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Student Loans Swallowing America

July 16, 2012 by  

Student Loans Swallowing America
PHOTOS.COM
Student loan debt is not a problem only for young Americans.

For years, young people in America have been told that if they fail to get a good college education, they will miss out on many of the opportunities given to their more-educated peers. There’s another thing they may be missing out on: about $1 trillion in Federal student loan debt.

A report released last week by Barclays indicates that the official estimates of the future burden of student loan debt have been understated to the tune of at least $225 billion. The Federal Reserve estimated the total to be at least $870 billion as of 2011.

Here are some points Barclays makes about the debt, referencing the Federal Reserve and the National Center for Education Statistics:

  • The growth of federal student loans outstanding in the past decade ($583 billion) is larger than the size of the government’s TARP bailout package ($431 billion).
  • Borrowers who graduated had a default rate of 3.7 percent in 2009, while those who dropped out had a default rate of 16.8 percent, and … a larger portion of the student loan debt is falling on those who will not receive the financial benefits of earning a degree.
  • Barely half of all borrowers were making payments as of the third quarter of 2011; 47 percent were either still in school or in deferral, forbearance or grace periods.
  • Given the weak labor market and increasing dropout rates, there is little reason to think that … future delinquency rates will be lower than the current national average (14 percent for all borrowers).
  • Currently, 15.5 percent of the outstanding student loan balance is held by borrowers 50 and older, and 4.2 percent is held by those 60 and older; and these age cohorts hold an even larger share (16.9 percent and 4.8 percent respectively) of the total past-due student loan balance. The average debt burden for borrowers over age 60 is $18,250.
  • The median education debt belonging to households in which the head of the household is retired increased by 62 percent between 2007 and 2009.
  • When combined with forecast growth in issuance, we estimate that the government will lose around $65 [billion] on student loans in the coming decade from subsidy rate re-estimates alone.
  • Between now and 2020, we think that IBR [the new income-based repayment programs] will cost the government a total of $190 [billion, due to write-offs].

By the looks of these statistics, it may be a ripe time for American students to better weigh the risks of incurring large sums of debt with the promise of better future employment to offset the investment cost.

Sam Rolley

Staff writer Sam Rolley began a career in journalism working for a small town newspaper while seeking a B.A. in English. After learning about many of the biases present in most modern newsrooms, Rolley became determined to find a position in journalism that would allow him to combat the unsavory image that the news industry has gained. He is dedicated to seeking the truth and exposing the lies disseminated by the mainstream media at the behest of their corporate masters, special interest groups and information gatekeepers.

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  • Bernie

    There are many hidden issues with student loans that don’t make the news. A person can start out with a modest amount of debt but have the total balloon when deferred interest, outrageous collection fees and penalties are added to the principle of the loan. In the current job market, it is not uncommon for graduates to be forced to defer payments for quite some time which results in a loan principle many times the initial amount borrowed. No other lender can add interest to principle and can attach retirement and other wages without a court hearing. Most other debts are dischargeable in bankruptcy, not so with student loans. The interest rates charged are too high, and many believe that the government shouldn’t be making money on student loans which, in theory, will allow a student to earn more and pay more taxes during his/her lifetime.

  • http://peresonallibertydigest.. gottaplenty

    Another thing the govt. is involved in. You know before you get involved its not there to help you.

  • http://www.PappyMart.com John David Hanna

    Well, you can discharge a massive amount of loan debt just by getting a government job.
    Those jobs are given highest priority to those with protected status, if someone sponsors them already with a government job – like their parents or uncles or aunts.
    The loans are paid off because those with government jobs are so poorly paid with lousy benefits so a tax payer wouldn’t want it anyway.
    You know, those tax payers jobs like movie star they always cite as examples for comparison.
    Can you say Communism anyone?

    • DavidO

      I have to disagree with you about government jobs having such bad pay and benefits, federal employees, on average make as much as double what a private sector employee does performing the same job. The California DOC used to run recruiting ads (before the state ran out of money) showing how a prison guard there would be making more money and have better benefits than many doctors. The USPS is another example, they are very well compensated, probably too well which is one reason why they’re constantly asking for rate increases and or closing post offices and offering fewer services. Small towns like the one I work for do fit into your paradigm, but city employees don’t make any more with a degree than without one and no city employees I know of have received a reduction in student loans because they went to work for the city.

