“ Over the last decade or so, there’s been an absolute explosion in student loans, growing from $260 billion in 2004 to $1.31 trillion last year. So, the total

“ Over the last decade or so, there’s been an absolute explosion in student loans, growing from $260 billion in 2004 to $1.31 trillion last year. So, the total value of student loans in America today is LARGER than the total value of subprime loans at the peak of the financial bubble. And just like the subprime mortgages, many student loans are in default. According to the Fed’s most recent Household Debt and Credit Report, the student loan default rate is 11.2%, almost the same as the peak mortgage default rate in 2010. This is particularly interesting because student loans essentially have no collateral. Lenders make loans to students… but it’s not like the students have to pony up their iPhones as security. That’s what made the subprime debacle so dangerous. Millions of homes were underwater, so when borrowers didn’t pay, lenders didn’t have sufficient collateral to cover their loan exposure. With student loans, there is no collateral. Lenders have no security to recoup their loans. So when students don’t pay, someone is going to take a hit. That ‘someone’ will likely be you. That’s because hundreds of billions of dollars of these student loans are either owned or guaranteed by the United States government. So as borrowers stop making payments, it’s the taxpayer who will suffer yet another massive loss. Let’s be honest, though, there’s something seriously screwed up with this system. Young people are pushed into this system by a society that places an irrationally high value on university degrees. Kids are told for their entire lives that if they study hard to get into a good school, there will be a great career waiting for them. For many young people this turned out to be a total lie. In fact, Federal Reserve data once again show that, for at least 25% of college graduates, salaries are no higher than for people with just a high school diploma. Racking up so much debt hardly seems worth it. It seems bizarre to begin with that an 18-year old will know what s/he wants to do in life, to the point that they should take on $50,000 in debt for a piece of paper that might not even make them marketable. What did any of us really know at age 18? And how many of us could have accurately predicted our life’s path? Very few. And yet there’s an absurd amount of pressure to force young people into this system that heaps debt upon them. “ — Simon Black