When will the student loan bailout happen? And more important, will it be students who get bailed out, lenders or both?
If you think it’s too early to be asking this, you haven’t been looking at the numbers coming out about student loans. On the We Are The 99% photoblog, where protesters hold up signs explaining their grievances, just about every third sign cites crushing student debt load.
The Atlantic’s Daniel Indiviglio put together the killer chart on this two months ago, showing student loans rising 511% in just over a decade. The Atlantic figured the total of outstanding student loans at $550 billion. Reuter’s Felix Salmon points out that’s too low. A widely repeated USA Today story said student loans would reach $1 trillion this year. That’s closer (federally guaranteed loans alone exceed the Atlantic’s $550 billion), though, as Salmon shows, USA Today seems to be badly confused about the source of that $1 trillion.
More interesting than the total number, though, is how it will get repaid. The New York Fed has put together a beautiful (read: ugly) map of student loan delinquencies, which nationally stand at 10.6% of loans. You can get a rough sense of it here, with the darker colors showing greater defaults. But to get the full force of it you should click through to the New York Fed site and tap the student loans tab. Roll over the darker counties and you’ll see delinquency rates of more than 20%. Across the Southeast you can see a belt of bad student loans forming, much like the foreclosure belt that stretched across the Southwest.
The problem here is not just that the student loan delinquency rates are rising. It’s that the numbers that are out there don’t seem to be giving the whole picture. The Department of Education dings schools whose students default within two years of graduating. Borderline schools—especially for-profit ones, who depend on student loans for the overwhelming bulk of their revenue—do their best to make sure their grads file all the right deferral forms and avoid delinquencies for those two years, even if they can’t actually make payments. After that, they’re on their own.
Nonetheless, 8.8% of federally guaranteed student loans that entered repayment in 2009 were in default by the end of 2010. To put that in perspective, keep in mind that in this case “default” means nine months of missed payments. This is a big jump from the 5% or so of loans from the last decade that are in default, and it feels like a leading indicator—like the first batch of subprime mortgages to go bad. With higher-interest private loans, the numbers are going to be worse. That 8.8% number isn’t cumulative. It reflects the number of students who defaulted pretty much right away, the equivalent of the subprime borrowers who never made a payment. In case the analogy with the mortgage bust is too subtle, you can go ahead and look at the student loan lender Sallie Mae’s primer on securitizing private education loans, online as a PDF.
A common take on student loans is that there’s little risk for lenders. Federally guaranteed loans are backed by the government, and even privately backed loans can’t be discharged in bankruptcy (in this education loans differ from other debts). The part about the government guarantee is true: yes, eventually the federal government will have to take over those loans. The other part is just nonsense. You can’t get money where there’s none to be got. That student debtors can’t discharge their loans in bankruptcy won’t help them find the money to pay.
Eventually both private lenders and the government will be on the hook. The government has already moved to ease some loan terms. It will need to find more, especially for those snookered into paying for degrees worthless in the job market. The private loans, meanwhile, will simply blow up. We may as well start figuring now how graduates, taxpayers, lenders, and schools will split the bill.
Photographer: Stan Honda/AFP/Getty Images Map: New York Federal Reserve Bank, source, data source: credit reporting agency, TransUnion LLC’sTrend Data database.
Making student loans less painful is not the answer. The whole system is exactly the same as the housing bubble pre-crash. Lending money to anyone who asks for it (to either students or homebuyers) causes massive inflation (in college tuition or home prices), and also spurs deceptive and even fraudulant practices at the expense of borrowers. For the student loans this is the for profit colleges and vocational schools that exist primarily to get their hands on student loan money rather than to provide an education (that currently have loan default rates of 30-40%). The federal government helping student loan borrowers will only keep feeding the bubble and the rise in college costs forcing students to borrow more.
To the lady holding the sign "Where are all the jobs?".