      I have a soon to be 17 y/o son whose a junior in high school this year and I have made it very clear to him that if he chooses to go to college he’ll have to do it on his own. Tuition at any of the universities in my state cost more per semester than I gross in a year. My sister was a professor at a local university (for 12 years) and quit to make nearly twice as much teaching elementary school because she has a PhD. In my state the K-12 teachers union has a LOT more political clout than higher education does. Her teaching contract was not renewed after her second year so she is no longer in education at all, but working in the private sector for less pay and benefits.

  • momo

    Another problem is the skyrocketing cost of education, hell college presidents make what a bad hitting major league second baseman makes! Seriously, when I went to school in the late 70′s and early 80′s it cost me six hundred bucks for the whole year, excluding books. Today it costs my son (read me) about seven thousand five hundred a year for the same school. Half the costs are fees they’ve dreamed up to pay professor’s salaries. I’m all for people getting paid, but let’s be reasonable.

  • http://loboviejo.wordpress.com loboviejo

    Sam–

    Federal loans, whether housing, small business or education are a deliberate means of controlling the populace. In the middle ages the practice of villeinage–or debt servitude–was a means of enforcling the will of the great landholders and monarchs on the “villeins” who were cosidered a lower form of life.

    I discussed this briefly in The New Villienage at http://loboviejo.com/2012/04/01/the-new-villienage/ The warning to the government is basically that villeinage was the prime cause of the Peasants’ Revolt of 1381 as well as numerous other revolts.

    It is not merely the students duped into the debt who are affected. And I could write at length about the uselessness of pursuing degrees rather than education. But the institutions are getting ready for a shake out. Further, the “benevolent” government which controls people’s activities will come to the point of collapse on its own–no armed rebellion required.

  • Liberterian

    A great part of the problem is that education has become a for profit industry in which schools, and book publishers and sellers, are raking in the cash. There is no way for the common person to afford to send their children to school without someone taking a loan and hawking their life to the collector man, be it the government or a private loan firm.
    Text book business has become a burgeoning industry, renewing and revising every year or two so that students can’t use previous editions and have to buy these expensive text books. Even when sold used are near new price. Few of us are born to wealth and have our education paid for by dad.
    We need to think what is more important, killing our children in costly political wars, on credit, or providing education for them. Fighting a losing so called drug war, that makes a lot of rich public servants, lawyers and judges and drug lords, at an tremendous cost to the economy, and in lives, also to feed the monster criminal prison complex.

  • Steve

    Many would be far better off to skip their socialist training i.e. college & instead go to a trade school where they could actually learn a useful skill.

  • Richard Murray

    Our beloved leader will forgive these loans by the means of another executive order. It will bring in millions of votes and cost billions in our dollars. But Barry could care less if it gives him four more years.

  • Jim K

    I feel so left out, I worked my way through college.

    • texastwin827

      So did both my daughters because, as a divorced mom, I didn’t make enough to pay for college. Both of my two youngest daughters (the older decided not to go to college) worked full time jobs and went to school, sometimes they went parttime; sometimes they took a full load.

      Both utilized student loans, HOWEVER, they also set up payments and made them while they were going to school…now that’s a novel idea, isn’t it?

  • http://yahoo Bill

    The principle behind the interest is for the money when returned to still have same value as when loaned ie. ( inflation ) Professor are very over paid, most not even teach they have senior students doing it to earn credit, and many are simply professional students who also recieve housing and a salary very sweet for that person, but someone has to pay for it. Currently a great number of loands are not payed simply becuase they choose not to. In law enforcement I have been involved in aided Federal Marshalls seizing property form those who have not paid they are Doctors Lawyers dentists nurse’s. all good paying jobs that should pay loan sback to help future students, but since they would rather party than pay what they owe the rest of us suffer paying for loans we did not apply for, and many of us are barely making it, and skip meals so these high incomes can buy party boats and beamers

  • runstowin

    Adults who enter into contracts have an obligation to perform their proper due diligence before signing the line. If one does not like the terms of the agreement, or the possible negative consequences of the contract, simply do not sign the line. Once a person makes the legally binding agreement, they need to shut their mouth and make good on their agreemnt. There are too many whinnie mis-educated sponges out there who want others to pick up the tab for their stupid actions. Maybe there is a need for debtors prison after all.

  • CHRISTOPHER ALLEN HORTON

    WHY DO PEOPLE WHO RECEIVE STUDENT LOANS WANT TO GO TO PRESTIGIOUS UNIVERSITIES, INSTEAD OF, LOCAL STATE UNIVERSITIES? THERE IS A CONNECTION BETWEEN STUDENT-LOAN DEBT AND OUTRAGEOUSLY-HIGH-TUITION RATES.

