Student Debt Bubble Expands As Parents Do More Of The Borrowing

Authored by John Rubino via DollarCollapse.com,

Not so long ago, student debt was mostly the responsibility of students. That is, you paid for college with loans and then paid off those loans with the proceeds of the good job you got with an advanced education.

These days it’s a little different. The cost of higher education is soaring, the jobs available to college grads don’t pay as much, relatively speaking, as they used to, and the size of loans available to students – though huge – don’t cover the full cost of many degrees.

One might expect these changes to lead more students to work for a few years and save up, or choose a cheaper degree, or eschew college altogether (as a lot of successful people now recommend) and substitute work experience for a diploma.

Some of that is happening but apparently the biggest change is that parents have stepped in to cover the difference between what their kids can borrow and the cost of a degree. As the chart below illustrates, until just a few years ago, the average debt of students exceeded that of students’ parents. But post-Great Recession, parents have given up trying to moderate the cost of their kids’ education and started doing the borrowing themselves. They’re now taking on the majority of new debts, and the gap is widening dramatically.

Source: Mark Kantrowitz (SavingForCollege.com)

Retirement Crisis?

So we can add student loans to the list of instances where people who once tried to control their borrowing have stopped trying and are now just going with the flow. Which means several things.

First, kids who if left to themselves and the market would probably opt for one of the aforementioned cheaper alternatives are still in high-cost, frequently low-reward degree programs, and are being sheltered from the consequences by well-meaning parents.

Second, the retirement crisis that everyone is talking about – in which people who have never saved a penny are approaching retirement age and looking at 30 years of abject poverty – is being made that much worse by parents taking on new debts at a time of life when they should be aggressively trending towards debt-free/cash-rich.

Third and most important for people who aren’t participating in this game of financial musical chairs, the eventual implosion of the student loan market – i.e., the point at which loan defaults become intolerable – will lead to a government bailout, making student loans everyone else’s problem.

But of course the government won’t raise taxes or otherwise inflict immediate consequences on the electorate. It will borrow the money and create enough new currency to cover the first few years’ interest, leaving the longer-term consequences for later years and other people.

As with all the other mini-bubbles out there, if student loans were an isolated problem in a sea of rock-solid financial behavior they’d be easily managed. But they’re just one of many time bombs set to explode shortly.

 Auto loans, credit cards, underfunded pensions and increasingly mortgages and home equity lines are all heading the same way domestically, while emerging market dollar debt (which dwarfs the US mini-bubbles) is just as precarious internationally.

The question then becomes, how many of these bursting bubbles can the US paper over before the currency markets figure out that each will be followed by another, for as far as the eye can see?

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Comments

Shillinlikeavillan The New Feudalism Sat, 07/14/2018 - 20:27 Permalink

My wife wanted me to setup a college fund for our daughters, I said "for what?"

 

"Do you want our kids becoming little fuckin monsters like those stupid idiots on TV like ANTIFA?"

 

..... I'm not even comprehending sending them anywhere, not even local city colleges... fuck that shit. 

 

NO leftard indoctrination in this fuckin house, thats for sure... 

 

And oh yea, they go out the door when they turn 18, learn to fly or fall on your face...

In reply to by The New Feudalism

RedBaron616 powow Sun, 07/15/2018 - 08:10 Permalink

I have told my kids to go to a community college first. That saves lots of money and most community colleges have agreements with 4-year colleges and universities to accept 100% of the courses for an Associate Degree. In addition, after 4 years, you have 2 degrees. Also, the kids are expected to work and pay a lot of the cost, even if it takes longer. I told them it is not worth going into debt over. We will help, but we also will not go into debt over it.

Stupid parents produce stupid kids. Hence, massive educational debt.

In reply to by powow

sabaj49 RedBaron616 Sun, 07/15/2018 - 10:37 Permalink

our kids understand that we do not pay for school after graduating high school

at 18 you become LEGAL adult and therefore govt has no business saying we as parents are to have continued responsibility for 35% of college

make panzi asses out of kiddies who are given everything

we call them antifa, snowflakes and members of aclu, southern poverty law

In reply to by RedBaron616

DemandSider sabaj49 Sun, 07/15/2018 - 19:26 Permalink

Depends on the job. If the kid's going into medicine, engineering, or other trade that adds value, best of luck, and he/she will eventually pay off the parasitic debt. If their going into "black studies", "feminism", "finance" or other "profession" that adds no value or subtracts from those who do, kick them out of the house, immediately.

In reply to by sabaj49

Lordflin powow Sun, 07/15/2018 - 08:10 Permalink

Shillinlikeavillan: had to link to pow for response due to rediculous comments system.... brave words... we will see how you feel when your little ones are ready to hit the streets. World has become a meat grinder for young people, and it is only going to get worse.

Disclaimer... my kids have been on their own since 18.

