By: Stephanie Shepard
“If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks…will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered…. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.”Thomas Jefferson in the debate over the Re-charter of the Bank Bill (1809)
Imagine you work at a bank. Your job is to evaluate new loan applicants. You review their credit history, calculate their finances, all to ensure the bank gets repaid. Some loan applicants want to start a business, others want to borrow for a mortgage. Most of your potential borrows have a job, a credit history, and savings. You determine the risks and approve those who meet the bank’s lending criteria.
Now imagine an 18 year old applies for a loan to go to college. They show you their 4.0 GPA. They provide a list of their extra curricular activities. They provide letters of recommendation from their volunteer work. They show you their SAT scores and their ACT scores. They prove they are a team player and goal oriented. They tell you their dream is to become a Veterinarian.
Of the two types of borrowers who should get a loan? Of the two types of borrowers who is guaranteed a loan? Of the two types of borrowers who will repay the loan?
The Federal Reserve has been cooking the books regarding student loan debt. Trying to paint a pretty picture of only a 9.5% delinquency rate. The Federal Reserve Bank of New York recently published its Quarterly Report on Household Debt and Credit.
According to credit.com this is a sham:
“The report highlights the fact that loan-payment delinquency rates continue to improve (i.e. decline). On average, a little over 7% of all outstanding consumer debt obligations are in some stage of delinquency (30 or more days past due), and roughly 70% of those are seriously so (90 or more days past due).
The executive summary also notes that student loan balances that are 90 or more days past due represent 11.5% of the total outstanding. Sure, it’s a troubling metric. But when the FRBNY juxtaposes that amount with the 9.5% of comparably delinquent (and equally uncollateralized) credit card debt, it doesn’t seem so out of whack—until you dig a little deeper.
Unlike credit card balances, not all outstanding student loans are due at any given moment in time. In fact, of the approximately $1.2 trillion of education debt that’s currently on the books, only about half that amount is actually amortizing (the other half pertains to loans for students who are still in school).
So the 11.5% is really closer to 23% because the total amount of delinquent loans should be divided by $600 billion instead of $1.2 trillion. What’s more, these are just the loans that are 90-plus days past due. What of the debts that are 30 or 60 days late? Curiously, that data is nowhere to be found, except for a strong clue in the back of the report.”
Without lending standards the student loan market is getting worse. The Federal Reserve’s easy money policies have created hyperinflation in the market:
The perfect storm is brewing in the student loan market. For the bubble to continue, there needs to be a continuous increase of Millennials enrolling in college. The numbers are not there. The Millennial generation’s population peak is nearly out of their undergraduate years.
Excellent post.
Hopefully, youngsters approaching college age will learn from the dismal examples of debt-enslaved young people who preceded them, and resist the siren call of E-Z loan terms and sucker dreams.
But I doubt it. I’m reading in many places that ARM loans and other trick-bag loans are now becoming more prevalent among home borrowers, which shows how short our memories are and how easily seduced humans are by the lure of Something For Nothing, which is what a huge amount of cash dropped in your lap via a loan feels like.
Fine charts and decent post. But what does it say? The younger you are the dumber you are?
This certainly illustrates the problem of “everyone needs to go to college” , which is BS. About 60% of secondary school graduates need to accept the fact that they aren’t potential rocket scientists and plan their education around a craft – that craft more in demand the better.
Message #1: Do not borrow yourself into penury to get an education, regardless of the “rocket science” urge. Work and pay for it through cash flow (I did and didn’t get my first degree until I was 43.
After I homesteaded property I’d purchased years earlier, taking a year to build a home, fixed expenses $50/month, shot the meat and my sweetie grew the veggies (1979) and then went back to college to finish up my last two years.) How much did I owe when I got the degree? $0.00 and that one degree led to others and ended up probably allowing me to earn at least a $million more than if I hadn’t gotten it. Both by working for myself and working for others (the last 20 years, I worked for the highest bidder in the most challenging positions that were in the the neatest locations on the globe. That turned me into a very broad and happy citizen of the world, gave my family the broadest exposure to other civilizations, cultures and ways of life that has served my whole family ever since.
