RSS

Sub-prime Student Loans

14 Jun

Student Loan Protestors [courtesy Google Images]

Student Loan Protestors
[courtesy Google Images]

Bloomberg’s recent article (“Buy a House or Pay Off College? $1.2 Trillion Student Debt Takes the Stage in Capital”) opened by describing the plight of Jennifer Day—a college graduate who “spends 12% [$374/month] of her take-home pay on debt that funded a master’s degree in urban and regional planning, money she’d rather be saving toward a home.”

But, not to worry, since, “Under legislation sponsored by U.S. Senator Elizabeth Warren of Massachusetts, Miss Day would save about $75 a month on her payments.”

Gee, that’s great! $75 a month! $2.50 a day! $900 a year! Surely, that extra $900 will be more than enough to help those crazy kids buy their first homes!

Senator Warren’s bill would let 25 million borrowers with federal and private loans refinance their balances at lower interest rates, according to Education Department estimates.

The bill proposes to cut the interest rate on student loans, but not the principal. The government won’t repudiate any part of the original debts. They’ll only let the college kids “refinance” those loans a slightly lower monthly payments.

Why? Probably because the financial system needs that $1.2 trillion in college education debt as collateral to justify trillions more in additional loans.

Under fractional reserve banking, if you put $1 trillion in debt-instruments in a bank vault as collateral, the bank can then loan up to another $10 trillion that it just “spins” out of thin air as consumer loans to help stimulate the economy.

The banks use mortgage notes as collateral. They use car loans as collateral. They use college loans as collateral.

So, the college kids shouldn’t complain much about their student loans. They’re functioning as wage slaves who are paying off some kind of loan. If they weren’t paying off on the college loan, they’d still be working as wage slaves to pay off their car loans or their new home loans. In the larger scheme of things, they’re doing their job by working as wage slaves to make a paper debt instrument (their college loan or mortgage) a valuable, performing debt-instrument suitable for use as collateral to justify making more loans to others who go into debt and thereby also become wage slaves.

(Some readers may suppose my persistent references to “wage slaves” is too cynical. Well, stick around. As you’ll read, I’m not alone in equating debt to slavery.)

However, the fact that Senator Warren is sponsoring legislation to reduce college loans payment by a whopping $75/month is evidence that the government fears that more and more college loan recipients are sensing their “wage-slave” status, may say “To hell with it!” and simply stop repaying their student loans.

If that happened, much of the $1.2 trillion in college loans would become worthless, much of the additional loans made bases on the $1.2 trillion in college loan debt instruments might have to be called in and our $17 trillion economy might suffer a several trillion dollar loss.

Thus, even though much of this “currency” that the college kids borrowed was intrinsically worthless and “spun out of thin air,” in our debt-based monetary system, those illusory debts can’t be repudiated without risking a serious jolt to the economy. Therefore, Congress, in its infinite wisdom, has tried to mitigate the student’s growing impulse to simply repudiate their debts by reducing those debts by a whole $75 a month. Who knows? By cutting the students’ loan costs by $75/month, the students may accept their status as wage slaves.

On the other hand, it may well be that if America’s college kids decided to chant, “Hell no! We won’t pay!,” their collective refusal to pay much or all of the $1.2 trillion debt might be enough to badly damage or even collapse the US economy.

The Bloomberg article continues:

 

“Alleviating the burden on student-loan borrowers, who have amassed more than $1.2 trillion in debt, has been a focus this week for Democrats such as Sen. Warren, concerned about the drag on the economy as young people avoid buying homes or cars or starting a business.

“‘That makes this an emergency situation,’ Warren said on Bloomberg TV.”

You bet it’s an “emergency,” alright. But not because our college grads can’t afford to buy their own homes, cars or start a business. It’s an emergency because the kids are talking about simply refusing to pay any more on their student loans. If the kids bail on their student loans, the economy may take a serious shot—and that’s the “emergency” that has Senator Warren’s knickers in a knot.

