QE 5? You betcha'

derryb

The invisible elephant currently in the room is student loan debt, in the form of both government and even larger private loans. This massive consumer debt is currently at over $1.4T and is second only to US mortgage debt. As fewer college graduates find employment in a dragging economy and revert back to mom and dad dependency, the delinquency rate of student loan repayment, to both public and private loaners, is growing at an alarming rate. What is surprising is that while the $674.B of it owed to the US Treasury (even more is owed to private loaners) is a massive liability for those owing it, the US balance sheet carries it as it's single largest financial asset. How solid do you think YOUR balance sheet would be if 42% of it was in the form of expected receivables for student loans?

In his Feb. 2013 Student Debt report the NY FED's Donghoon Lee concluded (slide 21) that "nearly one third of the borrowers in repayment are delinquent on student debt."

Will the FED eventually need to step up to buy this toxic debt as it did with mortgage securities? You betcha'.

And, an even more alarming concern: Will private holders of bad student debt succeed in passing their losses on to the US taxpayer? It's happened before - it will happen again.


Doug Short provides us with outstanding insight into yet another looming financial disaster:

The Fed Balance Sheet: What is Uncle Sam's Largest Asset?

JohnnyCache

With student loan debt nearly impossible to have forgiven / discharged in bankruptcy court I've often looked at it as TPTB created a modern serfdom, and all these kids and their cosigning parents are now indentured servants. Many of these kids will go through life with student loan debt, first their own debt until they are roughly in their fifties and then they will probably take on some of the debt of their own children should they cosign for their loans.

There are two choices for dealing with the delinquencies / deferments as I see it, (1) They can impose greater and greater attempts at collecting what is owed, such as going directly after a persons pay check, much like in cases of child support or IRS leans. Or (2) as suggested, the Government, like in the case of MBS's, will attempt to absorb the bad debt through loan purchases only to really redistribute those costs to all of us through tax increases.

Question is which group will wake up to the realization first and which will cry the loudest.
Perhaps in the end, we'll get both.

DrBuster

Not everyone should go to college. Unfortunately that is becoming a costly lesson for a lot of folks spending 5+years and maybe 6 figures on a degree that will serve absolutely no purpose, no matter what school name is on it.

If we have to start paying for Little Dumbass Johnnys' degree in 16th century female writer history, or create some gov agency to employ these folks, then I'm going to give up. Costa Rica is looking nicer and nicer.

derryb

colleges should be required to directly finance their students in need of tuition assistance. This would require them to (1) better screen applicants, (2) keep tuition costs down, (3) be competitive. It would also put an end to the recent surge in colleges that exist strictly to profit from the student loan con game. We now have "universities" in my area being run from closed down grocery store locations. Instead of "we buy gold," it is becoming "we sell college diplomas."

DrBuster

I'm just glad I had parents who helped with tuition, and that I had the decency to be constantly employed from age 15 on all through school so I wasn't borrowing money for food/clothes/vacations like WAY too many of these students are doing with their loans.

On of my bartender friends is in school. 1 year into a pre-law degree she's already looking at a 30large hole, and a chunk of that has been spent on lifestyle - clothes, apartment, and a vehicle. A couple weeks ago she got some more money for school, although she said she was going to get kicked out of her apartment if she didn't get it. I was there when she got the email and saw her all happy that she got student loan money and could pay rent...and a week later she's on vacation for a week.

Sadly, this is all too much of a symbol of todays collegiate youth.

guitarwes

I'm glad I paid off all my students loans in full (<$5000 total) so I could help other delinquents pay their's off with my tax money......

Like DrBuster mentioned, when I went to school I knew friends who would live off their loans like they had a good paying job. "Free" money? Heck yeah, get it and spend it and have a good time while you can. This was over 13 years ago and they're STILL paying their loans off and will be for a while yet.

I worked all thru high school, college, and Tech school......didn't have a choice if I wanted to continue to go to school because I WASN'T gonna take out any more loans than I already did.

mhammerman

Unfortunately, a lot of families and children believe that somehow the Bill of Rights includes loans for college education. With the quota programs for Historically Disadvantaged Populations at all State and most private schools, those loans and pressures on the institutions to accept marginally qualified applicants is very high. The colleges must continue to increase enrollment and that means increasing access to gov insured college loans and accepting marginally qualified students. It has become such a lucrative business that little boutique private, for profit, corporations provide degree programs and they will get the student the federally insured loans...that's how they make a living and they have sprung up like mushrooms so the money must be pretty easy to get as long as you can get a live person to sign a piece of paper for a loan.

People wrongly target the students for getting loans they can't pay back but the real problem is that the colleges make a living getting these loans to the students. It is all about the money. Kind of like the credit card companies marketing the college students with offers of free credit. So, the student gets out of school (if they do manage to graduate) with 10K in CC debt and another 200K in student loans. It is a sad commentary because it seems a lot of kids think going to college is like going to Disneyland.

Money for nothin' and your chicks for free...

mariner67

<< <i>colleges should be required to directly finance their students in need of tuition assistance. This would require them to (1) better screen applicants, (2) keep tuition costs down, (3) be competitive. It would also put an end to the recent surge in colleges that exist strictly to profit from the student loan con game. We now have "universities" in my area being run from closed down grocery store locations. Instead of "we buy gold," it is becoming "we sell college diplomas." >>



Derry...this is the best idea I have heard in a long time.
You hit the nail(issues) right on the head....the disconnect between those offering the product and those paying for it.

JohnnyCache

<< <i>People wrongly target the students for getting loans they can't pay back but the real problem is that the colleges make a living getting these loans to the students. >>



While I'll agree that predatory lending contributes to the problem I can't help but put the majority of the blame onto the students, with particular emphasis on those students who either live the party life off the money or those who pursue useless degree programs only to later act shocked when they can't find gainful employment.

