Think The US Student Loan Bubble Is Bad? You Ain't Seen Nothing Yet

Tyler Durden's picture

By now virtually everyone has seen some combination of the two charts, showing the  magnitude of the student loan bubble, a topic which even Goldman Sachs decided to take on last week:

The amount of student debt being taken on every year has been rising rapidly for years now (via NPR)

Frankly, by now the topic of US student debt has been discussed to death, and like every other bubble, it will keep growing, as the very fungible proceeds are used to purchase such mission critical "student" addenda as iPads and booze, until it bursts. Yet is it really that bad? And how does it look compared to some other countries' bubbles. Like that of the UK? Courtesy of Bloomberg we now know how a similar bubble is being blown across the Atlantic:

As the U.S. grapples with record-high college costs and outstanding student loans of $1 trillion, England is embarking on a plan this year that shifts much of the government’s burden of paying for higher education to students and saddles graduates with unprecedented debt.


Some students in England, after borrowing for housing and living expenses, will leave school with as much as 40,000 pounds ($64,200) in debt, said Peter Lampl, founder and chairman of the Sutton Trust, a London nonprofit group that promotes access to higher education. That tops the $23,300 average debt of U.S. student borrowers. The debt burden means graduates will defer buying a home and makes it harder for people from lower-income backgrounds to catch up, Lampl said.


In this country, we will be on an order of magnitude ahead of the U.S.,” Lampl said in an interview. “We’re loading up these kids with debt. The whole thing is an absolute disgrace.”

In other words, UK students will soon be debt slaves only encumbered with orders of magnitude more debt. However, there is a twist:

While many English students will be borrowing more to attend college, the system is more forgiving than its U.S. counterpart, said Steve Smith, vice-chancellor of the University of Exeter.


English graduates don’t have to repay their loans unless they make 21,000 pounds a year. They pay 9 percent of their earnings over that amount and all debts are forgiven after 30 years. Payments are automatically deducted from paychecks. Graduates don’t have to pay if they lose their job or transition to part-time work, as many working mothers do.


A young person making 27,000 pounds a year will end up repaying about 10 pounds a week and someone in their early 50s who owes 50,000 pounds has the reassurance that it will soon disappear, said Smith, who served as president of Universities U.K., an advocacy group that consulted with the government on the changes.

So do US students once again have the short end of the stick?

By contrast, U.S. education debt can’t be discharged through bankruptcy and almost 2 million Americans with student debt are over 60, according to the New York Federal Reserve. About $85 billion in student debt was delinquent in the third quarter of 2011. In March, the Consumer Financial Protection Bureau said U.S. student-loan debt had reached $1 trillion, based on preliminary findings.


The American system is brutal,” said Tim Leunig, who teaches economic history at the London School of Economics.


The Obama administration introduced an income-based repayment program in 2009 for U.S. borrowers who take out certain types of federal student loans. The plan limits debt payments to a percentage of a family’s income for graduates and erases the debt after 25 years. For those with government or nonprofit jobs, the debt can be forgiven after 10 years.

Of course no matter how you spin it, having debt three times your income before you are responsible for paying it down as a mitigating circumstance is simply idiotic. All colleges in the US and UK are doing, is generating another generation of slightly modified debt slaves, yet ones who have no choice, and more and more end up going to college because at least it is something to do in world in which those between 18 and mid 20s are only about 50% employed. And with debt as cheap as ever, the carrying costs are low enough to where one can just worry about repaying it tomorrow... Even if "tomorrow" ends up being when one hits their 60s. Still, since behavioral changes are additive, the fact that UK student used to pay virtually nothing as recently as 14 years ago, means the pain from the surging debt load is far worse across the pond:

Higher education in England was free until 1998, when students were charged 1,000 pounds. The tuition increased to 3,000 pounds in 2006, and rose with inflation each year after.


In the U.S., the average tuition and fees for 2011-2012 at public universities is $8,244 (5,136 pounds) a year for state residents and $28,500 at private schools, according to the College Board, a New York-based nonprofit group whose members include U.S. universities.


The new English system, unveiled in June by the coalition government of Conservatives and Liberal Democrats, is designed to reduce taxpayer support while introducing competition among universities for the top students, said David Willetts, the Conservative minister for universities and science.

Curiously, if the UK succeeds in enacting its own debt enslavement system, the rest of Europe will be sure to follow:

In the rest of Europe, where higher education is free or relatively inexpensive, governments are watching to see if the U.K. plan succeeds, said Jens Oddershede, president of the University of Southern Denmark in Odense, and the chairman of Universities Denmark, an advocacy group.


