 20:11 | 2787864 Vampyroteuthis ...
Wed, 09/12/2012 - 15:55 | 2787159 Peter Pan
Peter Pan's picture

College and university education has become the great enslaver in many ways. A great mass of graduates is not only over burdened with debt but is also unemployed. In addition those with Phd's and university degrees are more than often bought by vested interests to produce work justifying the position of the top .1%. Finally, the colleges are often churning out sub standard graduates or graduates in disciplines that are either already in over supply or courses which are totally airy fairy.

Wed, 09/12/2012 - 16:11 | 2787234 Diogenes
Diogenes's picture

It's even worse than it looks. A whole generation has a choice, start out in life $100,000 in the hole or forego a college degree and with it any chance of a decent job.

Those who get the degree and the debt are then competing for a limited number of decent jobs - the result being low pay and long hours for those "lucky" enough to get a job.

How are they supposed to buy a car, furniture, a house, get married, start a family? They can't. Whatever they might have contributed to growing the economy now goes to servicing their debt.

So how is the economy supposed to recover with an older generation bowing out and a younger generation unable to afford to take their place?

Looks like the depression will last a long, long time. Or until all debts are wiped out by hyperinflation.

Wed, 09/12/2012 - 16:20 | 2787274 pursueliberty
pursueliberty's picture


Local CC has a two year RN program that actually takes three.  Total cost of books and classes is around $15k.  You will make that if you are agressive in your first three months out.

Better one for you.  E&I school down the road is around the same price.  Recent graduates are making the cost of schooling in as little as two months.  I know a guy who was logging in 60 hours a week at $25/hr doing nat. gas work in texas.  He quite because of his marriage and took a stable plant job that doesn't have OT every week.

I graduated as a RN in 05, I had a job two months before graduation.  Not sure if it is still that way, but I've never competed for a job.  I no longer work in the field, but I still see jobs posted for RN's in the paper everyday.

Wed, 09/12/2012 - 16:39 | 2787348 JohnKozac
JohnKozac's picture

RN's and PT's are solid. Good job demand since the health care industry is pretty powerful (and wealthy). My neigbor's in-law is finishing nursing school down under and already has a job lined up (Houston, I think?) for a decent salary. The really good thing about RNs is that they can put in extra time (overtime on weekends esp) and make more then 2x their normal hourly wage. The work is hard (my sister is a nurse) but if you are willing to work (and SAVE) you can do very well.


As pursueliberty says, there are still many opportunities for those willing to work.

Unfortunately, too many youngsters look at education as Partee Time.

Wed, 09/12/2012 - 22:08 | 2788064 goldfish1
goldfish1's picture


Wed, 09/12/2012 - 22:28 | 2788099 A Nanny Moose
A Nanny Moose's picture

Medical field works right up until medicare blows. G/L with this

Wed, 09/12/2012 - 14:46 | 2786834 kridkrid
kridkrid's picture

It goes beyond just the cost of education, however. The college debt bubble does not exist without the mother of all bubbles, our monetary system itself. Like all Ponzi schemes, everything seems fine on the way up. We didn't really feel the college debt bubble because we could, in a sense, find shelter in the larger bubble... in the form of a job that paid well enough to survive and pay off the debt. Never mind the fact that perhaps that job was at some debt riddled dot.com... While we took on a mortgage for some house that was twice the size we needed.

Of course, everything mentioned above is the American Dream, no? Go to college, buy a home, work for some edgy start up. All of it marketed to us by those who collect interest. Same scam, different suckers.

Wed, 09/12/2012 - 14:46 | 2786831 Watauga
Watauga's picture

How does Obama get off the hook for this?  He panders to the 18 yr old voter, buying his vote with promises of free education for all. 

In the end, the taxpayer will get reamed on this deal, as usual.  It is, ultimately, simple wealth redistribution.

Wed, 09/12/2012 - 18:51 | 2787716 ersatzteil
ersatzteil's picture

That and this whole notion that "everyone deserves to go to university". I think everyone should be given the chance, but why not champion mechanics, carpenters, electricians, etc, as well?

"Dad, I'm marrying a mechanic. He enjoys what he does and holds a useful skill." > "Dad, I'm marrying a barista, but he has two psychology degrees and he's working on his MBA!" (+ massively in debt)

Wed, 09/12/2012 - 15:05 | 2786918 Let them all fail
Let them all fail's picture

Its kinda the safe option, like going with the big brand-name partner, "no-one ever got fired for....."  Its tough for parents to tell their kids don't go to college if they want to have "career-type jobs" and its even harder for 17-year old kids to understand the dynamics of it all when they see all their friends going to college. Plus, don't forget employers, being the creative type they are, like to see that college education, even if all you really did was get drunk for four years and learn nothing, they don't seem to make a distinction there.

Wed, 09/12/2012 - 14:14 | 2786665 Mark Carney
Mark Carney's picture

Well, somebody gotta buy that new iShit 5.


