Student Loan Debt Time Bomb

ozzieharrietAh, the American Dream.  Go to college, work hard, graduate, get a good job, career and then you'll be set for life with high earnings, enough money to buy a home, raise a family and retire comfortably.

Oops, rewind, this isn't the Ozzie and Harriet show, it's real life.  Did you know student debt is one of the few debts one cannot declare bankruptcy on, no matter what?  That literally you have to be in a pine box, or close to it, to have your debt forgiven?  That 53.6% of those under the age of 25 with a four year college degree or better cannot find a job?

Student loan debt is now the next great bubble, threatening the U.S. economy as the mortgage crisis did. The NACBA released a study and calls student loan debt the next financial crisis, on the level of the mortgage crisis.

  • College seniors who graduated with student loans in 2010 owed an average of $25,250, up five percent from the previous year. Borrowing has grown far more quickly for those in the 35-49 age group, with school debt burden increasing by a staggering 47 percent.
  • Students are not alone in borrowing at record rates, so too are their parents. Loans to parents for the college education of children have jumped 75 percent since the 2005-2006 academic year. Parents have an average of $34,000 in student loans and that figure rises to about $50,000 over a standard 10-year loan repayment period. An estimated 17 percent of parents whose children graduated in 2010 took out loans, up from 5.6 percent in 1992-1993.
  • Of the Class of 2005 borrowers who began repayments the year they graduated, one analysis found 25 percent became delinquent at some point and 15 percent defaulted. The Chronicle of Education puts the default rate on government loans at 20 percent.

homelessfamilyThe student debt crisis is not just the people who graduated with seemingly worthless diplomas, it's their families, parents as well who are paying the price. Parents co-signed loans, put up their homes, retirement and other assets as collateral. Literally the Consumer Financial Protection Bureau just said student loans are killing the economy.

Currently Americans owe $150 billion in private student loan debt, fueled by speculators craving for asset backed securities. Just like the subprime mortgage crisis, there were lax lending standards and by 2011 90% of these loans were co-signed by unsuspecting parents trying to help out their kids. But it's not just private loans that are a problem, just like the mortgage crisis, private loans are just the tip of the iceberg.

With student loan debt now topping U.S. credit card debt and few or no options available for distressed borrowers (including unwary parents who co-signed loans and now face the loss of nest eggs, retirement homes and other assets), America faces the very real possibility of another major economic threat on a par with the devastating home mortgage crisis, according to a new survey and report published today by the National Association of Consumer Bankruptcy Attorneys (NACBA)

We already saw 14% of all student loans are past due in 2011. Student loans are both public and private. Private student loans are about 10-15% of all student loans. Student loans are now over $1 trillion, surpassing credit cards in consumer debt.

Bloomberg law talks about the student debt crisis and interviews Congressman Steve Cohen (D-TN), who is trying to get a bill passed in Congress to allow private student loan debt be discharged. Currently private student loan debt is protected by the 2005 bankruptcy law and cannot be forgiven in most circumstances.



Cohen's bill, H.R.2028 is called the Private Student Loan Bankruptcy Fairness Act of 2011 and it's seemingly nowhere in the House of Representatives, even though the bill has 45 cosponsors. H.R. 2028 is seemingly buried in committee, the Judiciary subcommittee on Courts, Commercial and Administrative Law. There is a petition to pass this bill, as it sits dormant in the House. Notice this bill does nothing for student loans from the government.

Another thing to note is how lobbyists demand more foreign workers with businesses absolutely refusing to hire these new college grads who are Americans. It's an absolute outrage to hear claims of worker shortage when so many people, graduating from the best higher educational system in the world, the United States, are passed over and not hired. Next time you hear Americans are unskilled, contemplate how the U.S. university system is ranked highest among nations, yet U.S. businesses, corporations seemingly refuse to hire graduates who happen to be U.S. citizens.

