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Think The US Student Loan Bubble Is Bad? You Ain't Seen Nothing Yet
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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Sooner ... Push by Administration this year will be attempt to gather more votes
Can't remember where I heard it, but it seems that debt collectors persue (rather aggressively) the kin of the desceased in an attempt to collect payment. Not legal, but the process ruins your life until you cave and pay it. Only a matter of time before congress "solves the problem" by making debt transferrable upon death. Don't underestimate it.
will be about as successful as making gravity "illegal."
http://www.guardian.co.uk/commentisfree/2012/apr/23/squeezing-ordinary-p...
Add this to the toxic brew. Incidentally a lot of these graduates will never earn enough to pay back their loans because the main employer of graduates in the UK is the public sector and that won't be expanding
Europe will privatise everything while raising taxes. Win win for the government.
Watch as systematically the governments teats are turned off while others are turned on...shut down mortgages, turn on student loans, turn off defense, turn on SS Disabilities Fund...also, what happened to free tuition in the UK? You pay over 50% of your salary to the state and no free education for life??? austerity taketh away again..
50%?
The highest tax rate was 50% (now reduced to 45%) This applies to income which is ABOVE £150,000 ($241,000).
Believe it or not, not everybody in the UK earns over that amount.
On the average salary of £25,000 ($40,252) after deductions the take home salary would be £19,362 ($31,174).
Learn to read before you spout shit.
http://www.taxcalculator.co.uk/
Its time to bring back apprenticeships for many jobs...
You coukd become a:
Master Burger Flipper
Master Barista
Master Checkout Clerk
I want to be a master printer, but there is only one employer left.
Academia has served its masters so very, very well. It graduates endless numbers of social engineers, political cadre and brainwashed simpletons. And thus it has reaped outsized rewards much like the banks.
These people have the gall to ask me for money every year.
IT AIN'T HAPPENING, BITCHES!!!!
You are correct sir. Moreover, let me add that it is in the best interest of their own survival to make sure the charade continues. John Corzine is a perfect example. This crash can not happen soon enough for most who know that the value of their labor is terribly underestimated.
Just another... "EPIC FED FAIl" that doesn't end well.
vc
Another fucking disgrace! I went to college and paid $300 a credit in the 70's at Pace University in New York and Manhattan College. I went to night school most of the time and it took me almost 7 years till I got my degree and I left school with no debt. Who the fuck guaranteed these babies that they should go to college, drink in the dorms, fuck all night long and have the taxpayers pay for it. They want the education bad enough; they will work to get the money to pay for it. They knew the game when they enterred school so make them pay every dime they owe. How about a second job or working you ass off, isnt that an option anymore?
Funny, that's what the people at the top are saying, too. "Are they too good to take on second and third jobs? I earned MY trust-fund ivy-league education, they can earn theirs!" There is deep folly in tearing down a system that educates people so that it can be replaced by uneducated labor. It is a net benefit to society to have an educated population. It is a requirement of functional democracy. Poor education is the source of so many of the problems that people complain about on this site ("sheeple", anyone?). It is the quality and diversity of that education that should be the target of our ire, not the fact that someone got in on tax dollars. Take personal financing out of the picture, and the only competitive edge left is quality. Quality of school, quality of student.
I agree that we have an entitlement society, but I also haven't missed the fact that jobs for the younger generation are almost non-existent and what is available isn't enough to live on, let alone pay for what college runs these days. It's easy to say now, "well, when I was a kid, I walked 10 miles through 6 feet of snow every day to school and never missed a day..." but the world has changed. It's a different world than it was in the 70's in that working even two jobs won't keep a roof over your head AND pay for college.
Hmmm, just how many years would one have to work at minimum wage to pay for college tuition including room & board these days anyway? Back in the 70s, it was possible. These days, tuition hikes sometimes happen twice within one year.