Message #2: Never give up. Period. No matter how hard it is to get an education (either a trade or university) DO IT. Just make sure the goal is worth the effort and money. This is a small crap shoot because you use your best judgement in choosing the path and the world dictates what path is best. Be flexible and be ready to turn on a dime if it’s required to finish the education that is truly in demand.
Then bust your ass to insure that you are indeed the best at what you do and rest of a successful life will come to you like a kid to a candy bar. Believe it.
Not easy. Not simple. In fact, a real bitch to get through to the point where it pays off. But it will pay off and in such a wonderful way you won’t even realize it until you’ve done it and quit to sail the world, hike the Pacific Trail or just smile, move to Arizona or Florida to rest in the sun (and find that won’t quite do it!)…
Old MA
(who’s been there and done that.)
Where do I start?
This article does not provide enough facts or detail to draw any valid conclusions.
It does not discuss what other debts the defaulters owe, for instance. It does not correlate major by default rate. It does not correlate HS grades or SATs, or socio-ecomomic background. From that information, I would guess/expect to see that defaulters are Art History majors with marginal GPAs, low SATs, from disadvantaged backgrounds. If those were the facts, then quickly we would know absolutely that we should not fund arts degrees, and that too many marginal students are attending college.
The aspiring veterinarian student example is disengenuous at best.
Clam talks about two types of borrowers, which I was unable to find, but does offer some examples of folks seeking loans. She asks who should get the loan. I was unable to determine who she thought should get it. Small business folk would need collateral, but they are very high risk. Home buyers have collateral as well. Again, I do not know what her point was or is.
She does not talk about where the money comes from. She talks about a “bubble” bursting due to insufficient new borrowers. Seems to me fewer borrowers would improve things.
Perhaps she is suggesting that the situation is a giant Ponzi scheme. If so, again I do not see the disadvantage of having fewer borrowers.
She says Fed policy has resulted in hyperinflation in the market. I presume she means easy money has resulted in a willingness for many to borrow more than they can afford. That is at least partially true, but the average loan balance does not address the fact that cost of education is rising very fast indeed, and that rapid increase would also be responsible for the increased loan balances. She offered no data on that. I suspect the cost of education is more responsible for the rise than the easy money policy, but I would like to see data.
Seems to me, the problem is simply a matter of debt going unpaid, which would impact revenue streams in. Fewer borrowers would actually be an advantage in that situation.
On the whole, there is indeed a major issue with student loans. There will be too many defaults. This article sheds no light whatsoever on why, and actually says that fewer loans issued will be a bad thing. Quite the opposite is true – far too many loans are being made, with no controls over the studies undertaken, or the quality of the person doing the borrowing.
MA, I suppose it’s fine for you to sit around and dispense advice. As I recall, you are a rocket scientist or damn near close to it.
I suppose Millenials should just accept their lot to be the slaves of Boomers. That would have been interesting if your generation had told them that, which is after all, exactly what Boomers are telling Mills.
Mills only have to exercise their potential and claim that which is their right, a seat at the table, which Boomers are loath to make room. See above.
Boomers suck and lame ass advice sucks. You and LL need to stop spooning. It leads to all sorts of degenerative behavior.
I really wish clam would back her assertions with data. Saying something has increased, then drawing a conclusion solely from the increase, is not scientific. There are many reasons why student loan balances may be increasing, and maybe her reason is most correct. But she offers no proof whatsoever.
For instance, there are lots of folks that are currently borrowing as much as they can, as a source of income. You can call this an effect of easy money, or it can be called a symptom of a poor economy.
It would also help if she did away with sentence fragments.
The village idiot shows up. Great.
Yeah, oh great.
LL says, “Where do I start?”
Let’s not. I’m pretty sure we’ve established no one is interested in your opinion, or anyone for anyone else’s opinion, for that matter.
So, stop acting like anyone cares about yours.