Literally Americans are being hoodwinked into a new form of debtor's prison. The entire game is sold by a lie that higher education is the ticket to the American dream. Meanwhile businesses, corporations refuse to hire Americans and most absurdly refuse to train Americans. On the job training was standard fare for new hires. It wasn't until offshore outsourcing and manipulation of the U.S. immigration system for cheap labor did training new workers go by the wayside. Higher education has also turned into a zoo, with hyper-competitive entrance requirements and for Academicians, tenure is next to impossible. Universities have an unlimited supply of cheap labor, against through foreign guest worker Visas and literally we have a glut of PhDs in this country. Additionally, higher education costs are going through the roof and at this point one must wonder what kind of product higher education is and if it's worth the skyrocketing price tag. College costs are outrageous with a 15% increase in just the last two years. Something needs to happen to reduce the expense of getting a sheepskin.

Between 1999 and 2009, tuition at public four-year colleges rose 73 percent on average, and tuition at private nonprofit colleges jumped 34 percent. In the same period, median family income fell by about 7 percent.

These days so much real education is available on-line, why not simply have certifications and online tests, free of charge to accredit people in learning and mastering material on their own? Does one really have to go marching off to the ivory towers and sit in physical seats to certify one has become educated? What's the endgame here when America's best and the brightest are being denied opportunity, work and career? Canceling private student loans is simply a stepping stone. The reality is not only did policymakers sell our future down the river, they sold out our higher educational system along with it.


Update: There is a grassroots lobbying effort to pass H.R. 4170, a student loan debt forgiveness bill currently languishing in committee. They have a website called Forgive Student Loan Debt.



Need to hold hucksters responsible

Every US taxpayer will be on the hook for these loans when grads cannot find jobs due to all the abuses you listed (outsourcing, visas, etc.). Just like taxpayers and society in general are dealing with derivative nightmares, housing bust, and other issues our politicians helped create, ignore, and profit from.
Many colleges and grad schools, both public and private, knowingly publish fraudulent employment statistics.
Why? To draw more students in with false promises of gold at the end of the rainbow. And no doubt many politicians have interests in these schools and loan companies. What happens when students rely on "non-profit institutions of higher learning" that control access to the real stats, publish false PR, and publish false statistics? They take on massive debt loads they cannot repay and cannot find jobs to make a dent in those debts -but are blamed for not "networking" (yeah, like networking works when there are 6 people for every job or a degree makes one "overqualified"?!), or wanting to work hard enough for free in an internship. So these schools and their politicians are creating the problem with the help of law enforcement and politicians that aren't dealing with them like they would any fraud ring.
Look at law schools as merely one example. They are publishing stats saying 90%+ were employed as late as 2011 six months after graduation. Blatant lie. Also claiming MEDIAN salaries at some schools of $160,000?! Sorry, MEDIAN?! Never, never. That would assume max salaries at $160,000+ after graduation? Folks, reality is most grads for years now were unemployed or working jobs you could get after high school or college at $40,000 or less, but now saddled with debt from college and grad school. But the ABA and law schools continue to knowingly propagate the lies to draw in more sources of income/students. And when students and alum protest, the ABA and others, with no shame, say, "You should have known better!" Awesome lack of integrity.

But that debt load was taken by the students, their families, and the taxpayer (eventually). Same goes on in private tech schools, pharmacy schools, health care, engineering, IT, etc. Just look to's forums to read about all the lies every school and industry is propagating. Ignore shills like Manpower which always say there's a "worker shortage" in bought-for articles in the press or American companies simply cannot find people able to tie their own shoes or figure out 2 + 2. In the old days, we used to be ashamed of these lies and call them frauds. Now fraud is the American way of doing business, and as long as other taxpayers and innocent people are harmed, the hucksters are okay with that.

We fell for it.

My wife went to a agriculture and engineering public university. When she came home from orientation she informed me that she was going to major in philosophy. I was very taken aback. What can you do with a philosophy major?

Three years later she was accepted at a private law school. I thought, thank god, I was wrong. You can do something with philosophy that pays well.

Three years later she graduates, spends the whole summer studying for the bar exam, and passes it her first go. Now, I realize that I was wrong twice. Nobody is hiring fresh out of school young lawyers. The best job she has been able to find pays 10 dollars an hour. She also works retail selling clothing at night for 8 dollars an hour.

