By John Ballard
The amount of student loans taken out last year crossed the $100 billion mark for the first time and total loans outstanding will exceed $1 trillion for the first time this year. Americans now owe more on student loans than on credit cards, reports the Federal Reserve Bank of New York.
Been wondering how all those kids have been paying expenses? Now you know. Borrowed money.
See my comment explaining how credit becomes cash through the magic of banking. I bet the institutions loaning that money have figured a way to call their operations "profitable."
Remember than unlike other forms of debt, student loans in America are now ineligible for discharge in a bankruptcy. This trillion in debt isn't going anywhere. And the machinery that manages this debt will have no reason to falter. Many private student loans are guaranteed around 4 - 7%, and what bank wouldn't love a return like that? Barring major legislation freeing people from their student loans, this system of debt will be around for decades, siphoning away $100 - $2000 a month from most every educated American who did not come from the top-tier of the socio-economic ladder.
Mext time you watch one of those TV ads by your local franchise unit of America's education industrial complex, ask yourself how many of those students will actually earn enough to repay the borrowed money by which they are getting their training program.
Kinda gives new meaning to the word recovery.
Less like recovering from the news of holding a winning lottery ticket and more like recovering from surgery following an accident.
Like medical care, education may be of higher quality via privatization. But when the price is beyond affordability those getting the benefit are trading for debt in the exchange.
There is a difference between the price and the cost. Price has to do with value.
Cost often involves much more. Ask anyone with an injury. Or ask the survivors of someone whose life has been lost if the insurance benefit was enough to cover the loss.
Not that much different than people taking out the equity in their home to maintain a lifestyle they could not otherwise maintain. That debt also is not dischargable in bankruptcy. Yes, not all home loans are the result of that practice, and not all student loans are the result of students who chose expensive private schools over lower cost public ones or community colleges, advanced degrees over settling for undergraduate degrees, not working for a living while in college, buying cars with their student loans, etc.
ReplyDeleteSure, we should not throw the baby out with the bath water, but neither should we drink the bathwater and call it KoolAid just because there is a baby in it. The baby may be cute, but the bathwater is still full of poop and spit up.
The fly in the ointment is failing to discern the difference between principal and interest. If education loans are to be government-guaranteed the principal should be the only portion being secured, but NOT interest. If lending institutions understood going in that the principal was secure but the interest terms were not they would be more circumspect in who received the loans.
ReplyDeleteThe trillion dollars above represents principal, I'm sure. I don't want to think about how much INTEREST, current and future, it represents. The implications are much worse than they appear.
The lesson of the 2008 bailouts was that losses would be socialized while profits continue to be privatized. Something is very wrong with that picture.
The toxic part of "toxic loans" was not the loans but thinking that there might be real value in the arithmetic above and beyond the actual value of the underlying assets. Big mistake. Very big. It's what most people would call magical thinking.