    MANY PEOPLE SEEM TO NOT UNDERSTAND WHAT HAPPENS TO A LOT OF GRADUATES FROM PRESTIGIOUS UNIVERSITIES. AS AN UNDERGRADUATE AT, Arkansas State University, I HAD PROFESSORS WITH PH.Ds FROM Yale, Brown, ETC.

    IN OTHER WORDS, YOU DO NOT HAVE TO GO TO Yale University TO GET A Yale University-EDUCATION. STATE UNIVERSITIES ARE QUALITY INSTITUTIONS.

    CHRISTOPHER ALLEN HORTON

  • Jake Goode

    Student debt is not a bad thing. I have friends from Germany who pay $50 EURO per semester, and they stay in school until their 30s, hopping from major to major, only to end up working in something completely unrelated. Knowing that you will have to pay back the cost of your education makes you a) more accountable when choosing a major and finishing on time and b) more likely to go to work immediately after (any work!) than if you owed no money at all. Free university education would be like welfare for the lazy educated class (yes, this exists; professional students are extremely unproductive!)
    The bad thing is, education has turned into a commodity and a big business, where you must take mandatory classes (that students don’t care about and take just to jump through a hoop) (I had to take swimming in University, at a cost of $1000 USD per credit hour! most expensive swimming lesson ever!) in the name of becoming ‘well rounded’. And after 4 years of college and meaningless exercises of futility (actually, all humanity degrees, whether undergraduate or graduate, is just a matter of writing papers), students graduate thinking that they are worth something more than when they came in. This myth must be popped; chances are, all you did was read some books, listen to some lectures, and write some papers. How that improved you as a worker and has entitled you to command higher wages on the market is not certain yet. As in the movie Good Will Hunting, you could have gotten that education in $10 in library late fines.
    As commodities, education has become branded, with high quality brands and other brands. The high quality brands are the Ivy leagues, where you may or may not have access to better teachers, but at least your degree signals something special. But as with all brand names, you pay for the brand!

    • CHRISTOPHER ALLEN HORTON

      “Jake Goode,”

      WHY DID YOU PAY $1,000 PER CREDIT-HOUR, WHEN YOU COULD HAVE PAID ABOUT $80-95 PER CREDIT-HOUR AT A STATE UNIVERSITY? OF COURSE, IF YOU SPENT YOUR OWN DIME THAT IS FINE. BUT, MANY PEOPLE WITH LOANS ARE WASTING FUNDS BY PAYING HIGH TUITION. STUDENT LOANS WOULD BE EASIER TO PAY BACK IF STUDENTS DID NOT TRY TO BE “HIGH-OFF THE HOG.”

      CHRISTOPHER ALLEN HORTON

  • http://gillysrooms.blogspot.com GILLYSROOMS IN AUSTRALIA

    For those economically interested….Hes what our Australian Reserve Bank meeting minutes information provided about ours and your economy…

    Minutes of the Monetary Policy Meeting of the Reserve Bank Board
    Sydney – 3 July 2012

    ——————————————————————————–

    Members Present
    Glenn Stevens (Chairman and Governor), Philip Lowe (Deputy Governor), Martin Parkinson PSM (Secretary to the Treasury), John Akehurst, Roger Corbett AO, John Edwards, Heather Ridout, Catherine Tanna

    Members granted leave of absence to Jillian Broadbent AO in terms of section 18A of the Reserve Bank Act 1959.

    Others Present
    Guy Debelle (Assistant Governor, Financial Markets), Christopher Kent (Assistant Governor, Economic), Jonathan Kearns (Head, Economic Analysis Department), Anthony Dickman (Secretary), Peter Stebbing (Deputy Secretary)

    International Economic Conditions
    Members were briefed on data received over the month, which suggested that the recovery in the United States had lost some momentum and activity in Europe had declined again in the June quarter. In contrast, developments had been more positive for the Chinese economy following some weaker data released the previous month. The election outcome in Greece and announcements regarding recapitalisation of Spanish banks provided some reprieve from mounting fears of a near-term escalation of the crisis in Europe. Nevertheless, members noted that the possibility that the situation in Europe could deteriorate again and spill over to other economies remained a substantial risk.

    With the recovery in the United States appearing to have lost some momentum, the Federal Reserve had revised down its forecasts for growth. Payroll employment growth had slowed and the unemployment rate had ticked up again. Consumption growth had also slowed, with retail sales only a little higher in recent months and consumer sentiment having fallen in June. A more positive development was that there were further signs of stabilisation in the housing market; house prices were no longer falling and activity was trending up modestly, albeit from historically low levels.

