If you have been a long-time reader of this blog, you may remember my June 10, 2011, article on the student loan bubble. It included details about recent college graduates’ high unemployment rates and the problems with defaulted loans for students attending for-profit colleges. What has happened in the past 14 months? Yes, they have.
The Apogee Advisory’s Dan Amoss explained that the real impact of the student loan crisis would hit mid-2013 after four years since the increase in government-funded student loans. These loans, like the famous option ARMs (adjustable rate mortgages) during the housing boom, have precisely time fuse: Four years after loans are made, borrowers will need to start making payments.” According to the Federal Reserve, the U.S. Department of Education has a huge $452 billion portfolio of student loans receivables and has been transformed into a subprime lender.
What are the next five years for college graduates? Many people who have degrees in engineering or computer science can still write their tickets. Liberal arts majors and others are not as lucky. According to the Labor Department, there are 1.9 million Americans between 20 and 24 who aren’t in school but are unemployed. Most of the pain is due to poor economic conditions and the idiocy of our politicians. My opinion is that many of the so-called echoboomers (kids from baby boomers) were taught by their parents that credit abuse is acceptable and that they should pursue their career dreams, even if there is no clear path to a decent job. I feel sorry for these young adults.
Federal Reserve Chairman Ben Bernanke, of course, is involved in the matter. He stated recently that “I don’t believe it’s financial stability issue in the same degree that, say mortgage debt was during the last crisis.” Because the crisis will directly impact the taxpayers, student loan defaults won’t be a problem. After such amazing past predictions, his quote is another gem.
* “It is a very unlikely possibility. “We have never seen a drop in the prices of houses on a national basis.” (July 2005).
* “We do not see any significant spillover to banks and thrift institutions from the problems on the subprime markets.” (May 2007).
* “The Federal Reserve does not forecast a recession at the moment.” (January 2008 – one month after the recession began)
It is very difficult right now to repay a student loan. This isn’t like defaulting on a mortgage or credit card. Your credit score will take a slight hit for a while, then you can get on with your life. Only exceptional circumstances can allow you to repay a student loan. My prediction is that Congress will make student loan repayments easier within the next year. This will allow young adults to get started with their lives without having to carry a lot of financial responsibility. However, it will also make the overall student loan program worse. Another good news is that the Fed appears to be keen to maintain low interest rates for many years. This will ensure that student loan payments are lower for both parents and students. The taxpayers will be hit again by student loan defaults.
We all know the severity of the national debt crisis. It is also evident in many states and municipalities. Mish shared a fascinating analysis last week of how the U.S. could meet its $3.2 trillion spending requirement this year. It’s here:
* Take 100% of Exxon, Wal-Mart and all other corporations’ corporate profits
* Tax rate of 100% on all incomes over $250,000
* Take 100% of the wealth of super-wealthy people with Warren Buffett and Bill Gates
* All salaries paid to players in the NFL, NBA and MLB.
This would cover the cost of this year. This would not affect the $16 trillion of unfunded debt or the $117 trillion in unfunded liabilities. According to the White House Office of Management & Budget, federal spending will reach $5.8 trillion annually in the next ten years. How will we pay for all this?
Housing market is still at the bottom, with very little chance of significant home value growth except in select areas. These are difficult times for investors and mortgage note buyers.
Rasmussen Reports revealed that 14% Americans believe their children will be better off today than their parents. Only 31% think the economy will grow in a year and 27% of likely U.S. voter say the country is moving in the right direction. These grim figures are a sign that people are becoming more aware of the seriousness of our country’s problems. No matter who wins November’s election, you shouldn’t expect to see much progress in solving them.
Adam Mcbrian, a buyer of mortgage notes, assists people who want to buy mortgage notes. Seascape can help people sell their mortgage notes. They also have free information.