Long story short, I partially agree and partially disagree with your assessment. It is not ALL on lazy kids. Even good kids who want to work and don't feel entitled lack in opportunities to be self-sustaining.
"Hmmm, just how many years would one have to work at minimum wage to pay for college tuition including room & board these days anyway? Back in the 70s, it was possible".
It was not so easy, my mother was cripple and my dad was a school teacher making about $25,000 a year with 5 children. They could offer no help and had to move out of NY to get my mother to a warmer climate. I worked day and night, rented a 1 room flat, bought an old beater car and paid for my schooling.
I did not want for anything, I had hope and I had desire to get my education and I got it so unless you have lived this way, you are in no position to comment on it. If you want something bad enough, you work that hard and get it.
No one said it was easy, and you are to be applauded. I would, however, ask if the unemployment rate for people your age was around 50% in the 70's? I would also point out that at $300/credit, if you took 15 credit hours a semester, your tuition would only have been $4,500 a semester, or $9,000/yr. Definitely doable on a part time job. However, a quick look at Pace's website indicates their tuition is now at $51,364 a year for direct costs alone. Throw in books, transportation and personal expenses, and you are up to $54,268 and that doesn't include a place to live or food to eat. Think you can swing that on a part time job, or hell, even a full-time job at minimum wage? Not sure why the image isn't showing up, but a link to the costs of attendance is here: http://www.pace.edu/prospectivestudents/undergraduate/tuition-fees/COA
+1
Very well said.
This might be the investment idea that could save all our asses ====> http://www.youtube.com/watch?v=riCi_0wqPKo
And Obama is screwing the seniors... using taxpayers money!
http://www.nypost.com/p/news/opinion/opedcolumnists/an_billion_trick_ImT...
With only the Government now making the "loans", this is going to turn into an entitlement that masquerades as a loan program. These debts will eventually be forgiven.
"We pretend to lend you the money and you pretend that you will pay it back"
This is where the entire US government-funded/backstopped "credit" system is headed.
http://whataboutmarx.blogspot.com/2012/04/education-as-market-and-collap...
1) Saturday (tandem) fighter jet stadium fly-over's aint free.
2) If i don't debt-up, Dave Thomas does not accept my 'student bucks' card at the Late-Night window.
“We’re loading up these kids with debt."
Who is "we?" Not me.
Note to students: Stop borrowing money.
Note to government: Stop lending money to students.
and stop supporting higher education. I used to be an awfully good donor. But now it is zero. Why would I give money to an institution so that they can pay themselves more, turn around and jack my tuition up? Break them. Take away the money. Kill the banks that make the loans. Starve the beast.
The banks won't make the loans without government support -- kill the government supports, and the banks will stop making the loans.
Why does Obama bow to the mighty banksters like Bill Clinton did? I don't understand why republicans never capitalize on this fact. I suppose because they are both working for the same banksters. I'm not voting next time around. Obama is a total sellout and Romney has no clue who he is or what he stands for -- he just wants to win.
Obama bows to them, because he wants to feel like he belongs. He doesn't always want to be the Kenyan/Indonesiam/affirmative action/little kid from Hawaii that everybody talks about. He wants to belong, to be part of it all. The bankers love this about him. But it creates a deadly social orifice for the rest of us.
Obama bows to them, Romney is them.
Our problems won't be fixed via elections, our problems will be sorted out by gravity over a period of time.
Lulz. Just add this to the list of things America sucks at. We used to be world beaters, now we can't even out-student debt the UK.
Student Loan in the future = 3 coins of American Silver Eagle.
No problem. klink, ka-klink.
Those with gold can shake that much off the dust covering.
It is kind of funny the remarks about the taxpayer having to pay for college educations and loans and such. Twenty years ago you got a "free" education in the state of California. Students paid minimual tuition at that time. Who do you think paid for the buildings, lights, teacher salaries, groundskeepers back then....the toothfairy? Education has invariably been a part of the social contract in western democracy. The society foots some of the bill up front in the expectation that the educated citizen will contribute more to the betterment of society than would the uneducated.
