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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

October 19, 2011 at 10:21 AM

The next bubble: Student loans

The amount of student loans made last year exceeded $100 billion for the first time and is on track to cross a total of $1 trillion total loans outstanding. According to the New York Fed, student-loan delinquencies are up 10.6 percent so far this year, including 7 percent in King County, 10.5 percent in Pierce and 8.6 percent in Snohomish. A USA Today report states that “students are borrowing twice what they did a decade ago after adjusting for inflation” and in the past five years total outstanding debt has doubled. That compares with falling debt on loans for houses and credit cards.

Reuter’s Felix Salmon disputes USA Today’s numbers, and has some interesting analysis here. Even so, we have an unsustainable situation. Graduates are starting deep in the hole, and aside from a few star professions it will take them years, decades, to dig out. This is another drag on the economy, another impediment to risk-taking and mobility of talent. And one has to ask: When will the major defaults begin and which institutions are most exposed, along with the taxpayers.

Yep, some of these loans have been sliced, diced, bundled and sold to investors just as happened with subprime housing loans. Publicly traded Sallie Mae, a Fortune 500 outfit, bills itself as “the nation’s No. 1 financial services company specializing in education” with $238 billion in education loans.

Many things are wrong here: the rising cost of higher education, which remains the ticket to a better economic future; declining state general fund support for universities (“Your Tax Cuts at Work”); the rise of sometimes dodgy for-profit “universities” that suck in huge amounts of federal loans but also have astoundingly high dropout rates and don’t really provide a university education. One thing is sure: It can’t go on for long. And a very angry generation of graduates awaits.

And Don’t Miss: Pipeline profiteering || David Cay Johnston/Reuters

Today’s Econ Haiku:

Citi settlement

Less than a slap on the wrist

While homeowners twist

Comments | More in Student loans

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