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Ear to the Ground

Student Loans: The Next Bubble to Pop?

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Posted on Aug 10, 2011
Flickr / gothick_matt

Not just here: Young people in Bristol, England, protest rising student debt in December 2010.

Analysts point to ballooning debt held by jobless college graduates as a potential cause of the next U.S. financial crisis. College enrollment has tripled over the last four decades, and the cost of tuition and fees has more than doubled since 2000, surpassing inflation in other markets, including health care, housing and energy.

Collective student debt exceeded total credit card debt in the U.S. last year. Mark Kantrowitz, publisher of websites on college financial aid, reports that the average 2011 college student will be $27,000 in the hole upon graduation. The prospect of repaying those loans is not promising, with unemployment among those under age 24 much higher than the rest of the labor force. Also, federal student loan subsidies were made eligible for cuts during the deficit-reduction deal reached by Congress and President Obama earlier this month.

All this will place a generation of college-educated Americans in a debilitating state of debt peonage at a time when the opportunity to develop themselves and their careers has traditionally been the greatest. View the report here. —ARK

The Huffington Post:

Record borrowing by college students who are graduating without jobs may lead to the next financial crisis, according to a recent report by Moody’s Analytics.

... The Moody’s report points to the fact that student loan volume growth, unlike other lending, has accelerated during the recession. This is due in part to people seeking more education and retraining as well as some students opting to remain in college longer to avoid poor job prospects.

The report indicated that in addition to college enrollment tripling over the past four decades, “demand [for student loans] is driven by the cost of education, which has grown at an extraordinary rate over the past three decades.” Based on Consumer Price Index data, the cost of tuition and fees has more than doubled since 2000, and has outpaced inflation across all goods, health care, housing and energy.

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By loans no credit check, February 1, 2012 at 8:29 am Link to this comment

Unfortunately, educational borrowing is up for almost every age group over the past five years, but it has grown far more quickly among those between 35 and 50. And the average student loan debt for those aged 35 to 45 was the biggest of that group (about $12,000) up from just under $8,000 in 2009. What is more, young people now carry the biggest student loan burdens. Those aged 24 to 30 have an average of $15,000 in student debt. But the increased debt level among middle-aged students is a relatively new phenomenon. The government should at last do something in order to save these people from catastrophe.

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By faith, August 11, 2011 at 8:44 am Link to this comment

Interesting comments one and all, above.  What I continually see in our
community, at least, is that the kids who chose not to go to college, got jobs as
firemen and police are able to purchase very expensive ($600k+) homes and they
are quite young.  While the students who finished undergrad work, and grad work
as lawyers, science fields, etc. cannot earn a decent wage and that is if they can
find a job.  They owe big bucks.  President Obama continually harps get a college
education.  Those who do and continue their educations, owe certainly far more
than the $20K plus suggested here in this article.  It is closer to $150K plus.

The moral of the story is that it is better to work for the local fire dept/police and
get that very nice pension plan.

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prisnersdilema's avatar

By prisnersdilema, August 11, 2011 at 8:10 am Link to this comment

The king of student Loans, John Boner speaker of the house, will never allow any one
of his student serfs to be free of bondage. If he did what would happen to the only
industry this country possesses, selling people into debt slavery.

What would happen to Derivatives, and campaign contributions from the student loan
industry?

Instead, there will be debtors prisons, and work houses, and the swat team arresting
your husband, while you struggle with wage garnishment, income tax refund
confiscation,,etc…

Never give a sucker an even break…

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By Inherit The Wind, August 11, 2011 at 5:49 am Link to this comment

How despots rule:

Keep ‘em barefoot, pregnant, ignorant, in fear of God, and with just barely enough to eat, no more. And keep ‘em entertained.

That way you keep ‘em under control without rioting.

Go above that, they get too uppity and want some of your fine food, clothing, mansions, swimming pools, fine liquor and hot women.

Go below that and, when they face starvation, they WILL raise an insurrection. After all, dying in the face of a bullet is faster than dying by starvation.

Bread and circuses.

