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The Student Loan Debt Bubble

The Student Loan Debt Bubble
By: Alan Nasser
LewRockwell.com

It was announced last summer that total student loan debt, at $830 billion, now exceeds total US credit card debt, itself bloated to the bubble level of $827 billion. And student loan debt is growing at the rate of $90 billion a year.

Read the full article @ LewRockwell.com

Below is a quick outline pasted from the article.

Crisis of Public Education Precipitates Private School Growth

Since the most common advise to the unemployed is to “get a college education,” and tuition at public institutions is at least half or less than private-school rates, public higher education institutions have been swamped with an influx of out-of-work adults. This has resulted in enrollment gluts at many state colleges. At the same time, tuition is increasing just when household income and hence the affordability of higher education are declining.

How Healthy Are Student Loans?

The extraordinary growth of student debt paralleled the bubble years, from the beginnings of the dot.com bubble in the mid-1990s to the bursting of the housing bubble. From 1994 to 2008, average debt levels for graduating seniors more than doubled to $23,200, according to The Student Loan Project, a nonprofit research and policy organization. More than 10 percent of those completing their bachelor’s degree are now saddled with over $40,000 in debt.

Financial Aid and the Federal Tilt to Private Schools

A higher percentage of students enrolled at private, for-profit (“proprietary”) schools hold education debt (96 %) than students at public colleges and universities or students attending private non-profits.

Government’s Bias Toward the Private Educational Sector

In 2009 President Obama initially pledged $12 billion in stimulus funds to help community colleges through the economic crisis. Last March that sum was slashed to $2 billion. The umpteenth example of a broken Obama promise.

The Track Record of For-Profit Colleges

The track record of for-profit colleges does not justify their disproportionate share of government largesse.

Proprietary Schools and the Military

Proprietary schools target the military market with an aggressive and highly successful marketing campaign. For-profit colleges are the destination of high numbers of active duty and recently discharged military personnel. Data from the US Army and Defense Department show that the University of Phoenix is the third largest receiver of education funding from the US Army.

THE PRIVATE LENDERS: SECURITIZATION AS USUAL

The two largest holders of student loans are SLM Corp (SLM) and Student Loan Corp (STU), a subsidiary of Citigroup. SLM -Sallie Mae- was originated as a Government Sponsored Enterprise (GSE) in 1972. The idea was to prime it for eventual privatization. In 1984 the company began trading on the New York Stock Exchange under the ticker symbol SLM. In 2002 Sallie Mae shed the its GSE status and became a subsidiary of the Delaware-chartered publicly traded holding company SLM Holding Corporation. Finally, in 2004 the company officially terminated its ties to the federal government.

THE WORST-CASE SCENARIO: GOING BANKRUPT

Credit card and even gambling debts can be discharged in bankruptcy. But ditching a student loan is virtually impossible, especially once a collection agency gets involved. Although lenders may trim payments, getting fees or principals waived seldom happens.

THE FIRST AUSTERITY GENERATION’S JOB PROSPECTS

Most of those affected by the meltdown of 2008 had completed their education and were either employed or retired. The student loan debt bubble signals a generation that enters the work of paid work cursed with what is more likely than not to be a life of permanent indebtedness and low wages.

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