Note that the total student loan debt is about $1.2 trillion.  In order to understand the magnitude of this “emergency,” note that China holds about $1.2 trillion in U.S. Treasuries.  It’s been a common fear for several years that if China sold off all of its US bonds at one time, the impact on the US economy might be devastating.  It follows that if many or most of the college kids who’ve run up the $1.2 trillion student loan debt repudiated that debt, the adverse effect on the US economy might be comparable to China selling off its $1.2 trillion in US bonds.

Interesting, hmm?  America’s student borrowers may be as potentially dangerous to our economy as China’s holders of US Treasuries.

Apparently, President Obama also sees the “emergency” potential in the student loan problem because he’s endorsed Senator Warren’s bill and issued an executive order to expand a program that eases student loan payments.

 

“The bill . . . would be paid for by imposing new taxes on wealthy individuals. It would let borrowers refinance using 2013-2014 interest rates set for their type of loan. For example, someone who took out an undergraduate Stafford loan in the 2011-2012 year at a 6.8 percent interest rate could refinance at the 2013-2014 rate of 3.86 percent.

“[But] Senate Republican Leader Mitch McConnell advised members against supporting the bill, calling it a ‘tax increase styled as a student-loan bill’.”

 

Thus, we can bet that Senator Warren’s proposed bill may not clear the Senate and probably won’t clear the House. That means the college-kids/wage-slaves probably won’t even get the proposed $75 a month reduction in their student loan payments.

If so, we can expect the movement to default on student loans to grow.

 

“Jennifer Day, the consultant, is already enrolled in one federal program that lets her pay less each month by stretching out her payments to 25 years.”

 

Well, thank yew Mister Government! Given this new “federal program,” Ms. Day might not even be 50 years old when she finally finishes repaying her student loan for five years of college.

Q: Is this a great country, or what?!

A: “or what”.

 

“[Jennifer Day’s] loans have interest rates of 6.8 percent and 7.9 percent. She’s rarely missed a payment, yet her balance of $46,749 has barely budged from when she graduated four years ago because most of her payment goes toward interest.

You can get a mortgage for half of that interest rate,” said Brunell, who wants to pay off her debt before starting a family. “It definitely impacts decisions, big and small.”

“While I don’t regret the decision to go to school, my student loans constitute long-term financial slavery,” Brunell said. “I don’t think any 18-year-old is fully prepared for the daily impact of actually paying them off.”

 

Exactly. First, my reference to “wage slaves” is virtually synonymous with one student loan recipient’s reference to “financial slavery”.   What some readers might regard as cynicism in me, is regarded by at least some student loan recipients as an objective description of the truth.

Second, and more importantly, how can a society reasonably impose a loan on an 18-year old kid that might take 25 years to repay? This isn’t a loan. It’s very near to the involuntary servitude that’s prohibited by the 13th Amendment.

Congress knows that, one way or another, sooner or later, a significant percentage of student loan debtors are going to repudiate their loans. Some will choose to do so. Some will be forced to do so by by economic circumstances. But whenever the moment comes that much of that $1.2 trillion in college loans is repudiated, there could be several trillion dollars’ worth of consumer loans that may have to be recalled from our $17 trillion annual GDP economy.

As Senator Warren implied, the threat of default on student loans is an “emergency”.

It’s also an inevitability.

It’s going to happen. Just as surely as we were guaranteed to see a housing debt collapse back in A.D. 2007 & 2008 when the sub-prime mortgages were repudiated, we’re going to see a student loan collapse in the next couple of years.

After all, what is a loan made to an 18-year old high school graduate at an excessively high rate of interest, which debt might last for 25 years—if not a “sub-prime” loan?

The student loans were, in many instances, just as much “sub-prime” as the mortgages made to unqualified borrowers from A.D. 2000 through A.D. 2007.

At 18 years old, high school grads don’t have jobs, don’t even know what kind of work they’d like to do, won’t have a “real” job until they graduate at least four years later (if then). These kids are taking out student loans because they hope to eventually find work in an economy where government hasn’t shipped many of our industries, factories and jobs to foreign countries and encouraged illegal aliens to enter this county to take some of the remaining jobs and depress our average wages and standard of living.