I love America. My family, we're very educated and working poor. The "American Dream" is dead to us. We will never be able to afford a home, a car less than 15 years old, or to properly support children. Most of it is hers, but we have nearly $200,000 in debt combined.

I had it all planned out. We would live as frugally as possible, and pay off her loans in 5 years. 40,000 a year paid back from our two incomes. Then we would be free. Current economy means that I'm making 1/3 the pay that I was in 2009. (I was laid off the summer after her first year in law school.)

I was raised with the belief that if you work hard, do what is right, and go to school you will be successful. What a lie. We totally fell for it. We're not lazy, we're not asking for free money. We want to pay for our loans. We also want the careers that we were promised, that will enable us to pay.

Will we ever get those careers? Why is my wife having to look at entry/low level banking jobs because it pays more than what she can find in the legal field? She is as licensed attorney.

They practically threw the money at her. She took that money on false pretense and false employment statistics. She thought she would have a real job and be able to pay for her education with hard work. Ha, welcome to the real world.

can relate

As a law school graduate of Class 2005, I can so relate! Your wife is lucky to have you. Many single law school graduates with no other financial support end up couch surfing.

Lawyers are a dime a dozen. I've become less marketable since becoming an attorney as I am overqualified and overeducated for employers to consider me for the types of work I used to do.

My income is nowhere near where it was before I entered law school a decade ago. I'm in default on private loans, my federal loan balance just grows each month under IBR, each year I add more past due federal income taxes, my credit is ruined, after 3 years my ex had enough and left, I have no friends, and I no longer talk to anyone in my family (they don't understand and made me feel worse). And I work my a* off since in complete desperation after not being able to find a job for almost two years, I rented an office space and started practicing. I felt I had no choice but go out on my own and I hear this same story over and over again from other new lawyers. It's brutal out there!

Student loans

A couple comments on this issue

First student loans are a scam. they are worse than credit cards, you pay and pay and pay and the balances never seem to budge much. I had paid my way until my last year of college - bit the bullet and borrowed to get it done. a relatively modest amount. My wife had a similar amount. It took us 10 years to pay them off even with paying extra and often doubling up payments. this is money we weren't using to buy a car, or a nicer house, or furniture or appliances.

I don't see loans as the problem, as much as the exploding cost of college. The satellite campus of the major big ten school I attended back in the early 80's charged me around $20 bucks a credit hour for in state tuition (I still have a lot of the paper work to prove it). i recently went back to school to freshen up my skills to hopefully make me more valuable to current employer, or more marketable if not.

Man was I in for some major sticker shock. $249/ credit hour. that is a 12 times increase! Tuition is expected to increase another 9% next year

My question is what value has been added to the education to justify a price hike way beyond any measure of inflation? I have not seen my wages increase by that much

for-profit college scam

Great read in the Village Voice on the for-profit college scammers. Not surprisingly three quarters of these schools are owned by Wall St. banks and private equity firms, no wonder our lawmakers have no interest in stopping this.

The World Needs Plumbers, Roofers, Computer Techs, etc etc Also

The problem is that unlike Europe the US sends every child into a college prep curriculum out side of a very small number that have vocational schooling available to them.

College is not the end all be all option that it is sold as.

College costs like medical costs grow disproportionately to the economy because of Federal subsidies. Making it available to all has that side effect since as with Medicaid a false bottom is created.

Just sign here and the world is your oyster = the big lie.

H.R. 4170, Studentloanforgiveness Act of 2012! A solution!

Why wasn't this information provided??? It's crucial and is a solution. There were One Million Signatures delivered by Attorney Robert Applebaum and Rep. Hansen Clarke to the Education Committee in D.C. first week in July! This is the Solution Legislation to those strapped in this debtors prison. Spread the Word, please! Not a bandaide! Join us at, (Now StudentDebtCrisis) and help us end this predatory system! Great job with this article. But, let's tell the rest of the story.

