The topic of the student loan bubble is not new: having crossed $1 trillion recently, student debt is now the biggest consumer debt category, greater even than US credit card debt. We have extensively discussed the implications of the parabolic curve representing outstanding student debt before, and it is no surprise that the issue of student loans has become of one of the key topics of debate in the ongoing presidential mudslinging campaign. As is also known, an increasing portion of student debt is funded by the government at an ever lower rate of interest: after all it is critical to allow the bubble to keep growing with as little interest expense diverting the stream of cash from the end borrower - wide eyed students who increasingly realize they are stuck with tens of thousands in loans and no jobs available to allow them to repay this debt, in effect making an entire generation debt slaves. Finally, as should be known, student debt is non-dischargeable, meaning once a person becomes indentured, they are so for life, and filing bankruptcy will do nothing to resolve debt claims against the individual. After all there is no other collateral by definition that can be confiscated by the creditor - the only thing the debtor "acquires" in exchange for this debt is a skillset, which sadly in the New Normal is increasingly redundant. But there has always been one question outstanding: just what does all this easily accessible and now pervasive student debt fund? The chart below, courtesy of Bloomberg, provides the answer: in the past 3 decades there has been no other cost that comes even remotely close to matching the near hyperinflationary surge in college tuition and costs.
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The follow through question then is: where do all these cheap debt funded dollars go? Why to pay the salaries, and lifetime guaranteed pensions of tenured Keynesian professors in "established" universities, who are delighted to keep peddling cheap debt if it means their compensation rises at a rate of 5-10% each year, every year, no matter how the economy performs.
After all they and their "ZIRP is the answer to all" brethren are the immediate beneficiaries of this 1120% cost explosion since 1978.
As to who foots the bill? It is all those young men and women who are indoctrinated day in and day out by every possible legacy media, whose sole interest is also to perpetuate the status quo, that the only way to succeed in this world is through untenable debt. Of course, it is packaged differently: study, get a loan, get a job and pay off the loan. Sadly, this is no longer the case in the New Normal where one is lucky to get a part-time job paying minimum wage, let alone one which allows the repayment of debt principal (this ignores the possibility of interest rates actually rising at some point in the future).
Some more perceptive readers may ask: did the cheap credit allow this explosion in tuition costs, or did soaring costs require the latest debt bubble. The answer in this chicken or egg riddle is unclear, but is also irrelevant: one thing is certain - a 1,100%+ increase in prices in just over 30 years for any "asset class" is way beyond the ordinary course of inflationary business, and may as well be classified with the -hyper- prefix on a long-enough timeline.
Another thing that is also certain is that this kind of price surge in unsustainable, as is the associated exponential increase in student debt. We can only hope both bubbles pop sooner rather than later, if for no other reason than to put the majority of status quo professors, who have been gladly and quality benefiting from this phenomenon for years, out on the streets, and having to take out a loan to see what it means to become an indentured servant for themselves.
Alas, with ZIRP about to be replaced by NIRP, we may have a while to wait.