They are not in the street among refuse, garbage, and tattoo wearing losers. Go home, take a shower, do your hair, wear some decent cloths, and apply to the companies that you are decrying. Then maybe, if you can prove that you are smart, you get a job. Right now you are proving that you are dumb.
Cut both illegal immigration and legal STEM immigration and make American companies pay true market rates for American STEM graduates and we'll see some progress. Not everyone with one or more degrees majored in Women's Studies or some other so-called "useless" major.
As it stands there is less reason to go to college even for any kind of technical degree or science degree than ever for an American student when corporations can make a pro forma attempt to hire an American and then import a foreigner who will work for a fraction of the price. Just ask any technical worker about the IT "Indian Mafia" and you'll hear a mouthful.
Luckily other more far-sighted nations value STEM graduates and offer fast track visa and immigration status for American STEM graduates, so get ready for a massive American STEM brain drain if the current immigration regime is not reformed.
You want loyalty and respect? You give loyalty and respect. Currently the United States government, a wholly-owned subsidiary of whoever pays the most in campaign contributions, is showing young American scientists and engineers neither. Expect reciprocity.
Cut both illegal immigration and legal STEM immigration and make American companies pay true market rates for American STEM graduates and we'll see some progress. Not everyone with one or more degrees majored in Women's Studies or some other so-called "useless" major.
As it stands there is less reason to go to college even for any kind of technical degree or science degree than ever for an American student when corporations can make a pro forma attempt to hire an American and then import a foreigner who will work for a fraction of the price. Just ask any technical worker about the IT "Indian Mafia" and you'll hear a mouthful.
Luckily other more far-sighted nations value STEM graduates and offer fast track visa and immigration status for American STEM graduates, so get ready for a massive American STEM brain drain if the current immigration regime is not reformed.
You want loyalty and respect? You give loyalty and respect. Currently the United States government, a wholly-owned subsidiary of whoever pays the most in campaign contributions, is showing young American scientists and engineers neither. Expect reciprocity.
Why aren't these in-debt students out looking and pursuing jobs instead of spending their time on the street protesting? Also, why does everyone think they are entitled to a bailout? And we wonder why we are losing our global competitiveness.
It beats bailing out banks, auto companies and lousy countries. Bail out the students.
Snookered into paying for degrees worthless in the job market??? Listen, it's not rocket science that a degree in English Lit, or Women's Studies, or PolySci, or Art History, etc., etc., might not lead you into a great job. Fine as minors I suppose, but really??? There was an absolutely brilliant article written by a tenured professor in the WSJ a few months ago where he addressed the issue whereby there are scores of professors on the college payrolls who do not teach at all, not even one course. Dedicated to research and producing papers published in "peer reviewed" journals...estimates papers cost $70K a piece. All of this feeds into the cost of tuition. Tenure provides shelter forever, what other occupation provides this??? Hey, we need great research institutions, yes, but does it make sense to lock away our best and brightest researchers so they have no contact with students? No transfer of knowledge? Every prof should teach. Universities also went on a spending binge trying to improve student "campus life" building all manner of high end apartment-like dorms and amenities. And now those bonds they floated to make the upgrades to campus are requiring the interest payments and repayments. Also these costs feed into cost of tuition.
If you borrowed the money - you owe the money. If you made poor choices in your curriculum, and studied "softer" material instead of hard sciences and engineering, etc. You made that choice.
Great sympathy for the job growth situation. Want that fixed, go vote for somebody with actual executive experience instead of someone with nothin' but hope.
I lived in a roach motel, held a total of 6 different jobs, ate ramen, and went without a car when I was in college.
I saved every penny, applied for over 30 scholarships in high school and another 20+ while in college.
The very school I went to I chose because of its cheap tuition and living costs, and I worked hard in high school to be accepted there.
It's now been a year since I graduated, and I got my first "real" job in July; I am also no longer in debt (paid my last loan this month).
