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Student Loan Bubble Will Be The Next "Financial Stability Issue"

Zero Hedge:

Please mark your calendars accordingly as yesterday the Chairman just guaranteed that student loans will be cause for the next "financial stability issue."

Here are the facts, courtesy of a just released expose on the WSJ:

  • Rising college costs and a sagging economy are taking the biggest toll on a surprising group: upper-middle-income families.
  • According to a Wall Street Journal analysis of recently released Federal Reserve data, households with annual incomes of $94,535 to $205,335 saw the biggest jump in the percentage with student-loan debt from 2007 to 2010, the latest figures available. That group also saw a sharp climb in the amount of debt owed on average.
  • Ms. Hofmeister, an insurance broker and financial planner, says she and her husband, an operations manager, combined earn a six-figure income that puts them in the upper-middle class and were surprised by the amount they will have to borrow. She says she feels trapped in financial purgatory, between "people with lower incomes who have a lot of subsidy, and the truly affluent, for whom this isn't a problem."
  • The Journal's analysis defined upper-middle-income households as those with annual incomes between the 80th and 95th percentiles of all households nationwide. Among this group, 25.6% had student-loan debt in 2010, up from 19.5% in 2007. For all households, the portion with student loan debt rose to 19.1% in 2010 from 15.2% in 2007.
  • The amount borrowed by upper-middle-income families, meanwhile, has soared. They owed an average of $32,869 in college loans in 2010, up from $26,639 in 2007, after adjusting for inflation, according to the Journal's analysis.
  • The typical low-income family receives grants and scholarships totaling 36% of the cost, the lender says, while for higher-income families such packages total 21%.
  • More than three million households now owe at least $50,000 in student loans, up from about 794,000 in 2001 and fewer than 300,000 in 1989, after adjusting for inflation.
  • Some families are turning to loans because they spent heavily or used extra cash to save for retirement. More than one-third of parents with incomes of $95,000 to $125,000 with a child who entered college in 2011 didn't save or invest for that child's education, according to a survey by education consultants Human Capital Research.
  • With their finances strained, some higher-earning parents are making their children pick up more of the tab. Among families earning $100,000 or more, students paid 23% of their college costs in 2012 through loans, income and savings, according to Sallie Mae, up from 14% in 2009; the share covered by parents fell to 52% from 61%.

And last but not least, those ever-altruistic baby boomers:

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Statists gonna state...

Statists gonna state...

Education is forced labor.

I believe government forcing children to go to and begin working at school when they are 5 years old is wrong. But if they do, then I've always thought the children should receive a salary.
$7.25 x 6 hours x 194 days x 12 years = $101268
Miss a day, get time deducted, get only 60% on a test, get only 60% of salary.
The salary they earn of course should not be turned over to parents but given to the individual when they turn a legal age. Then they can use the money to start a business or use it to get a higher education.

My question is.. What will

My question is.. What will happen to the colleges after when the bubble bursts? Will they go out of business?

Who cares?

If they offer a product or service that an individual is willing to pay for then they'll survive, if they don't then they won't. Who cares? I don't either way...

I wish we had politicians who

were as excited about popping bubbles as dogs are...

they should be...they're not that far above them them in the intelligence chain


dogs or politicians?

"We can't solve problems by using the same kind of thinking we used when we created them."
Albert Einstein

Ha! Dogs!



Is most certainly a bubble. Even though I got my tuition paid for, my major required a lot of equipment to the tune of 11k, I was required to buy a Macbook pro, a medium format printer, ton's of ink, paper, books, pantone books, and the list just went on and on.

Since graduating I have not been able to find full-time employment and can't pay back my subsidized loans. And well survival comes before my loan payment so they are gonna have to wait.

Pretty much my entire graduating class is in the same situation but with even more debt then I accumulated and they can't pay it back either.

We have so many people going to College with easy credit and when they get out there are no jobs for them so they can't pay it back.

It does not take a rocket scientist to figure out this is gonna come ah crashing.

Also we have kids figuring out that they can get easy money form school, so they fill out all the paperwork get classes so they can get that money then they use it on partying and at the same time they are getting food stamps. And as long as you are a part-time student you never have to pay back that loan, so they figure they'll just keep going to school and avoid the payment or apply for forbearances every 6 months.

