I'm not sure what would happen in a bust scenario. I guess the bad loans in the private sector would be treated as "toxic" and there'd be a big deleveraging. Maybe the government would step in and bail out the debt-holders like it did with housing by buying up the assets. In that case, the students would still owe the money (but now to the government) but the interest rates would probably reduce dramatically if not eliminated.

Of course, now that (most) student loans are directly administered by the government (instead of through a private middle-man), the longer it takes for this "bust" to happen (if it can happen) the fewer will be in the private sector and thus covered by the speculation above. Thankfully, those administered by the government don't have the absurdly high interest rates as the private ones.

[Edited on December 6, 2012 at 1:23 PM. Reason : .]

12/6/2012 1:22:20 PM

Government owning most of the loans makes the impact on the economy much smaller, but private loans would tighten or disappear and many colleges (especially for-profit University of Phoenix and such) would take a hit.

12/6/2012 1:39:59 PM

the only way I see it "busting" is if the brinksmanship, cost cutting and debt ceiling discussion comes to messing with student loans or mixing the student loan issue with other issues (SS, Medicare etc) but that would be a very toxic political discussion way way down the road.

12/6/2012 2:20:20 PM

But it has to be addressed at some point, you can't talk about the student debt bubble without acknowledging that easy credit is a big problem. At some point there needs to be a cut back on student loans to make them more risk-based and it will be an ugly process in the short term.

12/6/2012 4:50:32 PM

A lot of for-profit universities are a rip off.

12/6/2012 5:57:18 PM

New jobs for people with no post-high school education are definitely popping up every day, right? Just a few weeks ago I saw a McDonalds in an airport with a conveyor-belt soft drink server. Someone's gotta oil that thing! Until they finish the oiling robot, that is...

[Edited on December 7, 2012 at 8:29 AM. Reason : .]

12/7/2012 8:28:12 AM

here are some interesting things I saw lately. It's not exactly what you're talking about, but I don't care.

http://research.stlouisfed.org/fred2/graph/?id=TCMDO

this is total credit owed by everyone



So much monies! This is incredible. Compare to GDP

http://research.stlouisfed.org/fred2/series/GDP

55/16 = about 350% of our GDP is owed in debt.

I don't understand this. I wish I did. We went from almost zero credit economy in the 60s to three and a half years worth of economic output being owed. I'm sure some of it is benign. That is, people who easily have assets to match their credit line but just want more cash to scare their enemies with.

Also, we're at the bottom of a megacycle in dependency ratio.



I would think that this would mean a low in debt held, not a high.

Why does mrfrog not understand the world?

12/7/2012 8:37:50 AM

"The Disappearing College Loan":

http://online.wsj.com/article/SB10001424127887323689604578220280013776200.html?mod=googlenews_wsj

Quote :

"The new program comes at a time when rising student-loan balances—amid a still shaky job market—have weighed heavily on many families. Typically, federal student loans must be repaid within 10 years. At current interest rates, that can work out to a monthly payment of roughly $300 for a borrower with $26,000 in debt. Pay as You Earn, by contrast, limits student-loan payments to 10% of "discretionary income" as defined by government formulas. Borrowers who make regular payments could have the remaining unpaid amounts forgiven after 20 years."

"Pay as you earn" payment plan includes lowering monthly student loan payments, reducing the time needed to reach "loan forgiveness". and offering faster loan forgiveness if you're a public sector worker. Except if you're really poor:

Quote :

"In some cases, borrowers with low incomes could be required to make a zero-dollar payment and would still be considered current on their loan. Monthly payments can increase or decrease each year based on the borrower's income and family size."

Quote :

"To be eligible for the program, borrowers must have taken out their first federal student loan after Sept. 30, 2007, and received at least one federal student loan after Sept. 30, 2011. Borrowers also must meet eligibility cutoffs based on the size of their debt, their discretionary income and family size. The U.S. Department of Education's Pay As You Earn calculator, available at studentaid.gov, can help you determine if you qualify. Borrowers can apply for the program online or by contacting the loan servicer that collects their payments on behalf of the federal government."