Apple Cult=Heaven's Gate

You know if Jobs told the fan boys to shoot eachother they would.



**also just talked to colleague at work, first thing he said was "eh, you see new iShit release, it has bigger screen!"


Wed, 09/12/2012 - 14:09 | 2786650 Debeachesand Je...
Debeachesand Jerseyshores's picture

Uncle Ben,please>please buy my childrens student loans so I can sell my house and move to Montana and buy a ranch.Pleaseeeeeeeeeeee.

Wed, 09/12/2012 - 14:13 | 2786657 pragmatic hobo
pragmatic hobo's picture

if bernanke has his way the student debt will be worth less than penny on the dollar in ten years time and most will be able to pay if off because minimum wage will be around $40/hr and gallon of gasoline will be around $20/gallon as DOW hits 36000.

Wed, 09/12/2012 - 14:12 | 2786659 xtop23
xtop23's picture

Difficult to pay back that degree in underwater flower arrangement when the only job you can find is surfin' burgers at Mickey D's.

They've done a really marvelous job.

Thank God I was born when opportunities were still plentiful and I had the sense to take advantage while they were.

Because our upcoming generations are well and truly screwed.

Wed, 09/12/2012 - 14:41 | 2786801 SheepleLOVEched...
SheepleLOVEcheddarbaybiscuits's picture

tell us something that we dont know.....

Wed, 09/12/2012 - 14:13 | 2786661 Seasmoke
Seasmoke's picture

Ben just blowing bigger bubbles than Alans bubbles

Wed, 09/12/2012 - 14:13 | 2786667 lunaticfringe
lunaticfringe's picture

Like carnival hucksters, the bankers and their lackeys have now priced college degrees beyond that point where the juice is worth the squeeze. It takes no degree to sign up for government disability. This is a far better return on your capital not to mention your tiime.

Wed, 09/12/2012 - 14:19 | 2786683 kaiserhoff
kaiserhoff's picture

The Chicago Teachers are now on strike and the Jew York media are ignoring all the relevant data.

Average pay $71,000 plus princely benefits

Work Load - about half the days in the year

Competence required - You gotta be kidding. 


Wed, 09/12/2012 - 14:54 | 2786872 larz
larz's picture

Unions - how do you think obama got elected - he is from this illinois cesspool whats your excuse in Schumer? and that pervert emailing photos of his junk?

Wed, 09/12/2012 - 14:18 | 2786686 benkei54
benkei54's picture

Impossible to discharge in bankrupcty, these debts will follow people for their entire lives.  Leaving aside the notion of creating modern serfs, have the genius economists considered what such a burden will do to the holy grail of aggregate demand for worthless shit?   The debt slaves will be unable to consume for many decades. 


Job growth for collection agencies though - see Sunday NYT.

Wed, 09/12/2012 - 14:23 | 2786716 kaiserhoff
kaiserhoff's picture

And disqualify the VICTIM for many federal benefits, more or less forever, unlike a felony murder conviction which will be ancient history in seven or eight years....,  If I'd only shot my ex back when I reeeeealy wanted to....

Wed, 09/12/2012 - 14:30 | 2786758 Henry Chinaski
Henry Chinaski's picture

No, exactly the opposite.  The social costs will be too high. Intentionally.   There will be a student loan bailout. The end game will be a universal national higher education entitlement with a corresponding deduction from every paycheck like social security or medicare.

Wed, 09/12/2012 - 14:42 | 2786796 dwdollar
dwdollar's picture

That would be the only reason to bail out student loans. That is, to make it a new tax and screw everyone a little more. Anyone who thinks Uncle Scam will just pay them off without bending everyone over is dreaming.

Wed, 09/12/2012 - 14:26 | 2786737 JamesBond
JamesBond's picture

spot on analysis



Wed, 09/12/2012 - 15:26 | 2787015 JuliaS
JuliaS's picture

Lincoln freed the slaves. Now Lincolns are used to enslave.

Wed, 09/12/2012 - 14:18 | 2786689 schatzi
schatzi's picture

Those new shiny iPhones aren't going to buy themselves!

Wed, 09/12/2012 - 14:19 | 2786695 Jason T
Jason T's picture

Getting deep into debt in the US today is like getting caught up in the rip tide caused the the Fed's Jetty building they think can prevent the tide from going out.

Dont' get caught in the rip tide.

Get out in the county and become self sufficient which is akin to simply being on the shore

Wed, 09/12/2012 - 14:33 | 2786765 dwdollar
dwdollar's picture

No place to run, no place to hide... and even if there was, most people wouldn't have the resources to get there. We're talking about debt slaves here.

Wed, 09/12/2012 - 16:41 | 2787367 FoeHammer
FoeHammer's picture

It's too late for most of us. Years of indoctrination served up by public schools, parents and society created the framework in which I made my decison to go to college. Oops.


