Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
Why Record-High Stock Prices Mean You Should Buy More - 20th Nov 19
This Invisible Company Powers Almost the Entire Finance Industry - 20th Nov 19
Zig-Zagging Gold Is Not Necessarily Bearish Gold - 20th Nov 19
Legal Status of Cannabis Seeds in the UK - 20th Nov 19
The Next Gold Rush Could Be About To Happen Here - 20th Nov 19
China's Grand Plan to Take Over the World - 19th Nov 19
Interest Rates Heading Zero or Negative to Prop Up Debt Bubble - 19th Nov 19
Plethora of Potential Financial Crisis Triggers - 19th Nov 19
Trade News Still Relevant? - 19th Nov 19
Comments on Catena Media Q3 Report 2019 - 19th Nov 19
Venezuela’s Hyperinflation Drags On For A Near Record—36 Months - 18th Nov 19
Intellectual Property as the New Guild System - 18th Nov 19
Gold Mining Stocks Q3’ 2019 Fundamentals - 18th Nov 19
The Best Way To Play The Coming Gold Boom - 18th Nov 19
What ECB’s Tiering Means for Gold - 17th Nov 19
DOJ Asked to Examine New Systemic Risk in Gold & Silver Markets - 17th Nov 19
Dow Jones Stock Market Cycle Update and are we there yet? - 17th Nov 19
When the Crude Oil Price Collapses Below $40 What Happens? PART III - 17th Nov 19
If History Repeats, Gold is Headed to $8,000 - 17th Nov 19
All You Need To Know About Cryptocurrency - 17th Nov 19
What happens To The Global Economy If Oil Collapses Below $40 – Part II - 15th Nov 19
America’s Exceptionalism’s Non-intervention Slide to Conquest, Empire - and Socialism - 15th Nov 19
Five Gold Charts to Contemplate as We Prepare for the New Year - 15th Nov 19
Best Gaming CPU Nov 2019 - Budget, Mid and High End PC System Processors - 15th Nov 19
Lend Money Without A Credit Check — Is That Possible? - 15th Nov 19
Gold and Silver Capitulation Time - 14th Nov 19
The Case for a Silver Price Rally - 14th Nov 19
What Happens To The Global Economy If the Oil Price Collapses Below $40 - 14th Nov 19
7 days of Free FX + Crypto Forecasts -- Join in - 14th Nov 19
How to Use Price Cycles and Profit as a Swing Trader – SPX, Bonds, Gold, Nat Gas - 13th Nov 19
Morrisons Throwing Thousands of Bonus More Points at Big Spend Shoppers - JACKPOT! - 13th Nov 19
What to Do NOW in Case of a Future Banking System Breakdown - 13th Nov 19
Why China is likely to remain the ‘world’s factory’ for some time to come - 13th Nov 19
Gold Price Breaks Down, Waving Good-bye to the 2019 Rally - 12th Nov 19
Fed Can't See the Bubbles Through the Lather - 12th Nov 19
Double 11 Record Sales Signal Strength of Chinese Consumption - 12th Nov 19
Welcome to the Zombie-land Of Oil, Gold and Stocks Investing – Part II - 12th Nov 19
Gold Retest Coming - 12th Nov 19
New Evidence Futures Markets Are Built for Manipulation - 12th Nov 19
Next 5 Year Future Proof Gaming PC Build Spec November 2019 - Ryzen 9 3900x, RTX 2080Ti... - 12th Nov 19

Market Oracle FREE Newsletter

$4 Billion Golden Oppoerunity

The Next Big Shoe to Drop – Student Loans

Interest-Rates / Student Finances Oct 27, 2016 - 05:46 PM GMT

By: Dr_Jeff_Lewis

Interest-Rates

More than 40 million young Americans carry federal and private student loan debt – amounting to over $1 trillion. Defaults are on the rise and the issue has grown to become a nasty wealth transfer mechanism, as well as sad example of the failure of finance in general.

This week, President Obama announced a new initiative framed as a way of addressing the issue. Sadly, it is far from the mark, and just one more indication that monetary masters are the real puppeteers.


Many have pointed out that the student loan debt bubble could be the next subprime crisis.

Perhaps so, but it is potentially much worse, acting as an anvil when considered in the context of other consumer debt like car loans and credit cards.

The student debt debacle has the potential of corrupting not only education, but a generation as well.

It risks becoming the blight on a generation of would-be productive and innovative work force.

