Who could have possibly predicted that extending a practically unlimited line of credit to 18-year-old college students could have turned out so poorly? Yesterday, student debt levels reached a new milestone: “The proportion of U.S. student loan balances that are in delinquency — that is, unpaid for 90 days or more — surpassed that of credit-card balances in the third quarter for the first time, according to the Federal Reserve Bank of New York.”
The student loan bubble, largely financed by federal tax dollars, is an entirely predictable and avoidable financial catastrophe. Students, in spite of their estimated future earning potential, are given the ability to borrow tens of thousands of dollars to attend any institution of higher education in the country, regardless of that institution’s ability to produce degrees of equal or higher value. According to CBS Moneywatch, “for all borrowers, the average debt in 2011 was $23,300, with 10 percent owing more than $54,000 and 3 percent more than $100,000.” That’s an incredible statistic when you consider that two-thirds of students currently pursuing a bachelors degree are borrowing in order to do so — over 6 percent of students attending college right now will walk away with more than $54,000 in loans. The average amount of debt for a bachelors degree is $23,300; for students that went on to obtain medical, law or other specialized degrees, that average skyrockets.
During the last several months, the political classes have come to the realization that the level of student debt in the United States is reaching crisis level. Many have suggested that the burst of the student loan bubble will be more far-reaching and more damaging than the housing bubble that precipitated the Great Recession. This week, the Huffington Post linked to a new study from the Federal Reserve Bank of New York that showcased just how deep the student loan problem reaches:
- Of the 241 million people in the United States who have a credit report with Equifax, approximately 15.4% — or 37 million — hold outstanding student loan debt.
- The average outstanding student loan balance per borrower is $23,300. About one-quarter of borrowers owe more than $28,000; about 10% of borrowers owe more than $54,000. The proportion of borrowers who owe more than $100,000 is 3.1%, and 0.45% of borrowers, or 167,000 people, owe more than $200,000.
- Borrowers between the ages of thirty and thirty-nine have the highest average outstanding student loan balances, at $28,500, followed by borrowers between the ages of forty and forty-nine, whose average outstanding balance is $26,000.
- About 27% of the borrowers have past due balances, while the adjusted proportion of outstanding student loan balances that are delinquent equals 21%.
Many have put the blame on ballooning costs of public and private universities across the country. Christian Science Monitor reported this week that “between 1999 and 2009, tuition at public four-year colleges rose 73 percent on average, and tuition at private nonprofit colleges jumped 34 percent. In the same period, median family income fell by about 7 percent.”
For graduating high school seniors, the allure of a college degree isn’t what it once was. Obtaining a degree, after falling tens of thousands of dollars in debt, no longer guarantees job placement upon graduation. Is there an alternative?
Despite what you may have heard from President Obama, both Republicans and Democrats in Congress favor extending low interest rates on student loans that are set to expire in July. The problem is they’re conflicted over how to pay for it. While Democrats support a payroll tax hike on certain businesses, the House GOP is planning to introduce a bill that would pay for the extension with some of the advanced appropriations included in ObamaCare. Politico reports:
House Republicans will announce by the end of this week their own bill to keep student loan rates from doubling, several Republican leadership sources said.
The GOP will offset its cost with money from what they dub a “slush fund” in the Democrats’ 2010 health care law. Speaker John Boehner (R-Ohio) is holding a media availability in the Capitol Wednesday afternoon to announce the effort.
The specter of government-subsidized student loan rates doubling is the most recent attempt by the White House and Democrats on Capitol Hill to paint Republicans as the model of inaction. President Barack Obama is on a nationwide college tour, slamming congressional Republicans for allowing the Stafford loan rate to jump on July 1. In reality, Republican leadership on Capitol Hill didn’t address how they would deal with the July 1 deadline, which would have allowed government subsidized student loan rates jump from 3.4 percent to 6.8 percent.
I understand that late-night comics can’t be expected to have anything more than a basic comprehension of the political issues they discuss. Their job is to be funny, not to grasp the details of a legislative bill, or understand the political posturing in both parties. But Jimmy Fallon and his producers got so spun up by the White House last night that it was embarrassing to watch.