My question is who pays for all this. Being someone that took out loans, graduated in 2009, and has been making huge payments towards my loan since (sacrificing consumption elsewhere), I guess I should be upset. Then again, I'll have my loan completely paid off within a year and I'll be much better off financially than the people that were dumb enough to waste years and 150k on shit degrees from shit schools.

1/6/2013 1:36:13 PM

Quote :

"Being someone that took out loans, graduated in 2009, and has been making huge payments towards my loan since (sacrificing consumption elsewhere), I guess I should be upset"

You can't be upset for living up to the contract you agreed to. Pay your own debts, other people's situations shouldn't matter.

1/6/2013 4:12:03 PM

Really? That's your honest position and attitude?

Wow.

On the other hand your shitty and completely unrealistic attitude in this place makes much more sense now.

http://www.dailymail.co.uk/news/article-2257715/Study-shows-college-students-think-theyre-special--read-write-barely-study.html

^I think this describes some of the less desirable posters here perfectly. I see plenty of my students in this story as well. Sad.

1/6/2013 4:54:02 PM

Quote :

"You can't be upset for living up to the contract you agreed to. Pay your own debts, other people's situations shouldn't matter."

If I was upset, it wouldn't be because I paid my debts, it would be because others are getting bailed out by the federal government. When it comes time to pay for this free for all era where banks were allowed to issue no-risk student loans and then have the federal government intervene to cover those in delinquency, I'm going to be forced to cough up "my fair share".

1/6/2013 6:06:53 PM

I think there needs to be a federal payment system which I will discuss when I have more time but right now I'm staying in school and getting more loans just to not have to pay and keep getting degrees to up my job security and salary and hopefully I'll get lucky and it will all be forgiven.

Honestly, forgiving student loans would be the most productive and logically moral way to stimulate the economy but there will obviously be crab-syndrome people angry that people like me are taking advantage of the forgiveness.

1/7/2013 5:08:43 AM

I hope that was a joke post.

1/7/2013 8:12:56 AM

^^ bad ideas. You should rethink that

1/7/2013 8:31:22 AM

Not really. With inflation, it makes more sense to borrow. Remember what 10,000 dollars was like 30 years ago? Well in 20 years, 100,000 is going to seem like nothing. Even grandparents talk about buying businesses for 1,000 when they were young 70 years ago. If you look at the fiscal situation of this country, you know there is no way the government will function for the next 20 years without printing a ton of money. This means all debt will slowly forgive itself and all savings will slowly decay to nothing. We are headed for the biggest inflation in our nation's history.


It makes more sense to borrow, make money now and pay it back later when you are making more money and money means less. This kind of thinking is why we are in this mess in the first place but its based on truth. I could already easily foot the bill for repayment right now but I choose to differ and online masters from regular brick mortar universities are pretty cheap, thoughtless and pretty fun. So why not pile em up. Plus its got me on a pace of doubling salary ever 3 years.

As far as credit, education debt looks great it basically doesn't count. Worst case scenario is as long as you pay the permanently low monthly, its interest free and can never hurt you.

Best case scenario is it all gets forgiven because its such a damper on the economy.

[Edited on January 7, 2013 at 8:41 AM. Reason : future]

1/7/2013 8:39:34 AM

Quote :

"Really? That's your honest position and attitude?"

Wouldn't have posted it otherwise.

Quote :

"it would be because others are getting bailed out by the federal government"

That's irrelevant to you paying off your own obligations. You should pay off your loan to the best of your ability and be grateful someone loaned you that money to begin with.

Quote :

"I'm staying in school and getting more loans just to not have to pay and keep getting degrees to up my job security and salary and hopefully I'll get lucky and it will all be forgiven."

That's really dumb. You'll be paying those debts one way or another. Even if the government intervienes for retroactive loans (which is fairly unlikely), you're not going to get a fightclubesque clean slate, the best you can hope for is Chapter 7 or Chapter 13. Chapter 7 offers a bit of forgiveness but you'll only be eligible for that if you're not going to have any disposable income for the next 5 years, otherwise you'll more likely get Chapter 13, which is just debt consolidation with a payment plan, which might give you a bit of a break on the interest rate.

Quote :

"With inflation, it makes more sense to borrow."

