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“The debt load is so high, and the job outlook so bleak, that student loan default rates have almost doubled,” he wrote in a note to clients. “With the economy little improved since 2009 default rates are bound to rise further.”
“This number is greater than all credit card debt outstanding, and second only to mortgages in terms of total national debt.”
EDITOR’S NOTE: Once upon a time in a land we called America, people were prospering because nearly everyone had an opportunity to move up the economic ladder. Then, as human nature is want to do, some people with money controlling the world’s largest corporations decided they could have more money, more profit and higher share prices (wealth) if they simply stopped paying workers well. It wasn’t that these companies were in trouble. They just wanted more money. And being just people, like you and me, they didn’t stop to think about what the world would look like as a result of these short-sighted policies.
As wages went down profits went up for a short while. But of course people could not afford even modest price increases reflecting higher costs of materials. So the companies reduced quality to maintain their “profitability”. So then we had lower wages and lower quality. But then normal increases in the cost of goods sold and ever-lowering wages took their toll on sales. People didn’t have the money to pay for the goods and services that were being produced.
There was only one thing to do, according to these geniuses, these titans of universe. By giving the worker money to spend, they would maintain sales and could even increase prices and maybe somewhere down the line they could even return to the quality that once adorned goods made in the USA. But there was a catch. If they gave the workers more wages, then THAT they would need to report as expenses which would lower reported profits and of course their wealth (share prices) would go down as the market is a reflection (long term) of ultimate profitability.
ENTER DEBT, STAGE RIGHT: Behold, here is money you can spend on our inferior goods and services that you can spend whenever and wherever you want on anything you want. The Gods call it debt. And debt will liberate you. Debt is a good thing because you can always buy that thing you wanted without saving up for it. So we will give you these plastic cards and you will have the money available to buy what you want.
And we, the money Gods, will also make your student loans from our private banks instead of the public funding. And we, the money Gods, will make hundreds of different types of loans to allow you a monthly payment in each case that you can afford so you can have anything you want — even if all the payments on all the loans are above your ability to pay. We can do that because we are going to give you more debt to pay the old debt.
BEHOLD! We, the money Gods, have created a class of assets that investors want to buy because it looks like they can earn a higher amount buying these assets than other assets they could buy with their investment money. And with student loans, you can’t lose because it is guaranteed by the U.S. Government. And if the U.S. Government doesn’t have the money to pay off these loans then we, the money Gods, will lend the Federal Government the money as long as they print enough money for us, so we can lend it to them. We will buy their bonds at 4% return while they print the money and give it to us at a cost of 0.01%. What a country!
So now we have lower wages, lower quality, and a mountain of debt that nobody can pay. Plus we have no jobs that could pay off student loans, which were made with investor money, just like all the other loans that were made with investor money. The money Gods, never at risk, made all the money that could be made and then tossed fictitious losses over the fence onto the taxpayers who had no money to pay for those losses. Exactly how the Banks could lose money when they never had any risk of loss is something that nobody has quite explained to me.
But as shown in the article below, the failure of the U.S. economy to provide jobs that provide sufficient wages to pay for the bills we have run up is now creating the inevitable result — nobody can pay for anything. And student debt is more onerous even than a mortgage. So the newbies that we always depend upon for “starter housing” are not there and they are not going to be there.
As goes housing, so goes the economy.
Surging student loan debt threatens homeownership
SEE ENTIRE ARTICLE ON housingwire.com
College graduates may not be able get onto the property ladder as soon as they’d like due to the costs associated with funding higher education.
According to Rick Palacios, a senior research analyst at John Burns Real Estate Consulting, student loan debt now totals $865 billion, which is an average of $25,000 per student.
“Student loans are going to be yet another hurdle for the housing market to overcome,” Palacios said. “Faced with mounting student loan debt, poor job prospects and stagnant wages, an increasing number of people aged 25 to 34 have moved back in with their parents.”
According to John Burns, almost 6 million 25- to 34-year-olds now live with mom and dad. This number is up 26% from 2007.
The current rate of homeownership rate for this demographic stands at a 10-year low for under 30s. The rate for 30- to 34-year-olds is even worse, at its lowest rate in 17 years.
“The debt load is so high, and the job outlook so bleak, that student loan default rates have almost doubled,” he wrote in a note to clients. “With the economy little improved since 2009 default rates are bound to rise further.”
This number is greater than all credit card debt outstanding, and second only to mortgages in terms of total national debt.
“Even more troubling is the rise in debts associated with for-profit college and trade schools, whose revenues come primarily from debt available through federal government programs.,” said Palacios.
On Oct. 25, the Obama administration announced that it is taking steps to increase the affordability of higher education and aid those laden with outstanding student loan debt. In the short term, until the changes can take, current graduates will be relegated to the rental markets.
Their eventual introduction into the housing market will provide a boost, unless their credit profiles are degraded from lack of student loan repayments.
Write to Jacob Gaffney.
Follow him on Twitter @jacobgaffney.
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