It’s creating “widespread fear all over Europe” among college administrators that the region will move toward a high- fee, high-loan system, Oddershede said. He pointed to the U.S. model, calling it “a system that can serve a capitalist society like America but wouldn’t work in a small country like Denmark.”


The prospect of rising tuition angers European students, who say they had no role in causing the financial collapse but are being made to pay for it.


“What caused the debt?” Allan Pall, head of the Brussels- based European Students Union, said in a speech at the European university conference. “Did we spend too much on higher education? We should ask that question instead of rushing to cut the first thing we see, the thing that creates jobs and growth.”

Yet just like US Trasurys (with or without the benefit of the shadow banking system which allows to generate near-infinite fractional reserve demand when using one unit of a "real asset" rehypothecated a fractional-reserve number of times), student loans keep seeing greater and greater demand:

While students have protested, applications through Jan. 15 fell just 1 percent, when adjusted for a decline in the college- aged population in England, according to the Universities and Colleges Admissions Service, which manages university applications.


That’s not surprising, given the importance of a college education for finding a high-paying job, Lampl said.


“Poor kids, low-income kids know they have to get an education,” Lampl said. “They’re not stupid.”


Asta Diabate, 18, who lives in Lewisham in south London, said the higher fees don’t faze her.


“I’m not worried, because it’s something that’s valuable,” said Diabate, who will start college in 2013. “It’s not like I’m going to pay upfront and installments are so low, it shouldn’t really bother me” when repaying the loan.

Of course, local financial employers must always exhibit snobbery when picing resumes, and focus on the promising candidates out of Ivy Leagues (or equivalent), as otherwise the whole charade falls apart. And as long as the return promise is much higher than the alternative, student can at least justify the massive debt load to themselves. Yet the question is how long until the next taxpayer bailout:

While the plan was devised partly to reduce government spending, it may ultimately cost more because many borrowers won’t pay back all they owe, said Nicholas Barr, a professor of public economics at the London School of Economics. About 70 percent of the loans will be repaid because of the 21,000-pound income threshold and the 30-year forgiveness period, according to government estimates.

Then again, a taxpayer bailout of the college loan system will never occur, as tuition and room and board will never, ever go down in price. Just like houses back in 2005.

In the meantime, the latest credit bubble, no matter if its US or UK iteration, continues merrily along, until it is forced to finally stop. Alas, with private lenders now outof the market, and the US government the lender of only resort, the administration's generosity with other people's taxes will hardly ever be tested, until well after the fact. By then we will likely have other problems.

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tu-ne-cede-malis's picture

Won't surprise me a bit if Obama forgives a lot of student loan debt as a last ditch effort to get reelected.

LawsofPhysics's picture

Depends if the forgiveness would be applied universally to all those carrying student loan debt or simply those that are unemployed.  The moral hazard is the problem, encouraging more (moral hazard that is), is not a "fix".  FYI, actually applying this across the board would allow some young doctors I know to to charge less for their services.  Imagine that.

Pladizow's picture

Clue: Eeets not a bauwble!

Who am I?

francis_sawyer's picture

A wacko with vaginas on his wall...

Soul Train's picture

No worries - Obama has it all under control.

Another question - Do the "Secret" Service screw with sunglasses on ???



Logans_Run's picture

To the tune "I Wear My Sunglasses at Night"

Oh regional Indian's picture

Vultures. WHen I joined school in the US, was overwhelmed by credit card offers.

In India back then (1995), CC were for the rich, only. So I felt really special and took them all.

Ha! That addiction was a tough one to break. Ruinous.

And then the student loans, which encourage you to live well as a student (ie. take more debt)....

Masterful Social Engineering and Enslavement at every level.

 School there was awesome though...


bobola's picture


What debt did you put on the cc's..??  Stuff you needed to have right now, or stuff you wanted..??

Have been reading recent articles about cc companies (once again) signing up customers with bad credit ratings.  I guess they figure they will make more $$ than they lose and if they don't get these customers, their competition will. 

Oh regional Indian's picture

Bob, this was back in 1995, I was a newbie to the US. Now I'm all wized up. Not had a CC in 10 years and like it like that. Here in india though, being CC free is quite easy.