This is NOT sustainable!


only go to college if someone if willing to pay for it for you otherwise don't, i wouldn't be if it wasn't being paid for. i would probably do tech or trade school or something like that. What i would do is get all my major courses done before general education requirements because if this bubble hits, likely general education course requirements will go down and less for you to do of those worthless courses. STEM degrees give you best chance of employment of course with internship or some experience. in a way i am looking forward to the bubble burst cause of lower prices and less nonsense requirements but also concerned about the economic damage that could be done.

forget about these idiots

time to break up this government. there is no way i am going to contribute to paying a fraction of a cent for anyone student loans. i am 25 myself but i mad a conscious decision not to go into debt for a useless education. no way i am goign to help any of these idiots get out of theres. they deserve to be poor when they live like that and expect everything to be given to them. screw these people. i would love to rebuild this nation without them.

Just FYI,

Its actually "no No way i am goign going to help any of these idiots get out of theres theirs."

But what do I know? I'm just a college educated idiot.

I totally support your

I totally support your decision not to go to school or incur debt. That is a good decision at this point. But instead of blaming the individuals who did take out debt because they imagined they could have the career that they actually want (not everyone wants to be a mechanic or construction worker - though both are admirable jobs), blame the banks for giving out the loans and the government for guaranteeing them and not allowing bankruptcy discharge of student loan debt.

Blaming individuals who wanted to get an education and had no control over the cost of that education is counterproductive and frankly kind of mean given that most of us were indoctrinated from preschool that college is the only way to secure a good future.

Student debt cancellation is the solution, not vilifying people who went to university because, like it or not, it isn't in your self interest. It is in your self interest to have a robust and productive society with ample business and employment opportunities, and the best way to get there is allowing student debt cancellation/discharge so that you don't have a generation of starving desperate people weighing everyone else down.


cancel your debt? how is

cancel your debt? how is that a solution? you are screwing the banks who do have shareholders. if you expect the governemnt to pay it, then you are screwing the taxpayer. no, the idiot who signed the contract with the bank because they thought they could replace 4-8 years of prime working time partying and sitting in a classroom then come out an executive. no i joined the military then i started working the land. ive never taken a loan, i have never asked anyone to cancel my debt, your attitude is that of a collectivist. everyone should pay for your errors. starving people wont weigh the rest of the country down unless they keep demanding we feed them. grow some food yourself or finish starving already.

Up-vote because I'm 26 and in

Up-vote because I'm 26 and in the same position and feel the same way. Never owned a credit card either.

End The Fed!
BTC: 1A3JAJwLVG2pz8GLfdgWhcePMtc3ozgWtz

Bump and a bump

Don't even have the words to describe how awful and unfair it will be when people like you have to pay for more mistakes made by others.

College (in GENERAL) is a joke. I went to what most would consider to be a top tier school. Turns out it was a top tier bunch of kids who were booted from prep schools whose parents could afford to buy their way into a "good school". Job market was okay back then, so I was lucky. Not so much anymore... and forget about the quality of education. We weren't taught to think. We weren't taught history. I took several econ courses, political philosophy and political systems courses, finance and business courses... I've learned more in the past two years through my own independent study (the fire being lit by a guy with whom I think we are all familiar) than I did in the entirety of my formal education. A super-majority of my peers at school were basically on vacation during college.

On the other hand, there are smart kids who know what they want to do who, against all the peer pressure, decide to pursue something productive out of high school... you want to know where the jobs are? Be a mechanic. Be a plumber. Be an electrician. All of these professions that our culture teaches us to look down upon because, God forbid, a person with a PhD at a dinner party asks you what you do for a living. Well, joke should be on academia at this point because those kids are making big bucks, running their own businesses in many instances, and becoming far more informed citizens than the derelicts that graduated with me... except wait until Uncle Sam takes even more of your money to help out the kid who went into debt to pay $30,000 per year to get a degree in public speaking, ended up with little in the way of marketable skills and can't get a job but enjoyed the hell out of his/her four year trip to hedon island.

Glad to see that you guys/gals made the right choice. I feel bad for you because of the world that we are inheriting.