It's hard to tell folks not to go to college because, for years, they have been told by everyone else to go to college. I doubt many high schoolers run an NPV analysis or even a simple cost/benefit analysis in order to make the decision to go or not. 

The mentality is "Put it on the tab. I'll use all that hope and change to get a job later on.".


PS. Looking for Junior analyst level work at an Austrian minded investment firm.

Wed, 09/12/2012 - 20:54 | 2787954 Pants McPants
Pants McPants's picture

Location? I'm of the austrian mindset & looking to get out of fortune 500 land.

Wed, 09/12/2012 - 14:19 | 2786696 sangell
sangell's picture

I am Phoenix and I got a degree in Pay Day Loan lending and I"m doing great.

Wed, 09/12/2012 - 14:28 | 2786742 kaiserhoff
kaiserhoff's picture

Well done, sangell.  Just be careful repoing those drug mobiles down in Old Mehico.  ZIRP FOREVAH!  Ribba, ribba, ribba

Wed, 09/12/2012 - 14:37 | 2786783 LMAOLORI
LMAOLORI's picture


LOL funny I hope you meant that sarcastically anyway. Pay Day Loan Lending is amongst the most egregious forms of predatory lending. But then again no one forces people to take the loan however our govt. should not then be collecting for them either.

The Trouble With Democrats


American Usury


One of the fundamental issues that party managers wished to avoid was the scandal of American usury. Usury is the ancient sin of charging inflated interest rates sure to ruin the borrowers. It is considered immoral by Judaism, Christianity and Islam because usury involves the powerful using their wealth to ensnare weak and defenseless borrowers. The classic usurer offers an impossible choice that debtors cannot easily refuse. If they reject the terms of the loan, they will not be able to pay the rent or buy necessities. If they accept the usurious interest rates, their debts will accumulate until they are bankrupted (at which point the creditors claim their property). No civilized society can endure in such conditions.

Usury used to be illegal in the United States but it was "decriminalized" in 1980--the dawn of financial deregulation. A Democratic president and Congress repealed all interest-rate controls and the federal law prohibiting usury. Thirty years later, American society is permeated with usurious practices--credit cards charging 30 percent and higher, subprime mortgages and other forms of predatory lending, the notorious "payday" loans that charge desperate working people an effective interest rate of 500 percent or more. Businesses, especially smaller firms, are also prey to usury in less direct ways.


in full


Wed, 09/12/2012 - 15:01 | 2786909 potlatch
potlatch's picture

I am Phoenix and I got a degree in corrections and I'm doing great.  Now my kids are gonna have a better future, in either corrections or if they study hard, pay day lending

Wed, 09/12/2012 - 22:31 | 2788104 A Nanny Moose
A Nanny Moose's picture

Which is more difficult...the spontaneous combustion, or rising from your ashes?

Wed, 09/12/2012 - 14:26 | 2786734 Hyper Entropy
Hyper Entropy's picture

I am so happy I bit the bullet and payed off my student loans in 5 years. It feels great. Debt you cannot discharge is indentured servitude, make no mistake about it.

Wed, 09/12/2012 - 16:30 | 2787312 Mr.Bigfoot
Mr.Bigfoot's picture

I'm a physician, graduated 6 years ago, still 6 figures in debt. I'm an indentured servant, slave to my debt.

Wed, 09/12/2012 - 17:31 | 2787528 grid-b-gone
grid-b-gone's picture

My kid just paid off his loans before the first payment was to kick in next month. He commuted after one year of dorm life, worked two P/T jobs as much as possible during school, and lived at home post-graduation.

He has no spring break pictures to show for his college years, and no loan money ever bought a pizza, but he owns a car outright, has a 4-yr engineering degree, and now, zero debt. 

It was a personal, spartan sacrifice, and his bank account is wiped out, but he is free to make the most of the rest of his life. 


Wed, 09/12/2012 - 20:58 | 2787962 Pants McPants
Pants McPants's picture

Great story, thanks for sharing. You must be proud...sounds like you raised him right.

World could use a few (billion) more like-minded folks.

Thu, 09/13/2012 - 03:00 | 2788472 ceedub
ceedub's picture

Must be nice to have parents that can support you huh?

Also I doubt the validity of the story.  A engineering degree and a wiped out bank account from living at home?  Was his school that bad as to not require internships/coops?

I have friends that lived at home while studying engineering and they graduated with 20k in the bank. If school was more than 20k plus all that money from working two part time jobs, YOU'RE DOING IT WRONG.


Wed, 09/12/2012 - 14:37 | 2786781 centerline
centerline's picture

Bubble after bubble.  The machine needs debt.  Got to feed the machine.

Wed, 09/12/2012 - 14:58 | 2786895 q99x2
q99x2's picture

The FED has to give the middle classes money to someone to by that Chinese junk. It mayswell be students. YeeeHaaa.

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