And yes, credit farms are not done bottom fishing yet. Inspite of all the rhetorical arguements, ultimately, the system has to generate X amount of debt locallya d globally every day just to stay alive (barely).


theMAXILOPEZpsycho's picture

"We had no role in the financial crisis" "therefore we demand the government take from working people and give us free "education""


redpill's picture

Cue various gubmint officials and CNBC talking heads claiming that "no one could have seen this coming"

Manthong's picture

"For those with government or nonprofit jobs, the debt can be forgiven after 10 years. "


They should be paying a premium on the loan in accordance with the premium that their government or priviledged sector compensation and benefits provide over civilian compensation.

mjk0259's picture

Not so much in UK. Everyone has medical, dental and retirement

DanDaley's picture

"Everyone has medical, dental and retirement."

All for only $143,000 per capita, but hey, it's only paper.

dubbleoj's picture

If Brits stay out of the country long enough, I believe 5-8 years, they can get their loans forgiven completely. Have several friends doing this.

long-shorty's picture

laws of,

I used to be a doc. Young doctors don't set prices; they collect the reimbursement that the government and insurance companies fix for their services, same as old doctors.

Doctors can set high prices but only patients who are "cash pay" would actually pay those prices, and increasingly, neither young nor old doctors will accept many patients who are cash pay.



dark pools of soros's picture

nah it doesnt matter..  he'll just say it and get the bump and the details will just let 10% forgive some of their debt and not talked much in the media

Stuck on Zero's picture

I think Obama is going to promise 50 sesterces to every citizen.

mick_richfield's picture

I think that would be about 600 million oz. of silver, or about 20 times as much as the COMEX says it has.  ( And about 200 times as much as it really has. )


Floordawg's picture

That would be surprising IMO. It seems unlikely to throw a bone that large to the serfs. His handlers would never allow that kind of "compassion."

Paul Atreides's picture

Agreed it would be something more along the lines of interest relief if it happens...

MachoMan's picture

Aside from the fact that it's still moral hazard...  those folks who (unwittingly) gambled and paid off those debts early probably won't be too happy...

All that needs to happen is the debt becomes dischargeable...  everything solved.

Dre4dwolf's picture

The only way hes getting re-elected is if the people of the USA get bailed out just as much as the banks and his private buddies did.


They should just issue a debt forgiveness month where everyone can send ttheir banks a nice letter and tell them to fuck off.... that would get the economy roaring again without a doubt!



Then again, you don't have to wait for them to enact such a law or act, you could just simply stop paying, if everyone did the collector would die before having even collected on / sued even 1/1,000,000th of the people somehow endebted to an mythical entity that never had any of its own money to lend out in the first place.

grey7beard's picture

>> just simply stop paying,

Or how about not borrowing in the first place?  Naaah, that would be taking personal responsibility.

fnordfnordfnord's picture

Or how about career as a fry cook? Grocery bagger? I know!, A Secretary! Secretaries make a good living, and are treated with respect.

Au Shucks's picture

Appearantly a grey beard does not equate to accumulated wisdom.  The "borrowing" you refer to is created from nothing.  Money has been corrupted and is worthless paper that is only accepted as payment by threat of violence. 


NOBODY should pay back ANY bank loans, mortgages, credit card debt or any other bank-created-fiat-shit.  Pay back personal loans from sources who had to earn the money to loan to you, for sure.  But anybody who printed the money out of their ass can simply print more if they need it.  Don't be a slave and get off of your soapbox as it is being supported by the bubbles of your ignorance.

grey7beard's picture

>> Don't be a slave and get off of your soapbox

I speak from experience.  I'm not a debt slave as I owe nothing and haven't for many years.  What I have done, ie withdraw from the system, is something you can actually do that makes a difference.  What you propose is simply a lazy man's pipe dream.  I prefer to take effective measures.  You?

hadriansnightmare's picture

You live in a dream world.  Anybody who is buried upside down by 80% is a fool for spending the next 20 years getting back to 0.  It doesn't make any sense to do so.  Financially, ethically, morally, no matter how you slice it.  Moral Hazard is all about philosophy, lets deal with reality for a change.  Obuma had his chance to offer real mortgage adjustments to everybody at the same time he was bailing out his wall street buddies.  Heck, he could have cut every mortgage in half and given tax credits to people who had paid off their homes to boot and bailed out the banks for what we have blown.  That ship has sailed- now it time for each person to do what is best for them personally- and they are doing just that.  You can sit on your high horse and watch it go down from there.


grey7beard's picture

>> You can sit on your high horse

Taking personal responsibility and not getting myself head over heels in dept is sitting on my high horse?  You can protest all you want, but nobody forced you to borrow the money you owe, and nobody owes you a  get out of debt card.  Work hard, live frugally, pay cash.  Rampant consumerism has never made anyone happy for long as you and your ilk demonstrate.  You don't have to have a new car, you don't have to have expensive vacations, you don't have to have expensive meals out seveal times a week, you don't have to buy anything from Apple.  If you have the income to do so, and that's what you want to do fine, but don't borrow to live beyond your means.  No  high horse, just common sense.

bobola's picture

I'm with Grey,

You borrow money and don't pay it back - you are a burden on society.

