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What Most Americans Don’t Know About Student Debt

Personal_Finance / Student Finances Jun 09, 2014 - 11:10 AM GMT

By: PhilStockWorld

Personal_Finance

Courtesy of ZeroHedge: Submitted by Tyler Durden.

Now that student loans, well over $1.1 trillion, are hitting fresh record highs as… well… daily as the S&P500, the Fed is finally getting concerned about the latest debt bubble it has blown (not so much in equities). So concerned, in fact, the New York Fed recently added questions about student loans in its broad survey on consumer expectations to find out what people knew, or rather, did not know about this record debt mountain. We hope it was not shocked to learn that once again the bulk of Americans are taking on unprecedented amounts of debt without having a clue what the conditions are: accordint to the analysis, people don’t fully comprehend the ramifications of taking on student debt.


As Bloomberg summarizes, the survey covered 1,029 people, including those with and without debt. The shocking findings:

  • Only 28% of respondents knew that if student loans aren’t repaid, the U.S. government can garnish wages, withhold Social Security payments and tax refunds, and report the debt to credit bureaus.
  • Even more people—35%—incorrectly thought the government couldn’t do any of those things or said they didn’t know what the government could do.
  • Only 37% of those surveyed knew that students loans are extremely hard to shed in bankruptcy, a reality that differentiates student loans from other debts, such as mortgages and credit cards.
  • The survey found that people who have student loans know more about the consequences than those who don’t, and that’s even truer of those who have high debt loads. But about half of those with higher-than-average student debt didn’t have high comprehension of the issue.
  • The survey also found that fewer than one in five people under 55 years old were “highly literate” on the topic, even though they make up most current and future borrowers.

The findings should hardly come as a surprise: in 2012, Young Invincibles, an advocacy group, and the economic consulting firm NERA found (pdf) that 40 percent of current or recent graduates who got financial aid said they didn’t receive any counseling about their federal student loans, as required by law. Of those who did receive counseling, only a little more than half found it informative.

All of the above, naturally, is a pivot to the moment just after the student debt bubble bursts: then, just like with the housing bubble, the excuse will be the Americans, hardly with a gun against their head, did not understand what the "implications" of burying yourself to the neck in debt are. Which is why they did it. Which is why the entire system had to be bailed out. Or something like that.

It is good to see that nobody has learned any lessons from the recent past, as usual.

- Phil

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www.philstockworld.com

Philip R. Davis is a founder of Phil's Stock World (www.philstockworld.com), a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders. Mr. Davis is a serial entrepreneur, having founded software company Accu-Title, a real estate title insurance software solution, and is also the President of the Delphi Consulting Corp., an M&A consulting firm that helps large and small companies obtain funding and close deals. He was also the founder of Accu-Search, a property data corporation that was sold to DataTrace in 2004 and Personality Plus, a precursor to eHarmony.com. Phil was a former editor of a UMass/Amherst humor magazine and it shows in his writing -- which is filled with colorful commentary along with very specific ideas on stock option purchases (Phil rarely holds actual stocks). Visit: Phil's Stock World (www.philstockworld.com)

© 2014 Copyright  PhilStockWorld - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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