In reply to by powow

DemandSider Shillinlikeavillan Sun, 07/15/2018 - 19:13 Permalink

With an economy based on the overvalued dollar, we have become a society of debtors, and the indebted.  In such an economy, most of the normal incentives to add value are missing, or reversed. The people sending their kids to school for anything other than FIRE sector parasite professions will struggle to keep out of the jaws of debt oblivion.

In reply to by Shillinlikeavillan

Refuse-Resist navy62802 Sun, 07/15/2018 - 06:46 Permalink

Repeal Griggs vs Duke Power (a SC decision where a dindu forced all American companies to not do intelligence testing because dindus are stupid and they fail such tests).

 

Then companies wouldn't have to require degrees (proxies for intelligence tests) and could just hire bright 18 year olds and train them.

 

But no, because dindu can't compete.

In reply to by navy62802

The New Feudalism Sat, 07/14/2018 - 19:45 Permalink

Stop!  Stop the Madness!!  I disowned all my alma maters for the prices they are charging kids and families these days.  What is it all for???  What do you get for it???  

Delphi_Addiction Sat, 07/14/2018 - 19:59 Permalink

I've mentioned this many times before here. I'm a financial advisor, who sees plenty of these loans, including more in the last 18 months that I've seen in my career. FED Loans is trying to get as many people on the other side of this debt ledger as possible, and empathetic to the plight, and looking to blame anyone but themselves, so that when push comes to shove and these loans start to default over the tipping point edge, it will be politically easier to nationalize the whole mess. Makes no mistake, there is no escaping the student loan bubble.

 

I see PSLF loans well over 300k on a monthly basis. One this week for a dual music / psych masters /doctorate. Zero checks on this and the GOP Congress just approved even more funding. These will balloon to near $1M in ten years, and the PSLF ones will be forgiven with NO taxes on the balance.

Tyler's would get on Drudge if they investigate the PSLF. Obama designed this as pure wealth transfer from taxpayers to academia. Follow the money, ask yourself why no one in DC cares about the bubble. You heard it here first. 

Seasmoke Sat, 07/14/2018 - 20:02 Permalink

My university sends me updates every 3 months plus requests for donations. I was smart enough early enough to know I would just be pissing my money away helping those I don’t respect. Not one penny given. Ever !!!

GoldmanSax Sat, 07/14/2018 - 20:17 Permalink

Higher education used to prepare students for jobs or teach them skills they could exploit in the marketplace. As usual, it was abused and became a degree mill scheme. Students buy worthless degrees that don't even have value in 3rd world shitholes. All wealth generated in this way needs to be redistibuted to the victims of this fraud. Return all pay and profits with interest. My accounting firm will process the return for the standard 20% plus expenses fee. We should also include all real estate holdings because feelings.

Nunny GoldmanSax Sat, 07/14/2018 - 20:45 Permalink

Higher Education used to mean entering college knowing not only MATH, but our history, and grammar.  These days they enter 'college/university' without even knowing basic math. 

ETA: I paid off my student loans.

 

ETA again:  I refused to pay for my kids 'education'....and guess what? They are all doing fine, with no student loan debt. 

In reply to by GoldmanSax

hongdo Sat, 07/14/2018 - 20:39 Permalink

It's gotten so insane it's hilarious.  I'm waiting for them to both forgive student debt while at the same time increase the amount you can borrow.  Then it's back to school for me.

Seriously, it's an asset farming strategy.  If everyone is in debt to the govt, the old joke - the new tax rate is send everything you got - works.

And I can't believe the US govt would pass on the ability to bring back debtors prison and rent out the prisoners to Amazon for minimum wage and then garnish it.  The model is the north Korean economic zone where South Korean companies paid north Korean workers fair pay - which the north Korean govt kept. 

MusicIsYou Sat, 07/14/2018 - 21:24 Permalink

It's no surprise parents are taking out student loans for their kids, after all, we are talking about the same stupid people who think the American dream is getting a mortgage for a $100,000 home and over 20 years paying the bank back $300,000, even dumber when most of the bank's original loan was just printed out of the clear sky. And if that isn't asinine  enough for you: most people's property deeds don't even actually call them the home owner, just seller, buyer, grantor, or grantee. I mean, it is no wonder there's an opioid crisis when Americans are beating themselves up over struggling to make payments on loans that were printed from out of the clear blue sky. And guess what Mr government man? If people can't off themselves with opioids, then they'll just start hanging themselves.

Zorba's idea Sat, 07/14/2018 - 21:51 Permalink

They (MICC/DS) have made a RACKET out of America's Educational Institutions. What does that say about our perverse Elites. I'll start with..."You fucked up, you trusted US."

moonmac Sun, 07/15/2018 - 10:53 Permalink

Parents need to be more creative when coming up with the financing for college. For instance Helicopter Ben cried to Congress his son owed almost $500K in student loans so he made a few speeches to Wall Street Banks and the debt was paid off.