Period.  End of story.

Unless a gun was put to your head and you were forced to sign a loan agreement, what right do you have to walk away from it and let the rest of society pay for your lack of responsibility..??

Your name is now on the banned-from-bike-club list.......

smb12321's picture

Why stop at cutting mortgages in half or forgiving student loans - which were freely taken I might add.   And be sure not to mention the obscene non-stop price hikes of colleges.  Nancy Pelosi says that for every dollar DC spends, the economy gets back 2 (or is it 3?).  If that''s the case then just give every citizen a million dollars for real prosperity.

orwell6's picture

"Au Shucks," why do you even post? You ignorance about economics is clear to readers. 

Are you a 'recent' or 'progressive' graduate?

Were you given a 'pass' as a member of some special minority?  (at some point, you will have to demonstrate competence either with logic, or applied knowledge)

Auditions for new Sonic commercials are now being held in Disneyland. No ticket needed, just get in line.

Shizzmoney's picture

A) That, according to Steve Keen, is kind of what we need.  The *public* is the one that's needs the bailout, *not* the banks who created these loans (and bad bets on these loans).  We tried giving the banks the money to cover for bad debts didn't work.

If you are going to print cash, print it directly to the public towards just covering debts.  A "debt jubilee", if you will.

B) This, of course, will never happen, anyways.  Banks want that interest, as they seek to continue to be the landlords of society.  As we learned with JFK, if a POTUS doesn't do what they want, that ass gets canned in re-election, or that ass gets shot.

The only thing they have to do to keep the US FailBoat looking like its sailing along, and to make this election seem "relevant" is two things: A) Unemployment under 9-10% and B) Gas prices under $5. 

As long as this persists, for now, TPTB will assume the masses will keep going along like everything is fine (when it is obv not).

Dr. Engali's picture

There you go inflate the debt away and print some more money. Throw the responsibility on the backs of the poor.

Dr. Engali's picture

You're assuming the fix isn't already in place for him to be reelected.

Gully Foyle's picture

Dr. Engali

Obana was a place holder, a bone to Democrats after 8 years of Bush.

Romney gets two terms.

Great US reset comes during his first term and NWO in his second.

Digital currency bitches, digital currency.

On the positive side, you can safely invest in gun manufacturers cause ain't no Republican POTUS gonna ban guns.

Red Heeler's picture

" . . . . ain't no Republican POTUS gonna ban guns."

Like Bush after Katrina?

pods's picture

Only the ones most suitable for fending off the goon squads:



"Romney signs off on permanent assault weapons ban"


"On the positive side, you can safely invest in gun manufacturers cause ain't no Republican POTUS gonna ban guns."  

XitSam's picture

The goon squads seem to be vulnerable to Columbian prostitutes.

pods's picture

Is this just me or did anyone else see this as exceptionally low?

I mean, it must be hard enough for a girl to make a living on her back, but then you stiff her on the bill?

No wonder the world hates us.  


XitSam's picture

I see it as a continuation of the low, GSA, Secret Service, are the symptoms that we know about. The government is corrupt at all levels.

smb12321's picture

You must not have traveled very much.  In almost any third world country there is one embassy with long lines of folks trying to get in.  Hint - it's not Cuba, China, Syria, Russia or Sudan.   The "world" of ZH posters may hate the US but the real world desperately wants to enter our borders.

Dr. Richard Head's picture

Surely you are kidding yourself.  These two ass puppets are so closely related to each other on domestic, monetary, and foreign policy it is sickening to think ANYONE can see a pubic hair's worth of difference -

Oh yea, and as far as guns are concerned -

1994: backed 5-day waiting period on gun sales (Brady Bill)Signed NATION'S FIRST Assault rifles ban

NRA Rates "Fast and Furious" Obama better on gun rights than Romney

Running for the Senate in 1994, Romney said: "I don't line up with the NRA." A decade later he became a lifetime NRA member