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$914 Billion Student Loan Bubble Will Get Bigger

Written by Gary North on October 1, 2012

Student loans are over $900 billion. Parents of college students cheer them on. “Go ahead. Load up. It’s for your own good. It will pay off. You’ll see.”

The average college graduate leaves college $40,000 in debt. Parents beam. “We’re so proud.”

The Department of Education has reported that 13.4% of the 2009 graduates are in default. The government had been fudging the figures for years. It has now fessed up.

As more students sign on, more of them will be trapped.

This has been compared to the subprime loans in real estate. In this respect, yes: lots of loans will not be repaid. But there is a major difference. No one can “foreclose” on a human being. There is no asset out there that serves as collateral. Who owes this? Students who cannot pay and who have no assets.

These young adults cannot get out of the trap. The bankruptcy law does not apply to student loans. But they cannot pay, either.

The banks now have bad debts on their books. The federal government guaranteed these loans in many cases through “Sallie Mae.” The government is on the hook.

Here is a chart of the growth of these loans since 2003.

We can see the extent of the increase: from about $230 billion to over $900 billion. This took nine years.

Will it stop? Not unless Congress stops it. Does this mean the bubble will not pop anytime soon? That’s what it means.

The government underwrites these loans. This is a politically created bubble. It will take politics to stop it. The banks won’t stop lending. Congress guarantees the loans, and they are very profitable. There is no way the banks can lose. The students cannot declare bankruptcy, and the government pays off if the students don’t. What a deal! For the banks. Not for taxpayers.

Will Congress borrow to pay off the banks? Of course. Rates are low. Why not load up at these low, low prices? Congress can’t say no to any voting bloc.

Who wins? Banks. Who loses? Students whose parents did not warn them.

Continue Reading on www.zerohedge.com

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5 thoughts on “$914 Billion Student Loan Bubble Will Get Bigger

  1. the next big bribe for votes by our gay arab in chief will be student loan forgiveness right before the elections. If he can give the poor phones to call their drug dealer my as well give the papered dumb ass-es a free ride for votes

  2. Frankly we need to do away with student loans – the students get some stupid degree which in no way enables them to get a job. Most of them are converted to communism while students and come out expecting the the government to give them free medical care, free lodging, free contraception, etc. When I was young I went to college but I paid my own way, bought my own books and learned skills which enabled me to work. What is wrong with these young people today that they can't do the same.
    This generation is truly the "entitlement generation."

  3. Nemesis of Empire says:

    We need to do away with students, period. Until the Earth is cleaned of its black and infidel pests, the proper education of a young Christian is in weaponry and the various means by which the filth of Satan may be slaughtered and sent back to Hell. Nothing else is as important to the fate of God.

  4. Obama don't care how big the student gets. The Treasury is running day and nite.I would hate to find out how much the dollar is good for, maybe$ .50.

  5. El Kabong says:

    Either the kids will have to go to work by the time they are 12 years old (babysitting, mowing lawns for seniors, etc.), and save as much of that money as they can. Then work at a fast food joint, gas station, grocery store, etc. by the time they are 16 years old, and save as much of that money as they can. No spending money at the malls. By the time they are 18, and graduate high school, they just might have enough money to get them through college. If not, then they will have to work while attending school until they do. Without student loans, that's the only way to do it. They may not have much of a life, but, hey, I guess that's just too bad. But at least it will keep them out of trouble. 😉