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By TDoff, August 11, 2011 at 5:29 am Link to this comment

If all these folks with student loans actually used the money to go to school and get a degree, they should have learned how to cheat well enough to be able to figure out a way to screw the dirty rotten scoundrels who lent them the money.

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By phreedom, August 10, 2011 at 6:31 pm Link to this comment

Part 1

Well then, its about time, below (part 2) is a
comment I made as a comment to a Truthdig article
that was fishing for something Obama could do to make
amends to the left and at the same time do something
that would stimulate the economy. It seems this my
past response fits pretty good with this Truthdig
piece. If you would allow me, I added my previous
comment and/or I made months ago in regards to a
looming student loan fiasco or crisis, its’ causes,
and how it can easily be avoided, and
rightfully/lawfully so.

Look people, Section 523(a)(8) of the current
bankruptcy code, was put in place by bank lobbyists
and corrupt members of congress. It basically makes
it unlawful to have a financial crisis and thus
proper scrutiny of the student loan market/industry,
already a bubble really,, and has already been
leaking, if not has already burst. Section 523(a)(8)
of the current bankruptcy code makes this particular
debt a very special type of problem, and most likely
has allowed the economy to look much better than it
is, or less worse that it is, and allow the banks
balance sheets to appear far stronger than they are
reporting. If the law was changed,, the banks, our
usual suspects, would sink like rocks,,, and heck, 
in regard to how they played young citizens to take
on immense permanent debt, well, they should sink.

Rhuen Phreed,
231 Park Drive, #40
Boston MA

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By phreedom, August 10, 2011 at 6:29 pm Link to this comment

Part 1a
Much of the nation’s student loan debt has probably
been securitized to the hilt, helping to insure there
is no paper trail to the original issuer. This
student loan discharge deterent is acting as a dam to
keep the banks from being once again flooded with
public revelations of yet another massive financial
impropriety they have committed, another ponzi scheme
they participated in,  very much like the securitized
mortgage scheme they made infamous and got rewarded
for. 

Keep in mind also, that the effort to allow
consolidation of student loans, just before the law
was changed by the banks, whether loans issued from
private banks and/or quasi governmental agencies,
well, these loans that had gone through 3-4 stages of
a relentless gauntlet of piling fees and penalties on
them. The push to consolidate student loans just
prior to the change in the law, was not a remedy or
some kind of assistance,  but in fact was the goal
all along for members of the piling on gauntlet, to
make their kill, prosper with no risk,  and then dump
it on the government.  Any student loans that ended
up being managed by the department of education,
after being so called consolidated to them, should be
suspect and should not be considered a new loan, but
rather the sad result of an aggregate financial farce
enacted by an “opportunistic student loan collection,
ponzi apparatus”, one that functioned hugely
profitably, with no risk to the participants,  and
was sanctioned to cause a student loan bubble.

I think the consolidation of distressed student loans
allowed for a legal magic to call the loan new, as to
avoid the problem of proving who actually held the
loan, the trail of deviance handling the loan at
various stages of distress and finally avoided a
borrowers recourse to investigate through the courts
if the loan actually even existed anymore in a form
that could warrant someone saying, this is what you
owe and who you owe it to, that sort of thing.
Similar to the mortgages, and who might lawfully be
able to foreclose on a house, since the underlying
mortgage no longer has a legal issuer of record or
standing, since the nature of the mortgage changed so
radically during sloppy securitization of it.

But, then again,  if they want to stimulate the
economy and win a big political brownie point with
the people, well then,,,, all student loan debt
should be forgiven, directly by Congress and the
President, and in the least Congress and the
President should immediately change the “banker’s”
bankruptcy laws, and allow all student loans of any
type and of any duration be discharged completely in
bankruptcy, and student loan discharge through
bankruptcy should be retroactive for the last 10
years for those who have filed bankruptcy in the last
10 years.