President Obama appeared in Fallon’s “slow jam the news” bit to express his support for the student loan extension bill and blast the GOP for supposedly opposing the extension. Using a late-night show with a college-aged audience to push such a distorted, partisan message may be a little unseemly, but Fallon got in on the act too, shilling for the bill and basically endorsing the president’s claim that Republicans simply want to raise interest rates on students:
President Obama: Now there’s some in Congress who disagree. They say keeping the interest rate low isn’t the way to help our students. They say we should be doing everything we can to pay down the national debt. Well, as long as it doesn’t include taxing billionaires. But their position is that students just have to make this rate increase work. Frankly, I don’t buy it.
Jimmy Fallon: The Barackness Monster ain’t buying it. We all know our legislative bodies in the House tossing and turning late into the night. But Republicans disagree and could even filibuster. But if they do, the president said they’re gonna feel it buster.
President Obama is campaigning in favor of extending a student loan interest bill in North Carolina today in an effort to woo young voters, a critical demographic for him in the state. But as Politico reports, his professed enthusiasm for this student loan bill is a relatively new development, since he missed two votes on the same bill while campaigning back in 2007:
In 2007, then-Illinois Sen. Barack Obama missed two votes on the student loan interest bill that he now wants Congress to extend.
Obama twice skipped the Senate vote on the College Cost Reduction and Access Act when the bill came to the Senate floor first in July and again in September of 2007, according to public records.
The bill, introduced by Rep. George Miller (D-Calif.) and signed into law by President George W. Bush, first cleared the Senate in July on a 78 to 18 vote, with Obama as one of only four senators to abstain. Obama did not cast a vote again in September, after the House and Senate had ironed out different versions of the bill. He was on the conference committee assigned to merge the House and Senate versions of the bill.
To be fair, Obama’s votes weren’t needed to pass the legislation at the time (in July of ’07, the bill passed the Senate by a 78 to 18 margin, according to Politico). The proposed extension currently has bipartisan support, and Mitt Romney has already come out in favor of it. So while Obama’s support for it is most likely genuine, this isn’t exactly a position that distinguishes him from the GOP.
The president is having a hard time rounding up the support of young people to generate enthusiasm and votes for his reelection campaign, no doubt because this time around, he’s forced to run on his record, verses vague promises of “hope” and “change.” In 2008, young voters constituted a full fifth of his support, but this time around less than half of Americans between the ages of 18 and 24 plan to vote in November and only 40 percent are even registered to do so currently. Young Americans certainly have more time on their hands this time around, with 1 in 2 new graduates unemployed or underemployed in jobs that don’t utilize their education background. Too bad for Obama that it doesn’t seem they will be using that time to campaign for another four years of his economy.
How has the president tried to get on the good side of young voters? This week Obama and Biden have made tours of colleges in swing states touting a plan to prevent a doubling of interest rates for students who take out federally funded Stafford loans (despite not even bothering to be present for the 2007 vote). The plan wouldn’t help Americans already paying off student loans, nor would it help those who took loans from private institutions. How many students will this plan actually help? Very few. Like many other lofty presidential plans, however, the most important part is merely the optics – actual results are just a bonus. I’ve written previously on the $1 trillion student loan bubble, and unfortunately, the program being touted by the White House will probably do more harm than good.
The Department of Education, one of the nation’s leading student loan lenders, is getting serious about collecting on $67 billion in defaulted loans. Yesterday, Bloomberg News reported the mob-like lengths the government agency is going to in order to cash in:
The debt collector on the other end of the phone gave Oswaldo Campos an ultimatum:
Pay $219 a month toward his more than $20,000 in defaulted student loans, or Pioneer Credit Recovery, a contractor with the U.S. Education Department, would confiscate his pay. Campos, disabled from liver disease, makes about $20,000 a year.
“We’re not playing here,” Campos recalled the collector telling him in December. “You’re dealing with the federal government. You have no other options.”
Campos agreed to have the money deducted each month from his bank account, even though federal student-loan rules would let him pay less and become eligible for a plan — approved by Congress and touted by President Barack Obama – requiring him to lay out about $50 a month. To satisfy Pioneer, Campos borrowed from friends, cut meat from his diet and stopped buying gas to drive his 82-year-old mother to doctor’s visits for her Parkinson’s Disease.