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Another Facet in the American Spring Courtesy of Our Universities

Our nation's student loan program was taken over by the Obama administration and is now another federal subsidy that is hemorrhaging money. Or rather another federal enslavement program since this is one debt that must be repaid. And with that one stipulation, the price of a college degree has skyrocketed and ensured our nation's college graduates a debt that has taken away their hope. As shown below, 27% of student loans are at least 30 days delinquent. What do you get when these young adults have no jobs, overwhelming debt, summertime temperatures and a belief fostered by the government that it was their right to a college education?

And who will be responsible for paying another federal program that went bust? Once again, the incredible shrinking number of American taxpayers will have to pay this debt through higher taxes and inflation that will erode their paycheck and savings. Welcome to Amerika courtesy of Comrade president Obama.

David DeGerolamo

The First Crack: $270 Billion In Student Loans Are At Least 30 Days Delinquent


Back in late 2006 and early 2007 a few (soon to be very rich) people were warning anyone who cared to listen, about what cracks in the subprime facade meant for the housing sector and the credit bubble in general. They were largely ignored as none other than the Fed chairman promised that all is fine (see here). A few months later New Century collapsed and the rest is history: tens of trillions later we are still picking up the pieces and housing continues to collapse. Yet one bubble which the Federal Government managed to blow in the meantime to staggering proportions in virtually no time, for no other reason than to give the impression of consumer releveraging, was the student debt bubble, which at last check just surpassed $1 trillion, and is growing at $40-50 billion each month. However, just like subprime, the first cracks have now appeared. In a report set to convince borrowers that Student Loan ABS are still safe - of course they are - they are backed byall taxpayers after all in the form of the Family Federal Education Program - Fitch discloses something rather troubling, namely that of the $1 trillion + in student debt outstanding, "as many as 27% of all student loan borrowers are more than 30 days past due." In other words at least $270 billion in student loans are no longer current. That this is happening with interest rates at record lows is quite stunning and a loud wake up call that it is not rates that determine affordability and sustainability: it is general economic conditions, deplorable as they may be, which have made the popping of the student loan bubble inevitable. It also means that if the rise

in interest rate continues, then the student loan bubble will pop that much faster, and bring another $1 trillion in unintended consequences on the shoulders of the US taxpayer who once again will be left footing the bill.

From Fitch:

Fitch believes most student loan asset-backed securities (ABS) transactions remain well protected due to the government guarantee on Family Federal Education Program (FFELP) loans. The Federal Reserve Bank of New York recently reported that as many as 27% of all student loan borrowers are more than 30 days past due. Recent estimates mark outstanding student loans at $900 billion- $1 trillion. Fitch believes that the recent increase in past-due and defaulted student loans presents a risk to investors in private student loan ABS, but not those in ABS trusts backed by FFELP loans.


Why is the bubble starting to pop now?

Several macroeconomic factors are putting pressure on student loan borrowers. The main ones are unemployment and underemployment. The Bureau of Labor Statistics estimates the current unemployment rate for people 20 to 24 years old at nearly 14% and for those 25 to 34 years old, 8.7%. Underemployment is difficult to measure for these demographics, but it is likely having a negative impact.


Actually, no: the unemployment for 18-24 year olds is 46%. Yup: 46%.

A month ago, Zero Hedge readers were stunned to learn that unemployment among Europe's young adults has exploded as a result of the European financial crisis, and peaking anywhere between 46% in the case of Greece all they way to 51% for Spain. Which makes us wonder what the reaction will be to the discovery that when it comes to young adults 18-24) in the US, the employment rate is just barely above half, or 54%, which just happens to be the lowest in 64 years, and 7% worse than when Obama took office promising a whole lot of change 3 years ago.

And while technically this means 46% are unemployed, or the same percentage as in Greece, the US ratio, which comes from Pew, shows the ratio as a % of the total population: a very sensitive topic now that every month we see another 250,000 drop off mysteriously from the total labor force. However, unlike those on the trailing age end, young adults by definition are the labor force in their age group demographic, so it would be difficult to explain away this horrendous number by claiming that ever more 24 year olds are retiring. Although, yes, we agree that some may be dropping out of the labor force in order to go to college, incidentally the locus of the latest credit bubble, where they meet a fate worse even than secular unemployment: they become debt slaves of the Federal System, with non-dischargable debt at that, which even assuming they can get a job would take ages to pay back!

But wait: there's more - of all age groups, this is the one that has actually seen its wages drop the most under the Obama administration.

So not only are they unemployed, young adults are at least poor.

Net result: double the change, zero the hope.


But fear not dear banks: taxpayers got your back, as usual.

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Comment by Charles F Nichols on March 26, 2012 at 7:19pm

Sharon,you really need to do some more reading. Try to keep up. Today a man with a converted muslim name is president. The man who is president has everything to do with everything going on in the country because he sets the policies which give direction to the country. Got this so far? So Sharon if this practical application  demonstration of cloward and pivens is not implemented by the president with the funny sounding name. Could you please tell us who it is being done by? Seems your the odd man out or in this case woman if you are indeed one. In cyberspace you could be anyone. So is that you barrack?

