Bacon's Rebellion

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The Next Bubble: College Loans?

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by

James A. Bacon
in

So, how’s that idea of loading up college kids on student debt working out? Let’s put it this way: The National Association of Consumer Bankruptcy Attorneys has been moved to publish a report entitled, “The Student Loan ‘Debt Bomb’: America’s Next Mortgage-Style Economic Crisis?”

Annual student borrowing crossed the $100 billion threshold for the first time in 2010, and total outstanding loans exceeded $1 trillion. “Evidence is mounting that student loans could be the next trouble spot for lenders,” said Dr. Andrew Jennings, chief analytics officer at FICO and head of FICO Labs. Gee, do ya think?

College seniors who graduated with student loans in 2010 owed an average of $25,250, up 5% from the previous year. And that doesn’t include the $34,000 average in student loans held by parents who have taken on debt.

States the report: “Of the Class of 2005 borrowers who began repayments the year they graduated, one analysis found 25 percent became delinquent at some point and 15 percent defaulted. The Chronicle of Education puts the default rate on government loans at 20 percent.”

Bankruptcy attorneys say student loans are smelling a lot like the mortgage market before the foreclosure crisis: “More and consumers [are] seeking their help with unmanageable student loan debt, and with no relief available.”

Don’t be surprised to see a move to forgive loads of student debt — with consequent losses of tens of billions of dollars to the U.S. Treasury. What gets my blood boiling is that the debt bomb was totally and utterly foreseeable — I’ve been ranting about it for a couple of years now. How friggin’ stupid do you have to be so soon after the real estate bubble to turn around and start lending indiscriminately to college students? However badly this pans out, we Americans have it coming — students for taking the loans, parents for letting them, colleges for jacking up tuition, and Uncle Sam for funding the madness. The avarice, stupidity and short-sightedness of this country know no bounds.

— JAB

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5 responses to “The Next Bubble: College Loans?”

  1. DJRippert Avatar
    DJRippert

    Why should any money come out of the US Treasury? Are the loans guaranteed by the US Government? I seem to remember Sallie Mae guaranteeing and packaging loans but I thought that ended a while ago.

    Please don’t tell me we have another “too big to fail” situation. I really had my hopes up that we wouldn’t have another of those until southern Europe cratered.

    President Obama may want to keep a lid on this one until after the election.

  2. DJRippert Avatar
    DJRippert

    I borrowed money to go through college. Virginia Educational Loan Authority (VELA). I remember it clearly because, for years, it was what I wrote on check after check after check.

    I always understood that I’d have to pay off that loan – no ifs, ands, butts or bankruptcies. Since I knew that when I took the loan I never complained about it afterwards.

    I graduated in 1981. America was recovering from the last Marxist in the White House prior to the current resident (i.e. Carter). Unemployment in 1982 was 9.7%, it was 9.6% the next year. I never (in my wildest dreams) thought that I might be able to have those loans forgiven. And interest rates on those loans were high – very, very high.

    Why should anybody be forgiven of their student loans?

    I hear today’s Army wants to join you. How about a reverse GI Bill. You can’t pay your student loans? Enlist in the Army. If you do well for a few years the loans will be forgiven.

  3. Darrell Avatar
    Darrell

    Many parents are now opting for Plan B. Pay little Johnny’s student debt on the credit card, then declare bankruptcy. After all, it’s only a business decision.

  4. Darrell Avatar
    Darrell

    The military doesn’t want anyone. They are downsizing by the thousands.

  5. larryg Avatar
    larryg

    I’m sure Obama will get the blame again even though this is more than a decade in the making.

    Yes.. I do believe the Feds guarantee the loans but unlike credit card debt they are not no-recourse unless of course the govt forgives it.

    What I do not understand for the life of me is why someone would rack up 25K in debt before working a day at a permanent job or worse.. you don’t even have a particular career track.

    I can see it in the case of a doctor or perhaps some other selected fields where the job is pretty much a given if you have the degree and good grades.

    but that kind of job is harder and harder to find these days,

    racking up 25K in debt before you work a day is what is frigging stupid IMHO.

    the really bad thing here is that you don’t have to go into hock for that much money to start with. There are schools, especially community colleges where you can get the education without killing your finances.

    and whatever happened to “working your way through school” in the first place? or night school?

    this country is turning into one big 30-day old chocolate eclair… We blame Obama but the horrible truth is – it’s US!

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