What happened in this world to personal responsibility? I'll tell you what, it's dead, non-existent, and not just amongst the youth. I find today that people of all ages seeming wish to go through life and act as if their actions, or in some cases their in-action, should have no effect on them. We live in this litigious society that wants to sue anything and everyone for what was once looked upon as the acts of a fool with no common sense. Commonsense, hell no need for that anymore. I suspect that the vast majority of us who regularly read the post in the PM boards, the same ones that read zero hedge and watch the news, would be far less likely to act without good common sense. We wouldn't over leverage ourselves because we'd know that there are consequences that can be quite undesirable that come along with that leverage. Unfortunately, as was clearly illustrated by the great housing collapse, many people, aka the parents of these college aged children, allowed themselves to become over burdened with debt, both mortgage debt, HELOC debt and in many cases credit card debt as well. Why are we surprised that the pattern of failed personal responsibility continues, albeit in a different form - student loan debt, with the off spring of these folks. These kids are only following what they see everyday at home. Mom wanted a new car and a new kitchen, hit the HELOC. Dad wanted to play a few rounds at Hilton Head, slap it on the credit card. Oh boy debt's are piling up, time to REFI.

I don't understand how the workers and the savers of the greatest generation raised baby boomers that heeded so little of their parents lessons. It's less surprising that the baby boomers children have poor money skills and lack personal responsibility. Sometimes, when I'm feeling sadistic, I wish the whole thing would just blow up on these people and force them to do what they should have been doing all along, live within their means, stop looking over their shoulders at their neighbors and start being happy, and even more importantly thankful, for what they do have.

I expect hell will freeze over long before I see that of course.

end rant


JC

derryb

<< <i>What happened in this world to personal responsibility? >>


It now belongs to those that also feel they should provide for you personal needs.

cohodk

I hope it does collapse. Then tuition rates will finally make college worthwhile again. Tuition only went so high because of Govt subsidies. Pure inflation The higher education system scammed "we the people" just as bad as the big banks.

derryb

<< <i>I hope it does collapse. Then tuition rates will finally make college worthwhile again. Tuition only went so high because of Govt subsidies. Pure inflation The higher education system scammed "we the people" just as bad as the big banks. >>


Won't be allowed to collapse, involves Wall St. and uncle. Will be bailed out one way or the other, most likely involving FED purchases with more play money. Welcome to the new norm. Will be dealt with like the housing bubble, mo' money.

pf70collector

That's what happens when you make these institutions for profit. I think Colleges or at least the public state universities may become more like public schools, completely funded by the taxpayer-a guaranteed free education. It is obvious that these debt loads cannot be sustained by the private, individual citizen anymore. I think we are headed in this direction unfortunately. Education of the next generation for worthwhile diplomas is are only hope if we wish to avoid the dumbing down of the population and for being competitive in the global economy.

JohnnyCache

<< <i> I think Colleges or at least the public state universities may become more like public schools, completely funded by the taxpayer-a guaranteed free education. >>



Well I'll tell you what, one way or the other, we're going to pay.

Take a look at the salaries of the highest paid State Employees in Massachusetts, they all work for the University of Massachusetts. (This is publicly available info)
The list goes on like this for several pages before finally on the forth or fifth page the State Chief Medical Examiner finally shows up with his salary.
Basically, the point I'm trying to make is that these guys get outrageous salaries, particularly when you calculate in their pension (up to 80% of the average of their highest three years of income)
So if we are not paying it through tuition, they will tax us in order to pay them, after all, its the same argument as the one they use with those greedy executives, if they don't pay them gobs of money they will leave and go elsewhere and we won't have the best and most talented people, oh yeah right!

OperationButter

Im in the wrong field. This is outrageous on what this a**holes are getting paid

cohodk

<< <i>Im in the wrong field. This is outrageous on what this a**holes are getting paid[/]

They will all cry foul stating they are already taking big salary cuts. LOL

derryb

the future for reliable employment is in the service industry. Learn a technical trade/skill and be dependable and good at it.

Kip

<< <i>

<< <i>Im in the wrong field. This is outrageous on what this a**holes are getting paid[/]

They will all cry foul stating they are already taking big salary cuts. LOL >>



The unions wont let anything happen to these bums.. The Unions would pimp their own 12 year old if they could get union pay

drwstr123

If the government would get out of education completely and stop financing it,
colleges and universities would have only two choices: lower the cost of education or go out of business.
Both are viable alternatives.

GBurger717

They do go after unpaid student loans. I have a neighbor who went to online school (univ phoenix) well he did it for 2 years and then stopped. Well this was 4 years ago I think.... Well he dident pay a dime. He said "what they going to do to me" Well low and behold he came home one day PISSED! I said whats wrong and he showed me a paper. They took 15% of his check and they will continue to do it until its paid off which will take a very long time if my math is correct. I told him to pay it but he dident. Now he is paying alright!!!!


As for student loans to be forgiven it can be done. I went to school with a guy who went to ITT for his degree. He got out and had to start paying back the fed back loans. Well he did some research and seen fed school loans can be dicharged due to a disability. He had lyme disease and the doctor filled out the papers he sent them in and BYE BYE loans. the feds discharged them due to the disabilty..... you can google it and see what I am talking about...... what a bunch of bull......

GrumpyEd

For students with a huge loan that don't get a high enough paying job so the minimum payment does not result in paying it off but if they make the minimum payment, the balance is forgiven in 10-20 years if they used the new program. I don't think they included that in the balance sheet:

Balance is forgiven in 10-20 years