Now that student loans, well over $1.1 trillion, are hitting fresh record highs as... well... daily as the S&P500, the Fed is finally getting concerned about the latest debt bubble it has blown (not so much in equities). So concerned, in fact, the New York Fed recently added questions about student loans in its broad survey [6] on consumer expectations to find out what people knew, or rather, did not know about this record debt mountain. We hope it was not shocked to learn that once again the bulk of Americans are taking on unprecedented amounts of debt without having a clue what the conditions are: accordint to the analysis, people don’t fully comprehend [7] the ramifications of taking on student debt.
As Bloomberg summarizes [8], the survey covered 1,029 people, including those with and without debt. The shocking findings:
- Only 28% of respondents knew that if student loans aren’t repaid, the U.S. government can garnish wages, withhold Social Security payments and tax refunds, and report the debt to credit bureaus.
- Even more people—35%—incorrectly thought the government couldn’t do any of those things or said they didn’t know what the government could do.
- Only 37% of those surveyed knew that students loans are extremely hard to shed in bankruptcy, a reality that differentiates student loans from other debts, such as mortgages and credit cards.
- The survey found that people who have student loans know more about the consequences than those who don’t, and that’s even truer of those who have high debt loads. But about half of those with higher-than-average student debt didn’t have high comprehension of the issue.
- The survey also found that fewer than one in five people under 55 years old were “highly literate” on the topic, even though they make up most current and future borrowers.
The findings should hardly come as a surprise: in 2012, Young Invincibles, an advocacy group, and the economic consulting firm NERA found (pdf [9]) that 40 percent of current or recent graduates who got financial aid said they didn’t receive any counseling about their federal student loans, as required by law. Of those who did receive counseling, only a little more than half found it informative.
All of the above, naturally, is a pivot to the moment just after the student debt bubble bursts: then, just like with the housing bubble, the excuse will be the Americans, hardly with a gun against their head, did not understand what the "implications" of burying yourself to the neck in debt are. Which is why they did it. Which is why the entire system had to be bailed out. Or something like that.
It is good to see that nobody has learned any lessons from the recent past, as usual.