But given the outflow of American jobs and influx of illegal aliens into an economy that’s been in recession for six years and may still be teetering on the edge of depression, how many of these college students have a realistic chance to repay their college loans? How many students do not?

Nevertheless, the banks have said, “Well, we’ll just loan $50,000 to 18-year old kids who won’t even have a job until four years after the loans begin.”

What could possibly go wrong?

In the end, the kids will realize that they’ve been played. They’ve been taken advantage of. They’ve been exploited by unscrupulous universities that want to over-charge for education and banks that want to lend money at excessive interest rates that most college kids can’t reasonably be expected to repay—and by a government that has severely damaged the US economy.

Those college kids who took our student loans were “sub-prime” borrowers and they will follow the same trajectory as the previous mortgage sub-prime borrowers.

The $1.2 trillion in student loan debts will be significantly repudiated.  The adverse impact on the US economy will be significant.

How else could it be?

 

Tags: , , ,

21 responses to “Sub-prime Student Loans

  1. prayerwarriorpsychicnot

    June 14, 2014 at 2:27 PM

    University tuition fees rocketed over the last few years. Was any explanation given for the dramatic increase? (Other than to put students on hock for the rest of their lives). The increases were way above inflation.

     
    • Adask

      June 14, 2014 at 2:46 PM

      I suspect that university professors are overpaid for the same reason federal employees are overpaid–to keep their mouths shut; to keep them beholden to the “system” and prevent them from telling the truth and thereby risking their jobs. I.e., if a federal employee (who on average is reportedly paid about double what he could earn doing the same job in the private sector) starts blowing the whistle, he can expect to lose his federal job. If he has to take a job in the private sector doing the same work at half the pay, he’ll probably lose his house, car and even marriage. Rather than risk losing his federal job (that pays him DOUBLE what he’s worth), he’ll keep his mouth shut.

      I suspect that the same influence is exerted on college professors. If the universities can over-charge the students, and thereby over-pay the professors, the professors will keep pushing the “party line” and are less likely to “blow the whistle” by telling truth to students.

      The students would be better off, the nation would be better off, if we had professors who taught because they loved to teach, rather than because they love to “live large”.

       
      • prayerwarriorpsychicnot

        June 14, 2014 at 3:24 PM

        Sounds reasonable. It just seemed more than a coincidence that the same dramatic hike in university fees happened here in the UK. From free, they went to £3k then to £9k, which prices low earners out of University. Also retired people who used to return to study no longer can. To make sure there was no way round these high fees, the fees for the distance learning Open University were also raised to £9k. It feels like there is a political agenda underlying this.

         
      • Joan of Arc

        June 14, 2014 at 3:31 PM

        Yes and common core’s intention is to track all student performance (including IQ and proper Brainwashed attitude) electronically and decide who is worthy to attend college and who will be a worker bee.

         
      • prayerwarriorpsychicnot

        June 14, 2014 at 4:43 PM

        Yup!

         
      • Lily

        June 14, 2014 at 10:18 PM

        70% of professors are adjuncts. Adjunct professors typically make less than $30K per year. Oh yeah, they’re just rollin’ in the dough!

         
    • Joan of Arc

      June 14, 2014 at 2:55 PM

      The increase in tuition was partially due to government granting financial aid which doesn’t have to be repaid. So the consumer student wasn’t paying the price for the product. So the white families who don’t fall into a government category of who can receive a grant ( and if you’re a white MALE student you will definitely not receive a grant ) then you and your family will pay full price which has been jacked up because most students are not paying full price. It’s like medical insurance – we don’t pay the doctor anymore so we don’t even know how much it costs. The cost goes up for our insurance company.

       
    • Toland

      June 14, 2014 at 7:32 PM

      The hyper-inflation that’s going to hit the US dollar any day now will effectively wipe out these burdensome student debts, so no worries.