Unlearning and self-teaching since 2008. Thanks, Dr. Paul!

they are a business, not mr

they are a business, not mr nice guy giving out freemoney to the american kids. anyone that refused to realize that is retarted and this will be a good lesson to them and their children. they should have to pay that back. they took it right? in the old days people used to come over from europe and work for free for 7 years until they got to go out on their own and make their own money. thats how it goes. if you dont want to be apart of that, you can choose not to. but just because you were so stupid to sign yourself into debt with the banks, dont ask the government to come steal more money from me and my family to pay for your stupid decision. if you cant live with it, kys. dont come stealing from me because you all have finally pushed me to the point where i cant keep my mouth shut. for a while i was watching alex jones and i realized how he is just there to make activists too scared to speak out. acting like they may come for me or kill me any day for speaking out but its hardly the case. and so far i have convinced at least 20 people to either a- get more informed themsleves or b- listening to me instead of the media on who to vote for because they are still to lazy to do own research.

Who says anyone needs to steal from you?


I have a LOT of student loan debt. Way more than the average. I went to law school, it was ridiculously expensive. It was probably a bad idea but I am employed full time and have been for the last year so my future isn't quite so bleak as it would otherwise be.

However, with my current salary I have no chance to ever pay off my debt, ever... Not if I want to eat.

But you know what? F CK the banks in the A. They have basically gambled away more than the entire wealth of the world with their derivative financial instruments. They did not pay out a single penny from their pocket to loan me money. They just created the money and transferred it to my law school (I saw very little money in my pocket, certainly not enough to party my life away), knowing full well that government was guaranteeing the loan. Why can't I just press a button and create a huge account for myself, which I would then owe to myself? Same SH T, and if I default then the government can pay back my loan to my children.

But lets compare these two scenarios without government guarantees. Either way, it effects you identically. So if the government just said we aren't actually going to guarantee these loans, which they absolutely should do ASAP, and allowed me to declare bankruptcy, (which I wouldn't now but if things got bad in the future I most certainly would), then how would it hurt you?

Are you just morally opposed to people getting a "free ride" but you are OK with huge financial institutions getting them? And why do you think the government is bleeding you dry, because of me or because of the TRILLIONS it has given to banks and other large institutions who have completely captured the government, not to mention the cost of killing brown people all over the world?

So my question to you is, is it more important to punish me for my mistake, or to punish the sophisticated party that extended these ridiculous loans to people like myself? Because if you think I should suffer for the crime of going to school, then you are condemning an entire segment of society to a slow and suffocating death, all over some make-believe money. (and apparently you don't mind advocating death with your "kys" statement, which I assume means "kill yourself")

Why are you not advocating debt cancellation? You would rather everyone in debt kill themselves? You are a soulless freak.
If you want a robust and healthy society in the future, you should get off your high horse and extend some practical solutions instead of just blaming people who are in no position to actually solve any of the problems. And indentured servitude is NOT a practical solution DIPSH T.

Maybe you are just blaming me for some of your past mistakes. Why is it that you are in financial trouble? Why couldn't you earn and save more in the past. Why are you blaming anyone besides yourself for your family's financial woes? Maybe you should go out and get yourself a second and third job, or just sell your own children into indentured servitude if that is such a great idea.

You may get props here for your "free thinking" and you may have convinced 20 people that you have wonderful ideas and they should listen to you and no one else, but in one paragraph, you managed to show you are self-absorbed, arrogant, completely ignorant and lacking any empathy whatsoever.

Congrats Mr. Free Thinker.


yes i would be better off

yes i would be better off without more lawyers like you. you helped cause inflation when you took your stupid loan in the first place. they had to print that money to pay the school like you said. but since you are such a crappy lawyer and you cant find a high paying job, now they should just forget about your debt? bank has shareholders. and thats ridiculous. if i cant pay for my house the sheriff comes to kick me out. if i cant pay for my car, they take it back. so now they cant take back your brain, but you do have time. you owe them plain and simple. if you dont have enough to eat, you should have been a farmer not a lawyer. it is people like you that ruined the economy always looking for a job needing a job, well when you produce something you never have to worry about that. a lawyer wouldn't get that though.