Llpoh- My theory is the Fed’s hyperinflation (otherwise in would be in every market) is being funneled into certain loans. The money the Fed is “creating” has to go somewhere. The increase, as far as I see it, is showing up in the only places loans are being created. Car loans, some housing loans, and mostly student loans.
Student loans are the only loans available that can be borrowed with no credit history. They are the only loans with nearly no lending standards. As far as I know you just have to be breathing and enrolled in college to get one. While I was in college most of the money was being funneled into real estate. My college bought up millions worth of land, underwent building projects, and hundreds of thousands on landscaping.
Most of the information you are asking I cannot find. Which is troubling because despite what many think of my writing, there nobody is arguing my ability to research. I cannot find any information on the borrowers themselves. And most troubling- I cannot find a current default rate.
My idea behind the ponzi scheme, is the Fed need somewhere for the money to go. It has been working out quite well with Millennials borrowing for college, but with the population past its peak- who is going to borrow? What is going to happen when borrowing decreases? The housing market was in the same predicament until borrowers stopped borrowing.
Denninger (and maybe others) have proposed a perfectly workable solution to this whole mess: Remove the protection (restriction) that student loans have from being discharged in bankruptcy. At first this was counterintuitive to me. I’d bought into the logic that we shouldn’t allow someone to use a student loan to (arguably) improve themselves, then discharge the debt through bankruptcy and keep the education it had bought. Eventually I realized that if student loans could be discharged in bankruptcy, the volume of student loans that were given out would fall by more than half. Get the government out of the student loan business entirely (including guaranteeing them), since the government will dole out loan forgiveness in exchange to becoming a government worker (school district drone or copfuk) – (and permanent Democrat voter). Once the government is out of the student loan business, the market – private lenders – would discern good student loan debtors from bad ones. Engineering students could get loans, poetry and womyn’s studies student not so much. And just like the removal of Option ARMs caused housing prices to plummet, the removal of more than half of student loans would cause tuition to plummet. Problem solved. Professors would have to teach more than two classes per semester and could no longer spend half the year on sabbatical. Some schools would go bankrupt and some of their bondholders would get the shaft on money they’d lent to colleges to build fancy student housing and unnecessary student centers. Too bad, so sad.
Allowing student loans to be discharged in bankruptcy could appeal to libs, as it would be a sort of “consumer protection”. The harder part to enact would be the necessary first step of getting the government out of student loans altogether. Libs’ idea of making something “more affordable” is always to subsidize it. Fuck, they’re dumb.
Iska- All very good points.
What is concerning me the most is the government take over of student loans. Most of the big 5 lenders have dumped their student loan portfolios. Sallie Mae has taken over the whole industry. Our government is not suppose to be a lender. If the 1.2 Trillion dollar student loan market collapses, the taxpayer is 100% on the hook. In the meanwhile taxpayers cannot get any consumer protections put on student loans. Taxpayers cannot get a fixed interest rate on student loans. There are way too many risks involved and now the U.S. Government (taxpayers) are on the hook.
Steph, correct, it’s a ponzi scheme. There’s also an investment theory called “a bigger idiot”.
The game stops when there are no bigger idiots, and the biggest idiot loses. Nice society, eh?
That’s why I prep, because when the charade ends, it’s going to get ugly. LL is going to bug out to his retreat. Don’t know way, he can certainly afford the carbon credits. When the looting starts, I’m bugging out.
There may not be much left after the reset, but for sure, the sun will rise and set. It isn’t fair to anyone, but the strongest survive.
Clam – thanks for the reply.
A couple other points to consider. First, there has been a significant increase in state school tuition in recent years as their bdgets have cratered. This surely drove up student loan amounts substantially as they do not offer grants to the extent private schools do.
Second, private school endowments took a hit, and I expect so did returns on those endowments in the low interest rate environment. This could have – I stress could have , as I am educated guessing her – resulted in grants being replaced by loans.
So, there are any factors other than easy money that may have driven up average loan balances.