Comment by Stephen Gabrielson on March 26, 2012 at 4:36pm

     This is all by design via Cloward and Piven, Fabian Socialism (e.g.: George Bernard Shaw), Regressivism, Communism, Marxism, and Islamo-Nazism that's been going on for at least 100 years: economically, morally, and spiritually corrupt, pervert, and eventually collapse the system of Judeo-Christian Biblical Faith, Free Market Capitalism/Free Enterprise, the traditional family, and the fundamental values and principles that have made this country so that they can reset it towards Communism/Marxism/Islamo-Nazism and bring both the country and its people into absolute darkness and pure evil under absolute despotism and the iron fist of tyranny. The Communists such as Joseph Stalin from the USSR knew that, in order to destroy the United States, Free Market Capitalism/Free Enterprise, the Judeo-Christian Western Way of Life, G-d, the traditional family, and the fundamental values/principles that have made our country great, they could not do it militarily. First they had to infiltrate and slowly take control of every institution of the United States and the US government by detaching our children, grandchildren, and the culture from its Judeo-Christian Biblical roots, free market capitalism/free enterprise, independence, the traditional family, the fundamental values and principles that have made our country great, and the Constitution of the United States and indoctrinate them (or intentionally dumb them down) through revisionist history, outright lies, intimidation, etc. Then, once this crucial and difficult phase is completed, the Communists/Marxists/Islamo-Nazis needs to instigate chaos to get the bottom to rise up until the people beg for the government to stop the chaos/violence. Finally, after the people beg for 'safety' by advocating for the very things their ancestors wouldn't even think of doing, the top can finally come down and initiate the complete and utter takeover of the country and the systematic liquidation/execution of everyone and anyone who opposes them or is suspected/perceived to oppose them along with the useful idiots who follow them once they are of no further use to the Communists/Marxists/Islamo-Nazis (which has occurred each and every single time throughout Europe and Asia). We are entering very scary times and pure evil rear its ugly head that may be just as evil, cruel, and monstrous as Nazi Germany, Soviet USSR, or Maoist China once again. May G-d help us all and both bless and protect us from the forces of evil and that good will triumph.

Comment by Sharron Deer on March 26, 2012 at 1:47pm

What are you talking about? There have always been public as well as private student loans. This has nothing to do with Obama.

Comment by Peter D Sowatskey on March 26, 2012 at 12:05pm

Behind these comments, relevant all, is the fact that the loans aren't the problem.

Unemployment is.

Careing people lay awake nights trying to figure out when the youth unemployment percentage will equal anarchy.

Today's economy will not, can not, put these young people to work.  The news tell the tale of youths with too much time and no hope every day.

Despite the costs, it would be better to start another CCC now.  (Citizens Conservation Corps)

To not do so, will cost us far more.  And in the end, maybe the country.

Peter Sowatskey  amazon.com/kindle:greenergreen

Comment by Charles H. Sims on March 26, 2012 at 11:52am

New question.  Who pays for scholarships?  Government? Sponsor?  Who...

I think it is obvious that people who do not go to college pay for scholarships for those who do.

Think it through.

Comment by David DeGerolamo on March 26, 2012 at 11:30am

@Lauryn

Your comments would be correct for regular loans. The limits have been increased and the delinquency period is different for student loans. Case in point. A man had $100,000 in student loans to get his doctorate from UNC-CH. The money was automatically deducted from his checking account. The couple changed their bank and the payments were not set up for the new checking account. They were declared to be in default (no notice for delinquency) and per their contract, they had to pay fines and refinance the loan per the government's conditions. This is how $100,000 changed to $125,000 with no recourse overnight.

Comment by Lauryn Halli on March 26, 2012 at 11:08am

Do you have any more information about how overdue these loans are? Saying they're 30 days late means nothing. Many of these could even be due to issues with changing the collection agencies or website access, which can mess up the automatic payment schedules for the first month after a change like this. I worked in credit card debt collection my first year out of law school, and a 30-day late bill wasn't even worth mentioning. Unless you have further information that a high percentage of these loans are far more than 30 days overdue, this number doesn't mean anything.

 

Further, Federal loans are fortunately not dischargable in bankruptcy, and past a certain delinquency, the borrowers' wages will be garnished (yes, once they have a job). I don't see why you're making it sound like encouraging higher education with reasonable-rate loans is a bad thing, with the protections in place of non-dischargeability in bankruptcy, and the ability to garnish wages. I had to take out some private loans my last year or two of law school at 9% (I graduated 5 years ago), and even though Federal loans were high at 6.8%, this was far better than private. Not having any Federal loans at a relatively reasonable rate would be extremely bad for students persuing higher education.

 

Also, there are strict limits as to how much each student can borrow. When I was still in school, it was $8500 subsidized, and $10,000 subsidized, per year, though the limit rose slightly the next year. It's not like there are unlimited amounts of money per student being handed out.

Comment by Mary Creekmore on March 26, 2012 at 8:42am

For the 2012-2013 academic year Graduate students will only be offered unsubsidized student loans (they begin accruing interest the moment they are taken out) and will no longer be offered subsidized student loans (do not begin to accrue interest until after a student gradutes or falls below half time).   PLUS since the government now controls all the student loans and awards those loans to the lenders they prefer instead of the lenders the customer prefers, you can just imagine what happens to customer service.  Once again the government chooses who are the winners and the losers. 

Comment by Shelley SImms on March 26, 2012 at 8:33am

The one thing I don't understand is that even though interest rates have been falling, student loan interest rates have risen.  This has been going on since 2006, so can't even blame Obummer.  When my son started school in 2005 the interest rate was s1.87. in 2006 it jumped to 6.8.  My parents plus loans went from 2.77 to 8.25%.  A friend I work with just went to see about parents plus loan for her daughter and interest is 7.9%.  Those rates are worse than car loans. 

Comment by Jimmy Hight on March 26, 2012 at 8:01am

 

He will just let that debt go just before election time and they will follow him to the pits of HELL.

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