Furthermore, the workforce declines, and falls behind, as more students return home to live with parents. And the extra burden on multi-generational households adds yet another deflationary force to the natural trend.

From the perspective of bankers, policy makers, and the propaganda machine, college loan programs have been a tremendous success, providing access for students who would otherwise not be able to afford the privilege.

It is about threading a narrow political path.

Defaults are on the rise and the notional value of student loans went north of $1 trillion.

Servicers must be getting nervous; the lobbyists are circling the wagons.

There is no clear indication of who will pay for it – or how.

Defaults on the rise; one in seven currently default.

The news of doing something comes around to yet another intervention with all the familiar signs that it is meant to save the financiers and has very little to do with helping students.

The problem is that this is too little too late.

Student loan debt is a trillion dollar reality in the context of a major, ongoing depression.

We are a Nanny state – with almost 50 million on food stamps and more on some sort of assistance. Labor force participation is at 40 year lows.

There is already a major dis-incentive to work. If you take a horrible minimum wage job, you lose valuable benefits, entitlements.

Which, incidentally, also explains why while it took the U.S. economy 6 years to recover all the job losses since Lehman. This took place at the expense of 13 million Americans leaving the labor force for good even as the U.S. population rose by 15 million.

It also means that using a historical average participation rate, U.S. unemployment is over 11%, while underemployment is currently well in the 20% range – a far more realistic assessment of where the U.S. economy really is.

People on assistance programs are literally paid to stay home – think of the cultural implications.

It’s almost a conspiracy. You have a massive class of under the table people with no voice. Give them bread and circuses.

The student loan debacle is another story.

For the parents, the typical situation is framed by skyrocketing tuition; and little help from scholarships become fractions in the face of rising tuition.

The income cut-off for need-based financial aid is low.

Parents are expected to contribute 25% of pre-tax income to the cost of tuition.

If you earn $80K a year and your child’s college tuition is $20K, you get nothing in terms of need-based financial aid. And that 25% doesn’t count room & board, books, etc.

So, it’s basically impossible for middle-class families to send their kids to college without taking out student loans. In fact, the entire higher-education system is built to force people into debt if they want to send their kids to college.

And it has a sinister underlying theme…

It’s always about the “irresponsible student” or the “hairdresser subprime loan borrower” who “should have known better”.

They should have known that housing prices eventually fall, even though “everyone” in the mainstream, including the chairman of the Federal Reserve said they would not. They should have read carefully the fine print instead of trusting the fancy loan officer.

And everyone knows that without a college education you will not succeed, so “borrow whatever it takes”. You’ll pay it back.

Two decades of further tweaks to the bankruptcy code ensued until 2005, when Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. This Act made it so that no student loan — federal or private — could be discharged in bankruptcy unless the borrower can prove repaying the loan would cause “undue hardship,” a condition that is incredibly difficult to demonstrate unless the person has a severe disability. It essentially lumps student loan debt in with child support and criminal fines — other types of debt that can’t be discharged.

But our system is perfectly fine going after the invisible – those without a political voice – whether the poor or elderly who get crushed by inflation, or the 18 year olds who get out with $100K in debt and an art appreciation degree.

But the price of education should tell an even deeper story….

Quality of Education Suffers

The compounding irony is that not only does the price of education go up, but the quality goes down. Institutions become entrenched. There is little incentive evolve, tenure runs rampant. And the curriculum declines.

Higher education becomes both a commodity and a spectacle. Not a vehicle for progress or a reflection of the needs of the culture or the economy.

That may not be hyperinflation…but it’s very sad. College education quality has not risen proportionately with price.

Student loan debt is out of control by any and all measures. It’s a debacle that benefits no one besides the banker and the servicers. The schools lose by making themselves unviable in the long run.

The students come away with non-dischargeable student loans and enter a world without, for the most part, having any marketable skills.

Sadly, the student loans are just one more politically untouchable issue providing yet another source of highly flammable fuel that will result in more gasoline when the Fed is called in.

1. To receive early notification for new articles, click here. 

2. Or to view all of our products and services, click here. 

3. Or...support the cause, and buy me a cold one! 

By Dr. Jeff Lewis

    Dr. Jeffrey Lewis, in addition to running a busy medical practice, is the editor of Silver-Coin-Investor.com

    Copyright © 2015 Dr. Jeff Lewis- 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.

Dr. Jeff Lewis Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules