Are you in college and owe student loans? Read this article written by Forbes magazine and watch the link to hear about the solution Just Google the words student loan debt crisis and the fourteen-million hits will convince you that this is a hot topic. Indeed, a number of pundits are predicting what would basically amount to Subprime II (see for example Next Subprime Crisis Expands As Student Loan Defaults Hit $146 Billion, Highest Default Rate Level Since 1995 or This Is The Next Sub-Prime Crisis: Jim Rickards). But, despite its search-engine popularity and the associated journalistic sensationalism, its not at all evident that we are witnessing the development of another speculative bubble. In fact, once you break down the facts, it turns out that the parallels are relatively few. That said, however, student debt loads are a problem, and a serious one. Not only do they create a significant drag on short-term economic activity, but they will stunt our long-term growth as well. And the situation is deteriorating. The disease is real, its just more subtle and insidious than a financial market boom and bust. There are several reasons to believe that are we unlikely to see a 2007-8 style catastrophic collapse (The student loan debt crisis in perspective). To begin, total student debt is estimated to be around $1 trillion (the average individual owes about $24,000; Student Loan Debt by Age Group). This is roughly 1/10th the size of the mortgage debt that played the key role in triggering The Great Recession. Furthermore, delinquency rates on student loans are currently 10%, which is not significantly different from other forms of consumer debt. And the government supports 95% of student loans, meaning that the private sector is protected from direct economic fallout in a way that was not true in the subprime crisis. Last and perhaps most important, we dont have financial institutions enthusiastically creating assets derived from pools of student loans (especially the riskiest ones) that are then traded on the stock market, thus making their value vulnerable to sudden and violent changes of opinion. But that doesnt mean that there arent dangers. First, there is broad agreement that the delinquency rate mentioned above is understated because of the means by which repayment can be deferred (Grading Student Loans). To make matters worse, the most recent graduates will have faced the highest costs and will be emerging into what continues to be a very poor job market. We therefore have every reason to believe that defaults are not only understated, but they will increase. Furthermore, student debt is particularly difficult to have forgiven even in bankruptcy so that graduates who find themselves un- or under-employed cannot expect any relief. And college does not appear to be getting any cheaper. While the reasons for skyrocketing tuition vary, the phenomenon itself is undeniable (for an excellent, if brief, discussion, see: How to Get College Tuition Under Control). What this means is that we are spawning a generation whose debt loads are already so high that they will be forced to forego the consumption necessary to create demand and employment for the rest of us--and consumers are the true job creators. We need them to spend the money that makes entrepreneurial activity profitable, but what sort of expenditures can we expect from a recent graduate who already faces the equivalent of a house payment?! There is already evidence that this is having an impact (Young Student Loan Borrowers Retreat from Housing and Auto Markets). This is bad news for all of us. Of course, one could rightly argue that no one forced them to go to college. They freely chose to extend their education beyond high-school leaving age and take on all this debt. But, it isnt as if they are taking out these loans to buy big-screen TVs or take Caribbean cruises. They are trying to increase what economists call human capital. They want to acquire new skills, learn new ways of thinking, and to develop specializations in particular areas of study. In short, they want to better themselves. And, when they do that, we all gain because we are the beneficiaries of the fact that they are more productive citizens, better informed voters, etc. I suspect that I dont need to convince anyone of this. The plague of student debt is, therefore, likely both to lower GDP growth as it acts as a drag on the spending of those who were willing to take the plunge and reduce national human capital formation because of those who were not. It is a lose-lose proposition where everyone in America suffers--well, almost everyone. . . Shockingly, it appears that one of the winners is the US federal government. Numerous recent articles have bemoaned the fact that they are set to earn a profit from student loans not only this year, but potentially into 2024 (Student loan profits to continue at least until 2024). Furthermore, the interest rates are likely to climb (Feds expected to hike student loan interest rates July 1).This is insane. Not only can a sovereign nation issuing its own currency can never go bankrupt (see It Is Impossible For The US To Default), but one of the most useful things the pattern of government spending and taxation can do is to encourage particular activities. If wed like people to give money to charity, we can offer a tax break for donations; if we want people to own homes, we can let them write off mortgage interest; if we want them to raise a family, we can give deductions for children, etc. We can make socially costly behaviors more expensive (smoking and drinking, for example) and socially useful ones cheaper (installing solar panels or buying a fuel-efficient car). Surely college educations fall into the latter category. They arent video game systems. If everyone who would like to own an X Box or who would be a particularly good HALO 3 player cant afford one, its a shame but its not a national problem. It makes perfect sense for an unregulated market system to determine who does (and does not) get to have one. On the other hand, we are all hurt if an individual who would make a great teacher, engineer, or accountant is prevented from developing those skills. We are hurt, too, if the cost of their education is such that those who do take the chance find themselves weighed down by debt for years to come. This is all the more ridiculous when the primary funding agency does not need the revenue. Im not saying that college should be free and I know that tuition is like the sticker price on a car--hardly anyone really pays the full amount. I further understand that the problem is not just the loans, but the skyrocketing costs they finance and this is surely something that deserves closer attention. All that said, however, if there were ever a place where the government should be doing more to alter the incentive structure that exists in the economy, it is here. Who is more deserving of a bailout: the banks and financial institutions whose actions created the subprime crisis or the young Americans who want to spend another four years in school so that they can become writers, engineers, entrepreneurs, teachers, software designers, nurses, architects, 2nd lieutenants, police detectives, etc., etc., etc.? After all, education is not a cost, its an investment. NOTE: I hope the reader doesnt come away with the impression that I believe that the only way a person can better herself is by going to college. Nothing could be further from the truth. Neither of my parents have a college degree and I think that one of the problems in our country is that we seriously undervalue the potential contributions of those who decide to go from high school into a trade, for example. But, that doesnt change the argument above, it merely suggests yet another problem that should be addressed. Forbes magazine So your wondering whats the solution? Click the link and watch how an amazing company with a ground breaking product has helped thousands of kids world wide to pay off their student loans... All you have to do is USE THE LINK ABOVE TO LEARN MORE and FILL OUT THE FORM TO GET STARTED I will call you directly after and answer any and all questions! Forbes magazine https://youtube/watch?v=p3oqfDTw71w&feature=kp
Posted on: Tue, 10 Jun 2014 23:16:48 +0000
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