Easy money is surely a factor – but I am not convinced it is the major factor. More likely a perfect storm of factors.
You may be able to find data on average state school tuition. It has skyrocketed on a percent basis.
Nonadunce – glad you have surveyed all the TBP folks so as to advise me of your findings. You are dumb as a sack of rocks.
Iska, agreed, the system could be tweaked to work for everyone, debt repudiation is one of them. TPTB are loath to loosen the grip they have on the world, and are intent on doing the opposite.
Try not to exhale.
Oops, it’s called “greater fool”, but the characterization is valid.
LL, don’t worry, your comments are duly noted and ignored.
http://trends.collegeboard.org/college-pricing/figures-tables/tuition-and-fees-sector-and-state-over-time
It apears to me state school tuition has more than doubled since 05. This would have radically hit student loan totals.
LL talking about economics is like hearing the sound of water dripping. Time to fix the faucet.
A quick google indicates endowments and returns have cratered. This would have severely impacted student loans.
Easy money is just the most unstable factor. The worrisome part are these loans are not backed by anything and there is no physical assets. What happens when mass youth unemployment really starts to effect these loans? Millennials are not getting the jobs they need to repay these loans. Underemployment is certainly a big issue. What happens if they really do start to default en mass? Nobody thought that would happen with the housing market.
Seven thumbs up for llpoh and three cheers too for one of TBP’s best posters.
Seven thumbs down for the rest of you mutha fuckers and you too Stephanie.
And as for you, Nonanonymous, the thumbs up were mistakes. You deserved
the shit sign too.
LLpoh- I should also point out something, the ONLY thing keeping the youth in line at this point is fear of these loans. I saw it very well when I wrote my article for Thought Catalog. What happens if these young people decide to say “fuck it”. There is nothing that can stop Millennials once they are unleashed. By and large, they have not forgotten what their government and banks did to them. Both with the wars and the employment market. There really isn’t much standing in the way between a 90 million generation and outright revolt.
Ananonymous- You thumbs down won’t change anything. And it my predictions turn out to be correct, you should be scared shitless. Let me maket clear, there is not Millennial trust in institutions. They are not invested in the current system. They have nothing to lose.
“When people lose everything, and have nothing to lose, they lose it” Gerald Celente
I’ve been following Gerald Celente for years, Stephanie. He, or those who introduce him, always say that he’s been right about so much. Well, he hasn’t. G,G, G, Gerald makes the most general apocalyptic predictions and is rarely right about specifics.
Who the f– cares whether Millennials or anyone else trusts institutions? American institutions control America and those who control the institutions control America, Americans, and you, whether you like it or not.
IraK- Let me tell you something about the people that comprise the 90 million generation known as Millennials. They are broke and in debt they will not be able to be repay. The veterans (Iraq and Afghanistan) were lied to and treated horribly. There are little job prospects for this generation. Nothing really to keep them from bouncing off the walls. Add to the mix veterans that are severely distrustful of their government, who have Guerrilla warfare training and experience, and that is the perfect combination of a Revolt.
Stephanie – Let me tell you something. What the fuck do I care about you, your friends, and the Millennials. I and my friends have the money and the power; you Millennials have debts. Over the years I’ve known several like you. They moan and bitch about the system, but they get squeezed and they pay eventually. The loser know-it-alls end up knowing all about losing but little about the system.
I’d give you and your Millennial friends some advice but you wouldn’t take it. No, I’m going to give it anyway. Accept the system, work like the devil, and don’t whine and bitch. If you and your friends do that – but they won’t as you and they are too dumb and self-indulgent – when you’re middle-aged you’ll control all and then you can make everyone else hop and jump. That’s the way the world works, Stephanie.
IraK- You must be ignorant.
Stephanie Shepard’s future.
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“IraK- You must be ignorant” – Stephanie.
.Oh come on Stephanie, are you like so many of the dumb shits on TBP, who when confronted with an argument beyond their ken, can only resort to name calling and ad hominem arguments?