You might want to look at your loan again. You are probably being charged interest that is multiple times that of inflation.

Quote :

"Worst case scenario is as long as you pay the permanently low monthly, its interest free and can never hurt you."

That "low monthly" will be based on your income, so each additional dollar you make will be an additional dollar you pay. Additionally, that debt will factor in to your debt-to-income ratio when looking at credit-worthiness, so you probably won't be able to get a mortgage, a car loan, maybe not even a decent credit card.

Quote :

"Best case scenario is it all gets forgiven because its such a damper on the economy."

That will not happen. Best case scenario is you can file bankruptcy, which doesn't "forgive" those debts. You are making some serious financial decisions that could effect your financial situation for the rest of your life, you should look into them some more.


If you are actually in the situation you say you are, pay off your loans, start working, and if you enjoy going to school, go to school and have your employer pay it, that's the only "free ride" you'll get education-wise, not loans.

[Edited on January 7, 2013 at 10:00 AM. Reason : ]

1/7/2013 9:57:58 AM

So people like "The E Man" really do exist then? Fantastic.

...and to think all this time I thought they were just a caricature of the boogie man paraded around by fiscally responsible people.

Taking it one step further I think people like him are far more numerous than you can possibly imagine, and a good source of everyone else's woes.

1/7/2013 10:27:00 AM

There are a lot of people out there who are completely unable to manage debt and get themselves into a spiraling paycheck-to-paycheck scenario like the E man will be in, they're called poor people.

1/7/2013 10:35:36 AM

Well I would say that he's in a special category of "poor person" then because he actually understands his options, his position, and chooses to relish his awful decision.

He knows exactly what he's doing and I choose to equate him more to "thief."

Simply calling him a poor person isn't enough. There are many poor people that I admire, and I would prefer to help them out instead of The E Man.

1/7/2013 10:46:16 AM

Quote :

"Well I would say that he's in a special category of "poor person" then because he actually understands his options, his position, and chooses to relish his awful decision."

All squares are a rectangle, not all rectangles are square. People who don't understand credit always end up poor, not everyone who is poor doesn't understand credit.

Quote :

"He knows exactly what he's doing and I choose to equate him more to "thief.""

He's trying to game the system, but this will end up costing him way more than the original cost of the degrees. Our credit system is (rightfully) skewed towards creditor rights. The opportunities to take out a loan and pay back less than principle are pretty much non-existant, and the small amount that do actually exist usually involve either dying, or some really difficult hardship.

1/7/2013 11:05:39 AM

Quote :

"I could already easily foot the bill for repayment right now but I choose to differ and online masters from regular brick mortar universities are pretty cheap, thoughtless and pretty fun. So why not pile em up. Plus its got me on a pace of doubling salary ever 3 years. "

Something tells me the data points are not sufficient to justify the trend.

1/7/2013 11:15:37 AM

Quote :

"Our credit system is (rightfully) skewed towards creditor rights"

Indeed, but you know the saying about blood and turnips. The unemployed people with 50k-200k of debt are the turnips.

1/7/2013 11:55:25 AM

Quote :

"Indeed, but you know the saying about blood and turnips. The unemployed people with 50k-200k of debt are the turnips."

These people getting loans are the problem that this thread is talking about, I know it's a problem, it's pretty easy to see due to the nearly limitless availibility of these loans and the inability for them to fall under bankruptcy.

I'm just trying to address your fears of someone else getting away with their loan scott free while you have to pay, like The E Man seems to think will happen to him. It won't happen, either they will start working and have to devote most of their income for the next several years towards student loans, or they won't, and they'll be poor. Either way, their outcome is going to be worse than you, who pays his bill on time and only gets a responsible amount of loans.

1/7/2013 1:19:10 PM

I'm pretty sure The E Man and his cohorts outnumber those responsible debtors.

They'll keep voting for politicians that promise to keep stuffing their fat faces at our expense.

In the end everyone will end up with nothing and the only college graduates will wear white wigs and play cricket.

1/7/2013 2:51:08 PM

why would we have any credit available if that was true?

[Edited on January 7, 2013 at 2:54 PM. Reason : ?]

