Why Student Debt will be the Next Sub-prime Mortgage Crisis.

Inaction at the University and Federal Level Set Students Up to Fail.

Trucks, cheese burgers, and silicone breast implants, Americans always prefer it bigger. Student debt is no exception.

Now, I’m no prude to any of these things. Hell—Hardee’s uses the former three in their ad campaigns, as if you and I are supposed to get a patriotic hard-on and go and buy their greasy beef.

I was, however, not as well versed in the latter of the monstrosities—student debt.

I knew I had it, that it’d likely haunt me forever, and that I picked it up at an adult playground rife with bad decision making. Sounds a lot like spouse you don’t remember picking up during a fast weekend in Vegas.

Until this month, the last of my undergraduate career, I had no idea the extent of my debt. I am not alone in this ignorance. Many students in my situation lack any financially awareness.

Can you really blame us though? The average college student doesn’t deal in the thousands. We deal in slices of pizza and our main concern is getting underclassmen to pay us back when we buy them a $13 fifth of flavored vodka. Good luck talking to us about long-term financial consequences of unsubsidized loans.

Like I said though, I had no grasp on the size of my debt. That changed when I received an email last week regarding a mandated exit interview. It stated that without completing the federally required interview, that my ability to graduate would be compromised.

Well of course I wasn’t going to let my last couple years of substandard work go to waste. I followed the link in the email and signed in. The first thing I saw: “Payment due: $3,600.” Heavy.

And then I saw that the payment was due yesterday. Cue my heightened anxiety, furious clicking, and terrible thoughts.

After a quick google search of “kidney auction prices,” I came to my senses. I looked around the webpage for any resources to help students with debt repayment, but the resources page just took me back to the login page. Either the page was built by grifters, idiots, or a malicious combination of both.

With a knot in my stomach, I did what any other sane person would do, and called home. My mother, who had previously worked in the financial aid office of another institution, told me to settle down. All of my loans come with some grace period, a period after graduation in which, I don’t have to make any payments. Most loans come with them, the idea being that the borrower can spend time finding a job.

But then, what was the deal with the late payment notice? Was it a computer glitch, perhaps a miscalculation, or, because collection agencies would scalp people given the legal green light, maybe the company was trying to scare me. Well, it worked.

Relatively speaking, my ’96 Buick only cost me $1,800 when I bought it this summer. Now, a bill for twice that just dumped in my lap, seemingly from out of nowhere. Luckily, I have a parent who told me what to do.

lola

Thar she blows. Featuring El Goldman in the middle of North Carolina. PC:Lisa

 

But, what about students from low-income homes who may also be the first in their family to go to school? A 2015 report released by the Brookings Institute on student loans, found that these students were the most likely to default on their debt or become delinquent. Would they fall for this digital shakedown tactic? Without the wherewithal to know better, there’s a very good chance they might. It’s not like students are well advised on actions they can take with their loans while at school.

“I’ve never had a personal one-on-one meeting with my advisor to talk about my loans,” said Jodie Martin, a Clark University senior.

“Nobody has reached out to me either,” echoed Ethan Mitnik, another Clark senior. “I didn’t even know how much I owed prior to the exit interview.”

No Escaping From Big Debt

Most students are just told to get a good paying job when they graduate—a feat easier said than done. Good paying jobs are becoming increasingly difficult to come by and none are guaranteed after graduation, unless your dad owns a company. But, if that’s the case, you probably came to school to drink and play division three lacrosse.

The real job market is a wasteland where hungry graduates claw for salvation. A place where experience is required for entry-level positions. A land of low-wages and where who you know matters exponentially more than your grade in organic chemistry.

Hypothetically speaking, let’s say you get a job. You make your payments, but just barely. What happens if you get laid off or automation takes your job? Your loan payments don’t go away. You’ll become delinquent and then the collection agencies will catch wind of you. At that point you may as well be bloody chum floating in open water.

If your financial situation becomes dire enough after a collection agency shakes you down, you can declare bankruptcy to wipe away all your debts right? Wrong. Student debt isn’t forgiven that easily.

Knowledge isn’t tangible, so the debt you accrue in the classroom classifies as uncollateralized. Lenders take on more risk this way because they can’t just hire a company to lobotomize you and repossess that education—yet. As a result, student debt follows you even after bankruptcy.

The only way to be granted forgiveness from student loans is by proving to your judge that continued payments will cause you “undue hardship.” But, undue hardship is all most students and recent grads already live with. Isn’t eating Top Ramen and sleeping in our own vomit not a hardship already?

The bankruptcy exemption makes sense from the lenders point-of-view. You’d be thrilled to issue loans if you knew you could keep everyone including the Department of Education on the hook.

From a human standpoint though, these tough restrictions are doing more harm than good. According to a New York Federal Reserve report on student debt, at the end of 2015, official student debt delinquency rates topped 11 percent. That translates to 4.5 million Americans with the inability to consistently pay back their student loans.

In the same report, the Fed said that U.S. student loan debt had outpaced all other forms of consumer debt totaling $1.23 trillion at the end of 2015. That’s enough to completely bail out Puerto Rico 17 times. Given interest rates, the structure of student debt, and inaction on the part of governmental officials, expect that $1.23T to continue growing.

Feature 1

Source: New York Federal Reserve. Everything else took a dip after 08. Everything except student debt.

The New Bubble

This trend should raise more alarms. Remember the last time a significant portion of the population defaulted on debts? You should, it happened in late 2008 and is now referred to as the Great Recession. To stop society from coming apart at the seams, two presidents from both parties spent hundreds of billions saving our lame economy from the glue factory.

If you believe just about any media outlet, we’re still recovering from that crash. So what would a second do to us? I have an idea—ever seen Mad Max Fury Road?

The main difference between the housing bubble and this is the product. Instead of mortgage-backed securities, we would be dealing in student loan assets based securities (SLABS). If the upward trend of tuition prices and average debt per borrower continues coupled with the fact that, increasingly, graduates are having trouble finding jobs, expect another crash. This time though, creditors wouldn’t see a dime thanks to that whole “uncollateralized debt” aspect.

It’s just not sustainable. Big debt, high delinquency rates, and bankruptcy exemptions for student loan lenders. If we don’t address the cost of higher education, attending college will become impossible unless you’re born into the top tax bracket.

As a nation we really should address this problem and our education system as a whole. If we just keep accepting the status quo and SLABS go belly up—well, let’s just say I’ll be stocking up mind-altering substances and boarding up my windows. I’ll be damned if collection agencies and burned creditors start getting bold and repossessing gray matter.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s