Yeah, talk about judgemental

These people sound like they would turn a victim of the mob over to the loan shark they're running from. The government staples 60,000 in potential debt money to 18 year olds and pushes them toward the educational industrial complex, and we're going to blame the kids? Did young people destroy the economy and make college unaffordable for anyone but the super wealthy?

it is the kid or their

it is the kid or their parents fault. they signed up for that deal no matter how crappy it is. you cant blame the government for influencing tem when we all know this is not the job of government. i am in no financial trouble just mad that my dollars are consitently worth less because idiots in this country want more welfare. its disgusting. now you took the banks money and you didnt realize it was a bad deal so you want them to forget about it? or even worse the tax payers to pay?

Well said!

Wow, you summed it up perfectly in three sentences!


...and a bump for you, too

Sweet Lord it feels good to read the words of independent thinkers defending themselves!

Unlearning and self-teaching since 2008. Thanks, Dr. Paul!

Tell me about it...

Sheesh...I know.

Tell me about it! Look what I resorted to, to try to help off-set some of my loan payments!


Student loans were hands-down, the worst decision of my life.

And I'm paying for it now...literally paying.

I'm a serial entrepreneur and liberty activist from Texas!



Bubbles everywhere!

Epic double post

Hit send once, it sends twice!

the education bubble will be a really bad one too

Just like when Bush "fixed" the dot com bubble burst by facilitating the housing bubble, so Obama tried to fix the housing bubble burst by facilitating the next one in education. Low interest rates and low unemployment has caused many people to go to school or stay in school for money to just live on. This has created a bubble as people continue and increasingly borrow money to attend school in lieu of no employment. They have many justifications, but unfortunately this is a bubble and will all backfire.

they thought the housing crises was bad, wait until whole colleges go under. Housing will collapse in college towns, businesses will collapse, jobs will be lost accross the board... it's going to be awful. A lot of these towns could not survive without the yearly dose of college students.

However, it is needed! Education prices will hopefully finally drop to their true market price and become affordable without loans again.

So bring the high interests rates so students can't borrow or pay back anymore. It needs to collapse to be fixed!

but also don't forget about the bond bubble! which facilitates all this...

Spot on... but mind the technocrats!

This clearly is an issue, but probably still a nascent issue... think housing market in the early part of the last decade or the late 90s. I remember telling my parents to sell their house in 2003 because "it was all going to come crashing down." As much as I'd love to think of myself as sagacious, there were articles in the financial press every day discussing the overheating housing market and growth in mortgage indebtedness. (aside: Had I acted on my own advice and found a way to get short in 2003, by 2006 I'd have been carted out on a stretcher. Timing is everything.)
That said, I think a potentially dangerous outcome from this education bubble is that rather than allowing the free market to work, we'll continue to prop it up and create a bunch of government jobs for all of these kids. Think of the rhetoric: the U.S. government will put all of the best and brightest young minds to work, helping to solve all of the problems that individuals can't figure out for themselves. Look forward to an entire generation of technocrats telling us how to live based on the fact that they attended a four year paid vacation from reality and, possibly, opened a book or two between games of beer pong.

Unlearning and self-teaching since 2008. Thanks, Dr. Paul!

I agree

We need to not prop up the bubble. Great idea. But if we are going to let it all crash, we HAVE to let the debtors file bankruptcy for student loan debt. The government has to rescind the loan guarantees retroactively for the last 15 years at least. Let the market sort it out when we have a level playing field, not when debtors will have no recourse besides eternal financial servitude.

However, you, like many others here, seem to think that all the students are lazy irresponsible freeloaders! A lot of people today grew up with college being shoved down their throats since birth. It was a mistake for many to go to college, but it wasn't like the banks or government did any due diligence when approving these loans.

From a logical (and moral) standpoint, when a sophisticated party (like a bank) is contracting with an unsophisticated party (18 year old fresh out of high school), it is the sophisticated party that should be responsible for any foreseeable breach of the contract because it is not acting in good faith. I would say that a bank handing out loans for higher education like Halloween candy while the economy was headed for the toilet and education costs were simultaneously rising, is pretty much the textbook example.


I definitely think you're right...

and I think there is the possibility that to sustain the bubble and prevent collapse, gov't will attempt to completely take over college education funding and allowing students to attend for "free"...of course we know that means more taxation and government picking and choosing people to go...bye bye freedom

God help us

Or should I say, "Ron, help us!" Or better still, "Us, help us."

Unlearning and self-teaching since 2008. Thanks, Dr. Paul!