7 million college debtors have yet to make a single student loan payment in last year. The college debt bubble grows.
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The student debt problem continues to spiral out of control as millions of young Americans enter the workforce only to be greeted by low paying jobs and the monthly bill for their college experience. For the most part studies show that college graduates do better than non-college graduates. Yet these studies fail to take into account the soaring cost of college today. These studies also mix in top performing schools with paper mill operations. There was a recent analysis showing that there are now 7 million college debtors who haven’t made a college payment in the last year. This is a staggering 17 percent of federally held student debt while many others are inching closer to the 360-day delinquency window. In other words, many people are simply not paying back their college debt. The amount of student debt is staggering coming in at over $1.36 trillion. The student debt bubble is symptomatic of the way our financial system is now operating and that is debt is piled upon debt and strung out over years to be paid back in hopes that inflation will pass the bill to future generations. The bill is getting harder to pass.
Shuffling debt and income plans
The government and banks realize that many millions of students deep in debt are simply not going to pay back their debts. This is a fact. Yet there is also this inability to recognize when people have taken on too much debt. Just look at Greece. There is no better example than the current central banking system being unwilling to write-off debt instead of putting people into debt-servitude that will last forever.
We are seeing shifts of trying to put more students on income based repayment plans. But look at what this does to total payments:
This is nuts. So if you owe $200,000 under more traditional models the borrower will end up paying back a total of $210,000 covering interest and the balance. Under proposed plans, this borrower will pay $87,000 over 20 years while the government picks up the tab on the other $450,000! If you are having a hard time tracking the math you are not alone.
Take a look at a letter for an income based repayment plan:
In some cases people are earning so little that their monthly payment will initially be $0. You don’t need a Ph.D in Mathematics to understand that if you pay $0 a month, it is unlikely that you are going to make a dent on that student debt. The problem is, federal student loans (backed by the current banking system) have inflated the cost of college. In turn, colleges jack prices up and this becomes a vicious cycle. In the end however someone is left with the biil.
All of this ties into the core of what caused our last financial crisis. The financial crisis was a solvency crisis, not a liquidity crisis. There is a big distinction. Yet all the tools now in place are attacking this problem as if it were a liquidity crisis. People are starting to wake up and realizing that much of the debt floating in the system will simply not be repaid. Yet this acknowledgement essentially renders banks powerless and the market will forcibly contract. This is why Greece was not allowed to default. This is why there were no write-does on mortgage debt. And this is why student debt is going to be allowed to flutter into the future even if some borrowers pay $0 a month. Student debt outstanding now stands at $1.36 trillion:
Student debt has gone up 172 percent in the last 9 years and the recession did very little to halt any growth in this market. It also appears that each successive graduating class is also deeper in debt than previous years:
The WSJ which discussed the 7 million borrowers not paying on student loans added the following:
“(WSJ) The development carries big implications for borrowers, taxpayers and the economy. Economists have warned of student-debt defaults damaging borrowers’ credit standing, which would hurt their ability to borrow for things like cars and homes. That in turn would hamper the economy, which relies heavily on consumer purchases for economic activity. Delinquencies also drain government revenues, which are used to make future loans.”
And that is the crux of the problem. Robust economic growth is going to come from having a vibrant and young working class. It is not going to come from an indebted young population that is merely trying to work to pay off their student debt.