    Chinese exports continued to grow after softness through most of 2011. Members noted that a number of indicators suggested that growth in domestic activity in China may not be slowing much further, although the outlook remained uncertain. The property market had shown tentative signs of stabilising, with total sales volumes picking up. As inflation had eased further, authorities had shown their willingness to provide some additional support to economic activity, including through reductions in benchmark lending interest rates.

    Growth in economic activity in the rest of east Asia had been subdued after recovering from the supply disruptions last year. Industrial production had been broadly unchanged since January, and outside of Japan there were signs that growth in domestic demand had slowed a little. Members observed that exports had also been affected by lower demand from Europe and the United States. In Japan, indicators of domestic demand had generally been a little stronger in recent months and concerns about electricity shortages over the summer had been alleviated somewhat by the scheduled re-opening of two nuclear reactors.

    While commodity prices overall had been broadly unchanged over the past month, earlier declines meant that Australia’s terms of trade were estimated to have declined a little further in the June quarter, although they remained at historically high levels. Iron ore prices were little changed over the past month, after falling sharply in May. Reflecting weaker global demand, prices for oil and thermal coal had fallen substantially. In contrast, spot prices for coking coal had increased, in part owing to supply concerns related to industrial action in Australia.

    Domestic Economic Conditions
    Members noted that data released over the past month suggested that the domestic economy had been growing more strongly since the middle of 2011 than had previously been indicated. According to the national accounts, which were released the day after the June Board meeting, GDP grew by 1.3 per cent in the March quarter and by 4.3 per cent over the year, with the annual outcome boosted by the recovery in coal exports following the floods in early 2011. The stronger-than-expected annual outcome also reflected an upward revision to growth in the second half of 2011, to around trend pace. Business investment and consumption both grew faster than expected in the March quarter. However, consumer and business sentiment and other timely indicators of activity suggested that the economy was likely to record slower growth in the June quarter.

    The divergence between the resource and non-resource economies was apparent in the national accounts and continued to be reflected in business surveys, with conditions in mining and transport well above average, while conditions in construction, retail trade and manufacturing were well below average. Members, however, noted that according to one major business survey, the dispersion of business conditions across industries was well within historical norms.

    Although survey measures of overall business conditions remained somewhat below average levels, members observed that the pace of business credit had picked up noticeably over the past four months after a long period of weakness. In response to the recent reductions in the cash rate, business lending rates had fallen to below average levels.

    Household consumption grew strongly over the year to the March quarter, across both goods and services. The strength in goods consumption was somewhat at odds with a range of partial indicators and the Bank’s retail liaison over the same period, though more recent liaison had a stronger tone. One possibility discussed by members was that discounting had increased sales volumes but this meant that the growth in the value of sales had been modest. Members were informed that, despite weak consumer sentiment in recent months, recent data suggested that some of the strength in consumption observed earlier in the year had continued into the June quarter.

    Members noted that household incomes continued to be supported by relatively favourable conditions in the labour market. The unemployment rate remained a little above 5 per cent in May, and the ratio of employment to population had picked up since the beginning of the year. The ABS had recently indicated that it had had difficulties deriving accurate real-time estimates of the working-age population used to calculate employment estimates from the labour force survey. Because of this, the published estimates appeared to be slightly understating employment growth. Forward-looking indicators and liaison implied modest employment growth over coming months.

    In contrast, indicators suggested that the housing market remained subdued. Dwelling activity was likely to have fallen further in recent months and indicators generally suggested that activity would remain relatively weak in the near term. Notwithstanding an apparent tick-up in June, dwelling prices were around 6 per cent lower than in early 2011, with the largest falls in Melbourne and Brisbane. Household credit continued to grow at around the pace of the past year (broadly in line with incomes). Interest rates on housing loans were around 50 basis points below their 15-year average.

    Financial Markets
    Members began their discussion of financial markets by noting that the resolution of uncertainties surrounding the Greek election and the long-awaited Moody’s downgrade of global banks had helped ease some of the recent tensions in financial markets. While the announcement by Spain of a request for support for the banking sector had done little to alleviate concerns about Spain’s fiscal problems and the plight of the euro area more generally, the subsequent announcement by European leaders at the end of June about plans to establish a separate pan-European banking supervisor did substantially boost market sentiment, at least for a time. Members noted that the creation of such a supervisor might lead to financing being provided by the European Stability Mechanism directly to European banks, rather than through sovereign governments, and thereby avoid increasing the leverage of individual sovereigns. In response to recent developments, Spanish 10-year government bond yields fell to around 6.4 per cent at the end of June, after having reached a euro-era high of more than 7 per cent during the month.