1/7/2013 2:52:46 PM

Quote :

"I'm pretty sure The E Man and his cohorts outnumber those responsible debtors."

If that were true, SLM would be going down a lot, so either you know something a whole lot of professionals do not, or what you are saying is untrue.

1/7/2013 2:59:40 PM

I guess we'll see-

I'll cop out and take the same stance as those in TSB that claimed hyperinflation was right around the corner?

Allowed?

kthx

1/7/2013 3:06:04 PM

yowilly also thought Romney was going to win the election and that he would go away if Obama won. So it's pretty well established at this point that he either doesn't know what he's talking about at all or he's a liar or both.

1/7/2013 6:09:38 PM

Maybe I should apologize, but instead ill just say "fuck you."

Lol.

[Edited on January 7, 2013 at 6:42 PM. Reason : -]

1/7/2013 6:42:23 PM

I couldn't resist

1/7/2013 9:48:13 PM

Historically speaking, theres no way this can last. Usually, debt has been owed to the state in a closed system and the state would simply reset all debt but now we have an open system and even the state are in debt to the elite. When the credit dries up, the elite can simply go exploit another people or dig a whole somewhere else. Most of the world works to pay off debt they did not gain on their own and will work their whole lives paying interest on ballooning principle.

The entire world is in debt to the oligarchy and they would rather see the whole global economy collapse than give up their chance to move from the top 1% to the top .1%. Either the states will intervene or the whole thing will collapse. The oligarchy aren't veryt smart or they would give up some of the debt they are owed to delay the collapse by more generations but they are too blinded by the materialism to see that they cannot spend the wealth in their lifetime and it will be useless to their offspring when the system it is built around crumbles.

Personally, I can't wait to see the governments turn on them or the whole world blow up in their faces.

1/12/2013 6:48:13 PM

http://finance.yahoo.com/blogs/daily-ticker/only-150-3500-u-colleges-worth-investment-former-132020890.html?vp=1

Quote :

"Only 150 of 3500 U.S. Colleges Are Worth the Investment: Former Secretary of Education"

5/7/2013 10:33:36 AM

5/7/2013 10:37:18 AM

http://money.cnn.com/2013/05/09/pf/college/student-loan-debt/index.html?hpt=hp_t3


http://money.cnn.com/2013/04/30/pf/college/college-grads-jobs/index.html?iid=EL

5/9/2013 1:52:16 PM

woah.

[Edited on May 9, 2013 at 1:54 PM. Reason : I saw that]

5/9/2013 1:53:40 PM

[quote]University endowments and teachers’ pension funds are among big investors in Sallie Mae, the private lender that has been generating enormous profits thanks to soaring student debt and the climbing cost of education, a Huffington Post review of financial documents has revealed.

The previously unreported investments mean that education professionals are able to profit twice off the same student: first by hiking the cost of tuition, then through dividends and higher valuations on their holdings in Sallie Mae, the largest student lender and loan servicer in the country, which profits by charging relatively high interest rates on its loans and not refinancing high-rate loans after students graduate and get well-paying jobs.

Sallie Mae is a former government-sponsored enterprise that was fully privatized in 2004 and now trades publicly as SLM Corp.

“It’s a conflict of interest,” said Barmak Nassirian, a longtime higher education analyst who most recently served as associate executive director of the American Association of Collegiate Registrars & Admissions Officers. “There is something inherently problematic about benefitting from the financing of the tuition you charge through investments in any lender.”

On average, the annual cost of education at public schools has risen 57 percent since 2005 to nearly $18,000, according to College Board figures Sallie Mae cites in its latest quarterly pitch to investors. Students at private schools are paying more than $39,000, or nearly 44 percent more than they did in 2005.

The so-called “cost of attendance gap”, or the difference between what a four-year degree will cost incoming freshmen versus the amount of government loan money available to them, has risen over the past 10 years by 59 percent to nearly $152,000 for the typical student who started at a private school in 2011, Sallie Mae tells investors. For public school students, the gap has increased 90 percent to about $69,000.

Sallie Mae loans, which are relatively more expensive now than they were before the financial crisis, help “bridge the funding gap,” the company says.