There is a lot going on here.
Some of it is corporate pursuit of profit. Education is very marketable and highly profitable.
Some of it is the American lowering of thresholds and expectations. Everyone should be afforded a college education. What do you mean my kid isn't smart?
Some of it is the good old American dream. Work hard and you too can succeed in America!
The real issue here has come down to price negotiation. Will there be some debt forgiveness of student loans? Hell yes. Most of the debt is under government control and it is starting to hurt the middle class of this country. So it is now just a matter when and how much. How much can we forgive and not make a mockery of the sanctity of "borrowing"! How much can we demand in payment without political reprecussion?
These things must be handled delicately so as not not offend, but the price is negotiable without a doubt.
It can be a winner for all. The individual debtor has some cash to spend on a new car rather than student loans. The bank sells the loan onto the feds before the jubilee hits. The government keeps the system churning. The education-industrial-complex continues to expand and make a profit for cash strapped states. And the taxpayer, read remarks on toothfairy, democracy and education, and in the last resort, sell a ton of military equipment. Because if you think the military-industrial complex is not in a bubble in America, then you need to read your numbers again.
It is kind of funny the remarks about the taxpayer having to pay for college educations and loans and such. Twenty years ago you got a "free" education in the state of California. Students paid minimual tuition at that time. Who do you think paid for the buildings, lights, teacher salaries, groundskeepers back then....the toothfairy? Education has invariably been a part of the social contract in western democracy. The society foots some of the bill up front in the expectation that the educated citizen will contribute more to the betterment of society than would the uneducated.
There is a lot going on here.
Some of it is corporate pursuit of profit. Education is very marketable and highly profitable.
Some of it is the American lowering of thresholds and expectations. Everyone should be afforded a college education. What do you mean my kid isn't smart?
Some of it is the good old American dream. Work hard and you too can succeed in America!
The real issue here has come down to price negotiation. Will there be some debt forgiveness of student loans? Hell yes. Most of the debt is under government control and it is starting to hurt the middle class of this country. So it is now just a matter when and how much. How much can we forgive and not make a mockery of the sanctity of "borrowing"! How much can we demand in payment without political reprecussion?
These things must be handled delicately so as not not offend, but the price is negotiable without a doubt.
It can be a winner for all. The individual debtor has some cash to spend on a new car rather than student loans. The bank sells the loan onto the feds before the jubilee hits. The government keeps the system churning. The education-industrial-complex continues to expand and make a profit for cash strapped states. And the taxpayer, read remarks on toothfairy, democracy and education, and in the last resort, sell a ton of military equipment. Because if you think the military-industrial complex is not in a bubble in America, then you need to read your numbers again.
I see some possible legal issues here.
Are these student loan contracts valid?
Under the meeting of the minds requirement, were fraudulent statements made such as "if you get a college degree (in whatever) you will earn more."
Hope and Change? Did fraulent claims by politicians influence a student's decison to take out a loan.
Falsified unemployment statistics - were these falsified to hide the fact that there was massive unemployment for new college graduates?
Consumer Laws usually aim to protect the individual citizen from fraud (by used car dealers, realtors, etc.). Why are there none here. Is this because the Federal Government is a wholly owned subsidiary of the Goldman Sachs ot the JP Morgan?
Also, does the law barring student loans from being discharged in barkruptcy violate the 13th Amendment?
The problem is unemployment, not the student loans. The official unemployment number are rigged so that they do not include the 50% of new graduates who are either unemployed (in the true sense of the word) or under-employed - employed in part time jobs or jobs that do not require a college degree.
The financial system is rigged so that banks have an unearned increment - they are charging unsecured loan rates for what is essentially indentured servitutude. The banks have a problem - they can not collect payments from NINJA students.
Like the mortgage martket, they have an extend and pretend attitude - they will be able to collect "when the economy and the job market turn around (after QE25?)".
thanks for the informative article td!!!