As IraK (above) or as one of my alter egos on TBP, I’ve been a supporter of yours, even though I’ve been constructively critical. You’re a smart woman and certainly bolder than most.
Of the men who post on this site and criticize you, some, I think are worth listening to – after censoring their coarse comments. llpoh comes to mind.
What it comes down to is that, if you’re going to succeed at whatever, Stephanie, you have to understand your work/business milieu and exploit it. You, hoping to revolutionize the world, won’t.
Nothing pisses me off more than someone saying “tax the rich”. For fuck sake, they already pay all of the fed taxes. The top 10 percent are the only ones who pay for more than they get. Every other group gets more than they pay.
How can any group pay more than “all”?
The top 1 percent pays forty percent of fed taxes. The top .1 percent pays 16.4 per cent of fed taxes – 164 times more than they get, if they are assumed to get .1 percent of expenditure, which they do not. They get almost nothing for their tax money. And that does not even consider the taxes their businesses generate. It is fucking criminal.
How is that not enough? How is the top 1 per cent paying forty percent of taxes not enough? For fuck sake, it is absurd.
Jackson- Completely ignoring the chance of a youth dissent is ignorant and folly. There is a great possibility of it happening. Giving me thumbs down, or saying it won’t is being delusional. Every Revolution in history has two things in common inflation and an ineffective use of the military. We have both. Inflation keeps rising, and unfortunately for Millennials their interest rates will keep them locked into those loans. With Obama firing top Generals left and right, we will have an ineffective military.
Jackson – I am trying to be constructive here. Clam has a point re the loans, but needs to develop it more, find more data, and acknowledge there are a multitude of factors at work – none of which are favorable to mils.
BTW – I am not coarse. I am forthright. 🙂
Llpoh- The only I can think of regarding the loans is who does it benefit? At first the big banks, because they could create money via loans. The loans would continue to create more money via interest. That is only benefiting the U.S. Government now.
The other people it will benefits are those whose professions are in higher education. The biggest profiteers of student loans would have to be housing. Rents have spiked along side of loans. At least half of my tuition was housing. That is why I moved off campus after my freshmen year. But renting in my town was also expense (but cheaper than the dorms). I have continued to see rentals increase.
Question :
Has the amount of student loans gone up because the cost of tuition has gone up OR has the cost of tuition gone up because there are more student loans ?
Leobeer- I believe it is because there are more student loans. It is the classic sign of hyperinflation. Too much money chancing the same goods in one market. The more money flooded in, the higher the price goes, with less value on all the degrees. Even STEM degrees are getting hit in certain aspects.
IraK, lets’ put things in cultural perspective. The last time there was this much discontent in the country, it was the boomers who were 20 something. The 1960’s were a time that anyone will tell you nearly tore the social fabric of our country apart.
Now, you and LL and telling everyone, that’s the way it is. Not good enough. What the fuck do thing the Tea Party and OWS are all about?
I will endeavour to refrain from using the perfectly good english word “fuck” in every post, but for fuck’s sake, what the fuck?
IraK, again, in perspective, it was the boomers who abandoned the ideals for which they were protesting. The SYSTEM which you espouse so highly, is going to fail, it’s a statistical certainty. Where the fuck do you get off telling anyone to accept it? It’s malicious negligence to do so. Where are your ideals, oh yeah, you sold out.
And, LL, who said tax the rich. I think you’re paranoid. Besides, it wouldn’t matter, doesn’t cover the gap. My concern is, after the dust has settled, their will be two systems, one outside the green zones, and one inside.
Revelations talks about such a thing, but it’s established by God Almighty, maker of heaven and earth and all that is in them, and not by the rulers of this world. Not that it will stop them from trying.
The best bet is to get right with God, accept Jesus as Lord, and believe god raised him from the dead. Then you will have eternal life, which cannot be taken away, and buckle up because it’s about to get real. You have nothing to lose.