Student Loan Forgiveness Act of 2012

We listed another bill but by all means comment on other bills languishing in committee that do similar things. Here is govtrack for H.R. 4170, which gives it a 3% chance of passing.

Seems this bill will defer as well as plain forgive student debt.

The bill we mention is H.R.2028 and according to govtrack has a 1% chance of passing, even worse.

I'm updating the post to add the site at the bottom. We're a macro economics, nonpartisan site for the most part, although helping people lobby Congress for good causes, sure we can do that.

Hopeless Student Loan Debt

I am currently under extreme economic financial hardship and unable to pay the total of over $50,000 on a NYSHESC (New York State Higher Education Services Corporation) Guaranteed Student Loan from the Spring of 1984 to the Fall of 1986 while attending the SUNY Binghamton Watson School of Engineering Graduate School attempting to get a Master's Degree in Computer Science. This Guaranteed Student Loan has ruined my Life. The New York State Higher Education Services Corporation sold this Guaranteed Student Loan to the Educational Credit Management Corporation in November, 2009. In the Spring, 1984 Semester, I asked the Chairman of the SUNY Binghamton Mathematics Department, Shelemyahu Zacks, to admit me into their Undergraduate Bachelors Degree Program in Computer Science because I had a 3.60 GPA as a Part-Time non-matricuate Undergraduate at Binghamton from the Fall, 1982 to Spring, 1984 Semester; but I was unfairly denied by both Binghamton University and the New York State Higher Educational Services Corporation. One Undergraduate Computer Science College Professor named James Ryder even wrote on my last program in my very first Undergraduate Level Introduction to Computer Programming class (CS 130) in the Summer of 1982 Semester, “This is probably the best program I graded all semester and I am saying so after looking at about 150 programs. If you keep this pace up you’ll be out with a 4.0!” I still have this Final Computer Program that I wrote in Computer Science 130 in the Summer, 1982 Semester. Binghamton University Mathematics Chairman, Shelemyahu Zacks, told me that I didn’t qualify to pursue a 2nd Bachelors Degree in Computer Science at the SUNY Binghamton Mathematics because I already possessed a Bachelors Degree in General Studies Liberal Arts from Oneonta State College Of New York in 1977. I just wanted to get a Bachelor's Degree in Computer Science; but the Binghamton University Mathematics Department said I had to get a Master's Degree in Computer Science even though I had never taken 1 class in Computer Science while I attended Oneonta State College from the Fall of 1973 to the Spring of 1977 and just received a Bachelor's Degree in General Studies. I didn't think I was qualified to pursue a Master's Degree at Binghamton University; but was told that this was my only option by both Binghamton University Mathematics Department and the New York State Higher Education Services Corporation. I told several of my Watson School of Engineering Professors that I didn't think I was qualified to pursue a Master's Degree in Computer Science; but they all told Me not to give up. After 2 years of studying Computer Science at the Graduate School Level I was told that I didn't meet their minimum standards and was discharged by their program. I even requested an Incomplete Grade in my final 2 classes at the Watson School of Engineering in the Spring, 1986 Semester and the Teachers agreed to let Me do that in order to have more time to catch up; but the Chairman of the Watson School of Engineering, Thomas Piatkowski, refused it. In retrospect, I think that Binghamton University and the New York State Higher Education Services Corporation just wanted Me to spend twice as much money as a Graduate Student to get a Computer Science Degree rather than allow Me to get a Bachelor's Degree. As a result of never being able to receive a Computer Science College Degree, I have never been able to obtain an entry level job as a Computer Programmer. I currently earn only $10.20/Hour working a 40 Hour Full-Time Work Week (and sometimes less than that) for a Total Annual Average Salary of $21,216 working for Apex Systems, Inc. as a Technical Support Specialist sub-contracting for Unisys Technical Services as a Dell Computer Systems Expert Computer Field Repair Technician Contractor. I don't receive any Employee Benefits like Vacation Pay, Sick Pay, Standby Pay, or Paid Time Off. I have to drive my own Automobile at my own expense (gasoline, repairs) while averaging driving over 1,000 Miles/Week. The Educational Credit Management Corporation is now garnishing my Wages at 15% which reduces my Hourly Wage from $10.20/Hour to only $8.67/Hour to pay back a Guaranteed Student Loan of over $50,000 from over 25 years