       
      • Joan of Arc

        June 14, 2014 at 7:48 PM

        Hmmm…no worries? Might they not demand service of the young people? Might the banks not take the homes of the borrowers who can’t pay their mortgages? And what of the credit card debtors? Debtor’s prison/FEMA camps? Any guesses?

         
      • Henry

        June 14, 2014 at 8:19 PM

        @Toland

        Yeah, for many years we’ve been hearing that:

        1) gubmint wants inflation so that it can pay its debts in cheaper dollars, and

        2) hyper-inflation is likely imminent.

        Perhaps the relevance of these two recurrent themes to the student loan topic deserves a mention.

         
  2. James Nicholas

    June 14, 2014 at 2:27 PM

    I’m reminded of the potential of our indebted college students and graduates to repudiate this student loan fiasco…in much the same way the similar age group during the Vietnam War chanted ” HELL NO WE WON”T GO!! ” Though the numbers for this generation’s NO to tbtb are certainly more significant – my opinion – I’ve not researched the figures. Their ‘ two-edged sword ‘ in fighting the debt-enslavement will cut both ways. They will be financially black-listed, U.S. Passports will be called-in by the State Department, ( for debt owed >$50,000 ) Passport applications denied ( again that > $50,000 figure ) Bankruptcy will not help since student loans are exempted from that provision. Unfortunately, the temptation that TPTB might offer a student-loan pay-off agreement if one serves in a military/police force capacity may be amp’d up.

     
  3. henry

    June 14, 2014 at 2:40 PM

    If you can afford $1,000/month for housing expense you look to find the best home that you can afford. If interest rates is 7% then you can figure the price of the house that you can get a mortgage on. If the mortgage rate falls to 3.5% then you can afford a house that cost 50% more. The effect of this is that the prices of houses goes up and instead of getting a $120,000 mortgage, you get $180,000 mortgage for the same house. When mortgage rates go back up, new people can not afford to pay for a mortgage as high as what you have. The result of this is that you are underwater on your house. You’re trapped. You can not sell it without taking a loss. If you take a loss, then you will have even less money for your next home.

    The university funding system is similar. Because students could borrow as much money as requested to pay for educational expense, the price of a university education went up. they did not get a better education for the money spent. They got more debt that they vaguely figure that they could pay when they graduated. The choices that were made as to what you want to be when they grew up is also interesting. How many art historians, crime scene investigators, and lawyers do we need? After spending 4 to 6 years learning the information required and borrowing enough money to buy a house then they realize that they can’t find a job that will pay enough to live and pay for the loans that they are on the hook for. They’re trapped. Those 4 to 6 years could have been used to earn money and learn the same information while they were working.

    Many of the universities have huge endowments that could have been used to lower the tuition but they haven’t. Harvard has $32+ billion, Yale has 20+, U of Texas has 20+, and there are many others with huge endowments. Harvard has 7181 undergraduate students. That make the cash that the university has is more than $4.4 million/undergraduate student.

    The federal government has made the American factory workers compete with slaves in Asia via GATT, NAFTA, and other “treaties” like the proposed TPP. The educated class said nothing because it meant that they could afford to buy more stuff at a lower cost. Now accountants, computer professionals, and other information jobs are moving overseas, those college diplomas are worth less at the same time that they need to pay more due to higher interest rates. The information workers are starting to notice but they are trapped with their student loans and mortgages. But, they don’t want to accept the fact that they have been scammed. To do so would mean they would first have to admit that they were stupid in making bad choices but they are educated so they can’t be stupid. They are paralyzed.

     
    • Lily

      June 14, 2014 at 10:15 PM

      Your argument makes no sense. Those being allowed to refi are in REPAYMENT!! They CAN NOT take out any more student loans because THEY ARE NO LONGER STUDENTS!! Current students are already getting the lower rates on their student loans.