Creating lifelong debt peons, right out of "school". School that for millions of people was obscenely overpriced and prepared few of them for what actually awaited in todays "economy".
The debt will bankrupt many and ruin what would have been the normal course of their lives. Yet, thanks to bankster legislation their congress crtitters passed for them a few years ago, even personal bankruptcy will not absolve one of so-called "student debt". It NEVER goes away until paid off.
A whole generation of American and English youth, mis-educated and then essentially pointed toward oblivion. Concentrated in "campuses", "re-educated", then marched off in their millions, straight into the financial Gas Chambers of the banksters. And it's all nice and Legal-like. You can thank your 100% owned congress critters. And the nice folks who own 'em, like pets.
As with most of their crimes, this one is just too huge and too sick for most good, ordinary people to wrap their heads around.
Concentration camps had a system in place herding the doomed. Everything was efficient.
Timely post for me, as today I recieved the monthly St. Louis Fed publication in the mail, with the cover story asking why more students are not going to college for a degree. Not kidding. LMAO
in the future they will issue a bond in your name at birth. that money is yours to do with as you please, and you must pay the interest of course. and the bond has some variables, if you spend spend spend and fail to pay the interest the value of the bond goes down, and your line of credit. ( you end up tapping into your principle, not a good thing)
if you invest the money wisely, (buy a good college education and find a career, the value of your bond goes up). if you default you go to work at Burger King. if you tap out really badly you could be in a hole you can never get out of. (that's when you make Logan's Run, I love that movie)
the first element of a life bond (rock stars already have them) begins with indentured servitude, which was a concept that brought many new immigrants to America. (but for politically correct reasons we can call it making the kids do public service in order to see they act responsibly)
corporate america always wants to oversell you, whether its a car or a house, or a college education. its your responsibility to be a good consumer. the second element is egalitarian, everyone starts with the same bond.
and while there are no do overs, there should be resets to your life bond rating. (or you can opt for carousel when you're thirty) or the sandman will come for you.
Apparently with the the outragous fees charged by Universities, they still lose gobs of money.
I constantley bet bombarded by my Alma Mater for donations.
It's not enough to pay for your education, now they want me to donate money for their "cause".
Fuck you assholes, I'm not donating my money so some whacked out "professor" enjoys a nice pension. I've got my own pension to pay for. Leave me alone fucktards.
PS...I love the way we can say fuck on ZH....fuck, fuck, fuck!
If TPTB want a limited number of serfs to work the fields, what good does it do to create educated serfs? The kids of the globalists already have their slots chosen and they'll have them or else, so where are the "educated" boobies going? The rest of us will be "eliminated", of course.
...land of the free? My tuckas! Mark of the beast bitchez. What a joke. Education owns them. Cars own them. Homes own them. Credit card companies own them, and you ain't seen nothing yet. http://www.youtube.com/watch?v=8XZWgHNcUeA
It's by design. Banksters want debt slaves. Bernanke and the Federal Reserve are the enablers. Go long boiled rope because when the WTSHTF it's going to be in high demand. The neck ties will not be strong enough.
"I'll teach you how to work this tool and you work for me in all things for the rest of your life."
There was a time indentured servants were useful.
We should go back to medieval apprenticeships...
need more book binders
All this whining about student loans is a bunch of BS. No-one forces these kids to act stupid and take on more debt than they can afford. Maybe this is survival of the fittest and those kids stupid enough to ruin their lives by borrowing too much will learn a valuable lesson. Maybe the next generations will not be as stupid. Look on the bright side.
My kids are working their way through college and will graduate with no debt.
That's good. What do they do? And what type of school are they attending? They must have pretty decent paying jobs, or multiple low paying jobs?
you sound like a commie
Stupid peons of Anglo American Empire.
Don't you know you're supposed to impoverish yourself and ultimately die for the protection of Israel and the enrichment of an Arab sheik?