Meanwhile, my peers lived in luxury housing, drove new cars, ate out constantly and partied all through college on loans.
So we are bailing people out? Great. I'd like a do-over. I'll take my filet mignon medium rare this time.
If we had just used a fraction of all that bailout money we could have rebuilt all our infrastructure, payed off every student loan to free our kids from slavery to the banks, and made our nation stable for the future. Instead, we enriched CEO's, CFO',s banks, etc at our expense and our nations future existence. Stupid Bush. Stupid Obama. Two dumb Presidents in a row spells disaster.
For those people saying this is just like the housing crash, that's not true, for two reasons. First, banks aren't bundling up bad student loans and selling them as A+ investments. Secondly, someone defaulting on their student loans doesn't do anything to the "value" of another person's student loans. Since the loan is already for a fixed dollar amount, you don't have people who will be "under water" on their loan-this concept doesn't even apply.
The reason why "everyone expects a bailout" is because the people who run the United States federal government routinely bailout corporations and the wealthy from the consequences of their bad decisions using public funds via direct and indirect transfers of wealth, such as tax code changes, free loans given with guaranteed terms, and other such measures.
That is why corporations and the wealthy pay lobbyists and hire former bureaucrats, former politicians, current politicians' otherwise unemployable family members as "consultants" or some such claptrap, and otherwise engage in legal and illegal bribery schemes. They expect, and they receive, an amazing rate of return on those bribes or otherwise they would not pay them.
It's socialism for wealthy, but ruthless capitalism for everyone else without the support of the United States federal government. For instance, why are student loans virtually impossible to discharge in bankruptcy but other types of loans taken out by businesses much more easily dischargeable? Is this any way to inspire national unity, loyalty, and patriotism?
So given the current situation, why would any rational American act in a manner different from their corporate and governmental leaders? That would be insane and self-defeating. The United States is going to reap what it has sown and unfortunately harvest season has just begun.
What degree are you getting? Please don't say, "Art history."
You ask where is your job? Please let me know if you need directions to the military recruiter's office. They love college educated people.
Unless you are going to offer to pay for my new car, please don't demand that I pay for the last 4 yrs you wasted.
Seeing that there are more than 4 people seeking work for every job that is available, and the unemployment rate close to twice the national average for the young, maybe y'all can stop ranting about how recent grads should just clean up and get a job. (Though in fact, the students pictured here were hardly the unwashed tatooed hippies decried by posters above.)
The students graduating now - most of whom started school before the financial crisis, you might notice - bought into what they were told to do and expect. Get good grades. Go to a decent university. Take out loans if you have to. Continue to get good grades. Get a degree.
Yeah, for those folks who've worked hard and toed that line, it's going to suck to finish up and realize you're deep in a hole. (Hint: it's not just the liberal arts majors. And many of the younger folks who are managing to get jobs are getting pretty awful ones.)
I'm pretty aware of how this is shaking out, as after years as a software engineer (back when stock options were worth something - I'm still the 99%, but I have a pretty nice investment portfolio, thanks, as much as it's shrunk under the last few crashes) I'm back in academia, teaching undergrads and working on a doctorate in neurobiology.
I have some really excellent students. Bright, well prepared, really hard working. And I can't think of a single one who isn't aiming to extend their education past their undergrad degree - in part because they all know how much the job market sucks right now. Those that can are basically making the calculation "yeah, I'll look again when I have an MD or PhD."
I reallly don't care about all this because I get paid off taxpayers money..doing a very chill job right out of college? All I got to say it is a good feeling to be paid farely well and know I won't get fired regardless of economy. God Bless America and the taxpayers lol...stop protesting about defense budget cut...or else I might not get that extra money hahaha
The Occupy Wall Street movement has grown into a global protest about unequal financial power and the fallout from the financial crisis. The blog "Occupy Wall Street: The Wealth Debate" by Mark Gimein and Dan Beucke is a running discussion of the protests and the questions they raise.
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