The funds’ investments in Sallie Mae come as Washington policymakers increasingly turn their attention to student debt burdens, weighing stimulative measures that could boost refinancings or increase loan modifications for distressed borrowers, in the face of increasing evidence that student debt is hurting the economy.

The highly profitable company -- it generated a 21 percent return on equity last year -- attributes its earnings in part to the lack of competition in a market in which borrowers’ need for credit is only increasing.

“The margins here are really a function of alternative financing opportunities,” John Remondi, Sallie Mae president and chief operating officer, told investors in January. “And if you think about our products, we're making loans to the parents and students, family education loans. Their alternatives are fairly limited.”

Sallie Mae reported $939 million in net income last year, its highest since 2006. The publicly-traded company, which enjoys a government guarantee on most of its $174 billion in assets, has been profitable in eight of the last 10 years, generating a cumulative $7.3 billion profit.

Its shares have risen 54 percent over the past year, outpacing the 19 percent gain in the Standard & Poor’s 500 Index, America’s benchmark equity gauge.

The endowments of Furman University, Harvard University, Mount Holyoke College, and University of Michigan all hold stakes in Sallie Mae through their investments in Highfields Capital Management, a hedge fund that manages more than $11 billion and is the second-biggest Sallie Mae shareholder. As of the end of last year, Highfields owned nearly 40 million shares of Sallie Mae, or 8.6 percent of the company’s common stock.

Highfield investors, according to securities filings, primarily consist of charitable foundations, endowments, pension plans, and governmental entities, among others. The hedge fund was founded by two top executives of the Harvard Management Co., the Ivy League university's investment arm, which kicked in $500 million to launch the fund.

Pension funds for teachers and other school employees such as the New York State Teachers’ Retirement System, State Teachers Retirement Board of Ohio, Pennsylvania Public School Employees Retirement System, New Mexico Educational Retirement Board, Teacher Retirement System of Texas and California State Teachers Retirement System (CalSTRS) also own significant chunks of Sallie Mae, as does asset manager TIAA-CREF, which oversees retirement funds for teachers, among others.

Highfields Capital declined to comment. The funds either declined to comment or said their ownership stakes were due to passive investments in index funds. Sallie Mae’s shares form part of the S&P 500 and the Russell 3000 Index.

Still, the funds are enjoying bumper returns thanks to their passive investments, aided by borrowers who may be paying more than they would if the student loan market was functioning properly, policymakers have said.

5/9/2013 11:33:53 PM

“The issue becomes whether maximizing returns should be tempered by additional concerns and ethical considerations,” Nassirian said of higher-education professionals who have holdings in Sallie Mae. “This form of ‘double-dipping’ can create a very dangerous loop, where you have incentives beyond what you claim in your public rhetoric -- namely to put students into deeper debt.”

“This is a much more subtle and much less mechanistic dysfunction than we have seen in the past,” he added.

In 2006 -- the last year Sallie Mae reported at least $1 billion in profit and enjoyed a return on equity above 20 percent -- student borrowers who took out private Sallie Mae loans that were then securitized were borrowing at interest rates that were about 4.4 to 5.0 percentage points above a benchmark borrowing rate for financial corporations known as the three-month commercial paper rate, according to a review of the company’s bond documents.

For private loans that were securitized last year, students were paying interest rates about 6.8 to 7.5 percentage points above the benchmark corporate rate.

In all, over the last three years the margin enjoyed by Sallie Mae and its investors on private loans the company securitized on average has been about 2 percentage points higher than it was in 2006 relative to the overall corporate borrowing rate.

“Sallie Mae’s private education loans are designed to help students graduate with less debt and pay off their loans faster than other private loan alternatives,” said spokeswoman Patricia Nash Christel. “In fact, we’ve lowered our interest rates three times in the last four years, eliminated origination fees, added borrower-friendly safeguards, and created variable and fixed rate choices as well as in-school payment options to save families money.”

However, the reduction in interest rates for students has not matched the decline in the cost of borrowing throughout the economy. In other words, students are not fully enjoying the benefits of today’s low-interest rate environment, a source of frustration to some government officials.