It also might be handy to have colleges and
universities guarantee a student’s income, post
graduation, equal to the students ability to retire
the student loans, within 4 years after graduation.
And if the the former student is unable to retire
this debt within 5 years of graduating, well then,
the colleges and/or universities should pay off the
students school loans immediately and in full.
(got to have few pipe dreams)

Rhuen Phreed,
231 Park Drive, #40
Boston MA

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By phreedom, August 10, 2011 at 6:27 pm Link to this comment

Part 2

Below is a past comment/suggestion I made regarding
student loans; 

Very scary stuff.,,,,  Hey,, here is an idea for
President Obama, to both stimulate the economy
immensely and to take a step back to the left, a
direction that got him where he is today, but he
choose to sidestep so lawfully. A means to knock
these republican opportunist off balance. Well,
reverse the intentions and material impact of the
“Bankruptcy Abuse Prevention and Consumer Protection
Act of 2005, law S. 256 ”. (which on April 20, 2005,
President Bush signed into law, a pack of laws
lobbied for and written by the banks)

And especially as it pertains to student loan debt,
or specifically
• S. 256 § 220; student loans
Section 523(a)(8) is amended to make student loans
nondis-chargeable, in the absence of undue hardship,
regardless of the nature of the lender, thus covering
loans from non-governmental
and profit-making organizations.

Though if one reads the greater body of this so
called reform act, one will see it was another
Orwellian play on words, and was anticipating some
kind of financial meltdown. So the whole thing should
be trashed.

I am very surprised that no one has looked at this so
called bankruptcy reform, as some indication that
those in the Bush administration had some inkling
that the balloon was going to poop, eventually, and
this would soften the blow of the mortgage debacle,
by mitigated a double whammy in a student loan
catastrophe. Essentially this law was a safeguard to
yet another bubble crisis that was looming and
running in unison will the ill fated financial
meltdown,, caused by div-y-ing up mortgages into
eternal financial bliss for the banks and brokerage
houses.

Well, getting back to the gist of my comment, lets
say there are 100 billion in student loan debt
outstanding, currently, all of which is non-
dischargeable in bankruptcy, under any normal human
circumstance, well, by kicking out Section 523(a)(8)
of the current bankruptcy code, by reasonably
defining hardship, which I think we can agree on, is
definable in this day and age, well, an injustice in
terms of bias laws will be overturned, and many smart
Americans will have some debt burden lifted from
their shoulders. This would create an immediate
infusion of cash into the economy, by virtue of less
being sent into the abyss of student loans, that in
many cases can never be paid off,,, loans that
furthermore disallow many productive people to become
un-paralyzed with debt that is kept in place, despite
the inability to pay it,, and debt that is forbidden
to go the way of the financial bubble they represent
and were devised in.

Someone needs to use Rule 5.1.  Constitutional
Challenge to a Statute —
Notice, Certification, and Intervention, of the civil
rules of procedure, within a bankruptcy proceeding,
containing student loans,,and at least have the law
define “hardship”, if not make student loans of all
originations, and in any stage of consolidation or
refinancing again, well dischargeable,, as is
reasonable and prudent under the economic state of
affairs of this country.

Start with a filing like this;
A constitutional challenge of 11 u.s.c. §  523  (a)
(8) as provided for under rule 9014 guiding contested
matters. …......this motion relegates the issue of
the nondischareability of any student loan creditor,
past and present claim to the issue of a debt made
permanent by an act of congress which discriminates
against all other debt and makes this debt/claim
unlawful, and inappropriately violates and distorts
congresses’ responsibility and mandate/right to enact
bankruptcy law that is uniformed.

Rhuen Phreed,
231 Park Drive, #40
Boston MA

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By Big B, August 10, 2011 at 5:38 pm Link to this comment

I would like to see anyone with student loans, every mortgage holder, and everyone with credit card debt, go to their courthouse tomorrow and file for bankruptcy. It’s time we regular americans begin to starve the real “beast”.

Bring it to its knees, chop off its head. And start again.

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By John Poole, August 10, 2011 at 5:00 pm Link to this comment
(Unregistered commenter)

The “higher education” shakedown racket was clearly evident thirty years ago.
Time for a correction. Maybe one out of five colleges will be in business in a few
years from now.  No loss whatsoever to American “education” and our culture.

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