       
      • henry

        June 17, 2014 at 1:00 AM

        I see from you 10:11 comment that you are paying $1,800/month on your student loans. Has your compensation increased by that much due to your grad school education? If so, what are you complaining about. If not, then you were scammed. Your opportunity costs should also be added to the equation. For many people, the total cost of a university education is more than the financial benefit of the education. Hoping that government is going to reduce your interest rate is hoping that I will help pay for your mistake. Come to terms with the choices that you made and their outcome so you don’t get fooled again.

        This is not to say that money is the only reason to get a university education. Some people with advanced degrees have a better grasp on the current reality. But then again, the indoctrination that occurs at some educational institutions actually limits the information learned so that socialists are not offended.

         
  4. wholy1

    June 14, 2014 at 3:16 PM

    This is [possibly] the most egregious form of usurious debt in the ” Unites Snakes of ‘Mericka’ ” simply because it is enslaving millions of younger [rotten Roman cult] cit[y]zens to [at this writing] an “undischargable” debt. One to two years ago in an interview with Alex Jones, Pastor Lindsey Williams spoke of the [D]elite’s goal of increasing indebtedness to such an insurmountable amount, that opposition to institution of a “New World Order” would not only be futile, but eagerly received. I suspect that student loan debt is [one of] the primary vehicle[s] to said goal. So, IMHO, applying the elemental question of ” what’s [one of] the Blessing[s] ” to this, [repentant] [womb]Men with such over-burdening debt should get the HELL[o] out while and if they still can get a passport. The so-called “America Dream” is DEAD! Research countries where a dynamic prosperity is driven by productive contribution, militarized police and swat teams are not increasingly ubiquitous and the national currency is not controlled by a privately-owned central bank and IMF lending. Furthermore, the opportunity to learn another language will provide One with a much broader social perspective.

     
  5. Frank Moorman

    June 14, 2014 at 3:19 PM

    What about Al Big Daddy over in I lose, I rack.

     
  6. cynthia

    June 14, 2014 at 3:39 PM

    You got it spot on, I’ve only listened to maybe two television news segments on this, and the second I shouted out to the room – FRAUD and SCAMMERS! I refuse to watch\listen to any more of this full rubbish – all for profit with no morals, no ethics, just the same ole ‘off the backs of the less than animal slave laborers’ – I wish more would WAKE UP, self educate, and say, “I conditionally accept upon proof that “I” was in fact given ANY ‘pay’ for labor much less a real ‘loan’…” (sigh) Anything you ‘buy’ with FRNs typically the workers were ignorant laborers not paid worth their ‘salt’ in any capacity, only “Upper Management” and “Chief Officers” – which are typically always OVER ‘paid’ – argh.

     
  7. Lily

    June 14, 2014 at 10:11 PM

    Being able to refi would, without question, help me buy a starter home. I have $65K in student loan debt. All of my debt is from grad school, so it is all at the high 7.9% rate. My minimum payments are nearly $800/month. I do not qualify for any loan forgiveness programs. If I were to pay only the minimum, I would owe $30K in interest. In order to avoid interest, I am putting everything I can towards student loans. My student loan payments are actually around $1800/month. Even at this high rate, I will owe $10K in interest if I manage to pay off my loans in four years. Because so much of my income is going toward student loans, I can not afford to save up for a house, a car, or any other major consumer good. If the interest rates on grad school loans were lowered to a much more reasonable 4% I could afford to pay the minimum on my loans each month (minimum payments would be about $650/month) AND I would be able to put about $1100 per month into savings for a mortgage downpayment because the total interest on the student loans would add up to only $15000. Yes, folks, that’s HALF the $30K in interest I would currently owe if I took the full 10 years to pay. Big difference!

     
  8. pop de adam

    June 16, 2014 at 11:55 AM

    “they’re doing their job by working as wage slaves to make a paper debt instrument (their college loan or mortgage) a valuable, performing debt-instrument suitable for use as collateral to justify making more loans to others who go into debt and thereby also become wage slaves.”

    People talk up and down the concept of compounding interests or usury as it is also known, but you have just shown a strange and perhaps not so little known concept: “compounding wage slavery”

    simply bizarre, thanks Al

    Pop

     

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s