Martha Holler, another Sallie Mae spokeswoman, disputed the use of commercial paper rates to measure the company’s margins on private student loans. Holler said it would be more appropriate to use the company’s self-reported funding costs specifically related to its private student loan originations, which in the form of long-term equity and debt is more expensive than commercial paper. By that measure, she argued, the company’s margins have slightly decreased since 2006.

But such a measure would exclude the company’s overall cost of funds, which enables the company to finance a wide range of assets more cheaply, boosting earnings. Sallie Mae's cost of funds is substantially lower now than it was in 2006, the year before the credit crunch is widely acknowledged to have started.

Sallie Mae’s preferred measurement also neglects the relative interest rate paid by student borrowers, whose rates in a normally functioning competitive market would move in tandem with interest rates in the broader economy. The commercial paper rate measures the borrowing costs of financial corporations like Sallie Mae, and influences how they price loans offered to households.

In 2012, the company borrowed funds at an average interest rate of 1.45 percent. In 2006 it was 5.37 percent. Interest rates paid by its student borrowers on all of the company’s loan products have not dropped by a corresponding amount, enabling the company as a whole to record a higher spread between its cost to borrow and what it earns off loans to students.

Sallie Mae’s margins also benefit from its Utah-based bank, which since the beginning of 2006 has been responsible for originating and funding “virtually all” of its private student loans, according to the company’s most recent annual report.

The bank relies on deposits to fund student loans. According to Federal Deposit Insurance Corp. data, the bank's cost of funds last year was 1.11 percent.

Sallie Mae’s overall margins have increased to 1.78 percent, from 1.54 percent in 2006.

The Consumer Financial Protection Bureau said in a report on student loan affordability this week that high margins for private student lenders, such as those enjoyed by Sallie Mae, may be due to the lack of options for student borrowers.

“These excess credit spreads may be a symptom of insufficient competition,” the regulator said.

The company originated nearly half of all private student loans in the 2011-2012 academic year, according to a January investor presentation. In addition, it’s responsible for roughly half of all outstanding student loan securities.

Sallie Mae’s low borrowing costs also are aided in part by a borrowing agreement it has with the Federal Home Loan Bank in Des Moines, a government-sponsored entity originally created to provide cheap financing to home mortgage lenders.

As part of its 2010 agreement, Sallie Mae can post government-backed education loans as collateral for credit. At the end of last year, Sallie Mae was able to borrow as much as $8.5 billion.

In the quarter ending March 31 of this year, Sallie Mae had borrowed $2.1 billion with an average interest rate of 0.30 percent. Holler said there was “no connection” between the company’s Federal Home Loan Bank credit facility and private student loans.

The CFPB said it was “worth noting” that Sallie Mae enjoys the use of the government-backed credit facility “at favorable terms,” despite the fact that it “does not originate a noteworthy level of mortgages.”

The CFPB highlighted Sallie Mae in its report, noting the company’s “extraordinary gains” on a federal program designed to aid student borrowers and its apparent reliance on cheap government financing.

For example, the consumer bureau’s report pointed out that a 2008 law called the Ensuring Continued Access to Student Loans Act helped Sallie Mae achieve gains of $284 million in the 2009 fiscal year and $321 million in the 2010 fiscal year off sales of student loans to the Education Department.

The company defended its actions in a statement, saying, “Given the dire circumstances the markets were facing at the time, this intervention afforded 6 million students to access higher education at an extremely low cost to the Department of Education."

The lack of competition for new loans means today’s borrowers are paying higher relative rates, and when they graduate there are fewer opportunities to refinance those loans into cheaper debt.

With increasing exceptions, a student borrower’s credit profile typically improves after graduation, as the borrower has secured a degree and likely a decent-paying job. In theory, an employed college graduate has a better credit score -- meaning he is less likely to default on his debts -- than when he originally took out his education-related loans.

5/9/2013 11:35:01 PM

3 weeks till interest rates are set to double on most student loans


Watcha gonna do Congress?

6/8/2013 11:25:06 AM

Good. now these whipper snappers will have to pay the same interest as I am still paying on my student loans.

6/8/2013 2:42:27 PM

are they seriously complaining about 1000 more over the life of the loan? That seems to be the number I've heard being thrown around

6/8/2013 6:28:19 PM