You may have heard about the student loan crisis in America. Millions of college graduates cannot repay trillions in loans. Their wages, or lack thereof, seem to inhibit their capacity for servicing their debt. This lack of repayment, while inconsequential in the near-term, will at some point become catastrophic for the nation as a whole.
The fact that student loans cannot and will not be repaid will have two inescapable ramifications: 1) impact upon the broader economy resulting from former students being burdened by excess debt, and 2) impact upon the national debt, adding to the black hole that is US Finances.
When people cannot afford to pay back student loans, they cannot even think about purchasing homes. This effect appears to have already begun to take hold within the real economy, as evidenced by the fact that the rate of home ownership has been tanking for over a decade now, reaching recent lows not seen in almost fifty years. Startling as that last fact may be, it does not constitute one of the five unbelievable figures about the student loan debt bubble. To begin:
- 3 Trillion USD – The size of the bubble to date. It seems like just yesterday this number had only surpassed the trillion mark. Those trillions represent the lives and dreams of millions of people who “invested in their futures” by borrowing for an education. Now that education has failed to produce a return on investment.
- 100% – The amount by which public, in-state university tuition has increased over the last ten years. When compared to the increase in cost of tuition for out-of-state and private schools, this appears tame. Many observers note that this meteoric rise has only been made possible by government intervention. Government-guaranteed loans can be secured for any amount, regardless of market value. This results in increased costs for diminishing quality products. Again, we see similar lending dynamics that took hold during the housing bubble that took center stage during the 2008-2009 financial crisis. Could the student loan debt bubble enter the spotlight during the next stage of this crisis that seems to never end?
- 293,029 – The number of Master’s Degree holders on food stamps. Take a second to soak in that figure and grasp its significance. Hundreds of thousands of people in the land of opportunity can no longer afford to feed themselves, despite having worked so hard they managed to achieve a level of education that only about 2% of human beings who live today will ever achieve in their lifetimes. How can anyone believe that “everything is awesome”?
- 40% – Rate of delinquency on student loans. You read correctly – over forty percent of all student loans remain in delinquency today. That means that almost half of all graduates cannot afford to make even a single payment on their loans. And somehow people still insist things have not deteriorated. How anyone can perceive this situation as normal will forever be beyond the scope of reason.
- Student loans cannot be discharged through bankruptcy. This last one may not be a figure, but it overshadows all of the grim statistics. Student loan debt can be considered the most sinister form of all debt, for it can never be discharged. That translates to a lifetime of debt servitude for all who bought into this most epic of financial scams. Most were never educated on the far-reaching consequences of these loans. Some didn’t even have a clue that loans were being taken out in their name – or even what a loan was!
In short, this bubble will have to burst one day. Some indications exist that it has already begun to do so. For instance, in 2011, a form of mass loan forgiveness was introduced – income-based-repayment. This plan allows students to make payments no greater than 10% of their income. For many, this amounts to a payment of zero. So millions can be in default indefinitely. The meaning of freedom involves being free of debt. Austrian economics dictates that debt deters savings, which inhibits economic growth. Therefore, further debt expansion will always be needed…until the bubble finally bursts.