“And even if our gospel is veiled, it is veiled to those who are perishing. In their case the god of this world has blinded the minds of the unbelievers, to keep them from seeing the light of the gospel of the glory of Christ, who is the image of God.” (2 Corinthians 4:3-4 ESV)
JFC, Nonanonymous, get away from the mindless myths. True believers in the one book religions, the isms, and the State have been the corrupting curses of humanity. People who like ideas and systems of thought more than they like people, are a human epidemic.
Stephanie, llpoh, Leobber, there are two reasons that the cost of higher education has gone up. One is due to demand. Every kid, who in decades past would have been a hewer of wood or a drawer of water, now thinks he needs a college degree or wants be a lawyer. Second, Uncle Sam is loaning money to students and that means that the schools can ask more for tuition and get it.
llpoh is right about who pays taxes and who makes the merry-go-round turn. Also, llpoh has practical sense about business, employees, and getting ahead. If he didn’t think he could make Stephanie go away by insulting her, he’d be the perfect poster.
Jackson- You’re right, Llpoh is wasting his experience and Ivy League education trying to run me off. Too bad it hasn’t been used for good. Millennials could learn a lot from his break down of the markets.
Clam did you get your blog back up ?
Jackson says:
“People who like ideas and systems of thought more than they like people, are a human epidemic.”
People like NA don’t understand what Paul said; we are free of the law, all things are allowed (licit)although not all things are worthwhile.
Having been freed of the law, NA wishes to make himself a slave again by trying to make the words of the New Testament into a new law for gentiles.
Sensetti- I had some difficulties. I had to dump the timeofcalamity.com domain due to costs. When I started the site I only had a year contract. My own ignorance of how domain setups work and not knowing how to generate profit on a site. Now I could either renew it for the same price for another year(decreases the overall value instead of signing for more years) or start anew. I started a new website soon to be debuted. The site features a better format and set up to allow for multiple authors to contribute. I am looking at a longer launch period. I have nearly all of the site coded, just more work to be done.
Also, I included a very fancy contact page for email.
Let’s us know when it’s up, thanks
Jackson – i am not trying to run off clam. What I hope is that she eventually comes to understand that there are things that transcend generational divide. I believe that hard work, thrift, honesty, integrity and education as as valuable today as ever. I hope that clam comes to value these things. I believe them to be eternal truths.
I would like to see her integrate those truths into her vision and understanding of the world. She intuits the problems, and her intuition is often correct. But she does not grasp the bigger picture, or as yet understand that the only way out of the problems, long-term, lie in the eternal truths.
I time and again say that the young have gotten the shit end of the stick. It is a disgrace of epic proportion. But the way out of the mess is not simply by the young uprising. That is folly. They need to understand what they want, and what they want needs to be sustainable. If what they want is not based on a value system, then we are again headed into a dark age.
Abandoning virtue is not the answer. Lawlessness is not the answer. Nor is dishonesty, sloth, spendthriftness, etc. Clam intuits the problem, but her answers/solutions need to include a basis of virtue and integrity, or it will fail.
I do not as yet see that she values those things. Sometimes I see a glimmer of hope she will. Because without those things, we are truly doomed.
Student Loan Daily Rant
RE
“But the way out of the mess is not simply by the young uprising. That is folly. They need to understand what they want, and what they want needs to be sustainable. ”
I never said I want a youth uprising. I just see it happening. The same way of the Jasmine Revolution and Egypt Revolution. There are no leaders for the Millennials to follow. We are still very far from Millennials actually having a hand in government or policy. The farther they are pushed away from the discussion, the more chaos is likely to ensue. My generation is just waiting for someone to give the permission (odd, I know) to do what benefits them. The more the government, business, and their elders disenfranchise them- the more likely they will follow any leader.
You may dismiss this, but the article I published on Thought Catalog really opened my eyes about my generation. The idea of a mass default of student loans (though I never spoke of or advocated) was very popular. Anybody who promises the way out of this debt they are likely to follow. Anyone who gets them off the hook of Obamacare, Social Security, and Medicaid- they will follow.
made me laugh.
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