    The European developments also caused major equity markets to rise noticeably and government bond yields in the major advanced economies to increase from their historic lows. In Australia, members noted that bond yields had also increased from their historic lows, reflecting both offshore developments as well as stronger domestic economic data. Foreign demand for Australian bonds continued to rise, with foreign investors holding slightly more than three-quarters of Commonwealth Government bonds on issue at the end of March.

    Corporate bond spreads in the United States and Europe had generally narrowed a little in June, although issuance in Europe had been very low, with little unsecured issuance by banks in particular. Moody’s downgraded the ratings of 15 global banks by between one and three notches during the month, with one bank downgraded by three notches. This outcome was, at the margin, a little better than feared and therefore did not have a significant effect on the market.

    In foreign exchange markets, members noted that, despite the situation in Europe, the euro had appreciated slightly against the US dollar. There had, however, been substantial outflows from the euro to the Swiss franc, particularly in May, which had led the Swiss National Bank to make large purchases of foreign exchange to defend its ceiling of 1.20 Swiss francs to the euro. Similarly, the Japanese authorities had reiterated their willingness to intervene in the foreign exchange market to limit upward pressure on the yen. The Australian dollar appreciated over the month, bolstered by positive domestic economic data and further buying of Australian government debt by offshore investors.

    The difficulties in Europe, together with the run of generally weaker-than-expected global economic data, had led the major central banks to take a number of policy actions over the past month to provide further monetary stimulus. The Federal Reserve had announced a continuation of its Treasury securities purchase program. In China, the People’s Bank of China had cut lending rates. The Bank of England, together with the UK Treasury, had announced a plan to provide support to finance for businesses.

    In Australia, competition for bank deposits remained strong, with the deposit share of bank funding rising a little further to 53 per cent. The rising share of deposits had allowed the Australian banks to continue to be selective about accessing global wholesale funding markets. Bank paper remained well supported in secondary markets and the banks were able to access market funding as required, with reasonable levels of both secured and unsecured issuance over the month. Overall, there had been no sign of dislocation in Australian financial markets.

    Following the June cash rate announcement, most lenders reduced their standard variable housing rates by around 20 basis points. As a result, the average interest rate on outstanding housing loans was about 60 basis points below the post-1996 average, while rates on small and large business loans were 50 and 75 basis points lower.

    Members noted that financial markets were pricing in a small probability of a further 25 basis point reduction at the present meeting, with the cash rate now expected to be reduced by less over the rest of the year than had previously been anticipated.

    Considerations for Monetary Policy
    Members observed that recent data had pointed to weaker prospects for global growth: exports from east Asia (excluding China) remained flat over the past year; the pace of the recovery had slowed in the United States; and activity in Europe appeared to have declined further in the June quarter. On a more positive note, data for May suggested that growth in the Chinese economy was not slowing to the extent that had been suggested by the weak data for April, and policies had been eased further. Members also noted that markets had viewed the recent announcements by European leaders more favourably.

    Domestically, members noted that the March quarter national accounts data implied that the economy had had more momentum since mid 2011 than had previously been indicated. Recent data suggested that growth had probably slowed a little from that reported for the first quarter to be around trend pace. Mining investment had been a little stronger than had been expected, and members noted that growth in much of the non-resource economy had remained modest, particularly in those industries under pressure from the high exchange rate and the weakness in the housing sector. The measured strength of consumption growth in the March quarter was at odds with a number of partial indicators for that period, but consumption was being supported by a favourable labour market and recent liaison had a firmer tone.

    Members noted that indications were that inflationary pressures overall remained contained, notwithstanding the evidence of somewhat stronger economic growth over the past few quarters. In part, this was likely to reflect the still high level of the exchange rate and a softening in global prices, in particular for oil and other commodities. The weak conditions in parts of the economy for most of the past year – such as retailing and housing – also appeared to have played a role. Members observed that there was also tentative evidence that productivity growth had picked up over this period.

    Members continued to view it as appropriate for interest rates to be a little below average given evidence of slower global growth and the low rate of inflation in Australia. But with a material easing in monetary policy having occurred over the preceding six months or so, and with recent signs that the domestic economy had a little more momentum than had earlier been indicated, members saw no need for any further adjustment to the cash rate at this meeting.

    The Decision
    The Board decided to leave the cash rate unchanged at 3.50 per cent.

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