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Subprime College Loans: $270 Billion

Written by Gary North on March 27, 2012

There are  about $1 trillion in college loans outstanding. Of these, over a quarter are a month late.

Meanwhile, an estimated 85% of college graduates come home to live with their parents. They cannot get decent jobs. These graduates have a name: boomerang kids.

Their parents sent them off to college at great expense. The investment has not paid off.

When you realize that these students could have earned accredited degrees for under $15,000, total, by distance learning, you can understand how parents have been sold a bill of goods. I have written about this here .

A recent report on this massive subprime debt reveals the following.

With no jobs, no way to pay for their own livings expenses, and a mountain of debt an alarming 85% of 2011 college graduates were forced to move back in with mom and dad after they got out of school.

Now, though full-blown economic recovery is touted as being just around the corner, millions of debt laden graduates are still finding it difficult, if not impossible, to find any meaningful labor, especially the kind of labor that would make it possible for them to pay off those expensive loans. In September of 2011 college loan default rates had approached 15%. Six months later, things have gotten much, much worse. According to the Federal Reserve, those rates are rising and fully 27% of all outstanding collage loans are now 30 days or more 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In other words at least $270 billion in student loans are no longer current.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%.

Source: Zero Hedge

The bankruptcy law does not let students escape. They are trapped. In the case of daughters, parents who let them run up college bills of $50,000 or more have made their daughters too expensive to marry. These women have reverse dowries. Any young man who marries one of these women is saddling himself with a mortgage without a house.

This problem is going to get much worse until parents come to their senses. That will take a subprime college debt collapse.


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4 thoughts on “Subprime College Loans: $270 Billion

  1. SEAN MURRY says:

    College is a scam there are no jobs.

  2. Basically, unless you are a science major it's a scam even when there are jobs.

  3. Obama Hater 4 Sure says:

    Most College Grads are Boomerang Babies anyway. Mom and Dad will have them living in the basement for the rest of their lives.
    That's one of the things they are taught in college these day by the far left professors. Mom and Dad brought you into this world and they are supposed to take care of you or help you out financially until they die, and then you inherate what they might have left in the kitty when they are gone.

  4. Obama Hater 4 Sure says:

    My 3 kids all went to college and they did it the same way I did, they worked while attending college.
    I helped them a little with car repairs and thing like that but they basically did it on their own, and all 3 have said to me, you know dad you were right, we grew up fast when we went off to college. All three had student loans after graduation and they all 3 paid them off before getting married and starting their own families and I'm very proud of them all for doing that. I now help them out when things get alittle tough, and they appreaciate it much more when I do, because they have been there, done that, and own the tee shirt. So I guess folks what I'm saying is, don't let them starve but don't just open up the checkbook when they ask you to either.