ago. I don't have a 2nd form of Income and my Wife left Me on November 26, 2011. Because of the passage of Time of 2 Years that has occurred since I attended the SUNY Binghamton Watson School of Engineering as a Masters Degree Candidate in Computer Science back in 1984-86, the inability to find a Good Paying Job with Benefits, Deceased Parents, my Economic Undue Hardship, my current Age of 57 Years Old, Slim Prospects of ever paying back the Guaranteed Student Loan of over $50,000 in this Lifetime, I request that this Guaranteed Student Loan be forgiven so that I can have a second fresh start chance in Life. It now appears hopeless that I will ever be able to pay back this Guaranteed Student Loan. I never intended to abuse the US Federal Guaranteed Student Loan Program. I also really don't think that the US Federal Guaranteed Student Loan Program was really designed to financially ruin economically poor College Students who were just trying to better educate himself to get a better Job for the rest of his/her Life? Some form of Relief has to be necessary for Honest Debtors who are unable to service their Student Loan Debt in order to free hard working debtors to once again become responsible and productive members of Society. Despite the fact that I will ever have any chance of repaying this Guaranteed Student Loan from over 28 years ago, no lawyer will even attempt to help Me declare Bankruptcy on this loan. I think that this is a violation Equal Protection Clause of the 14th Amendment of the US Constitution which says, "All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside. No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws." In my opinion, the bar to qualify for Bankruptcy Protection shouldn't be higher for College Students on a Government Secured Loan than it is for any other US Citizens on a Private Unsecured Loan. This is a discriminatory practice on students. A pre-eminent bankruptcy scholar made precisely this argument under oath before Congress. In December 1975, when Congress was debating the first law that made student loans non-dischargeable in bankruptcy, University of Connecticut law professor Philip Shuchman testified that students:"should not be singled out for special and discriminatory treatment. I have the further very literal feeling that this is almost a denial of their right to equal protection of the laws … Nor do I think has any evidence been presented that these people, these young people just beginning their years on the whole should be singled out for special and as I view it discriminatory treatment. I suggest to you that this may at least in spirit be a denial of their right to equal protection with the virtual pole star of our constitutional ambit." By 1977 even the American Bankers Association had joined the conference of bankruptcy judges in lobbying - formally, anyway - against the cruel and unusual punishment of making student debt non-dischargeable. As James O'Harra, the congressman who had commissioned the GAO study, pointed out in his testimony, to enact such a law would be tantamount to "treating students, all students, as though they were suspected frauds and felons" while according arbitrary second-class creditor status to "the grocery store, the tailor or the doctor to whom the same student may also owe money." In 1978 the House of Representatives voted to pass a bankruptcy reform bill that specifically restored student loans to their original status as equivalent to any other form of unsecured debt.
By the way, I just lost my job on July 31, 2012 and am collecting $301/week unemployment insurance and $200/month in food stamps.

sorry baby

Wow, well, I don't know who you were dealing with in the first place but it sounds like you got some real bum advice originally and racking up $50k from 28 years ago in the space of two years sounds weird too. 28 years ago tuition just wasn't that high as it is today, or were living expenses.

Frankly you can go to undergrad twice and you can also not transfer "bad credits" from one school to the next as a "do over". Very bad advice. You can also enter a MS program and be officially in but take undergrad courses to "catch up", it's way more credit hours but it's possible, but the GPA goes into the MS (usually depends on school) and that's a problem for MS grades, a "C" is an "F" and if someone gives an "F" to a grad student, they just basically killed their career and ability to obtain a MS degree. So, undergrad gives out lots of C,D,F grades, depending upon the school. Some places inflate grades even in undergrad, others literally have grading curves and only allow 1 A or 2 A's per class.

All fairly ridiculous when it should be did this person master the topic at hand or not.

That's positively nuts to jump into grad school with no undergrad in STEM, most schools would never allow that for there is no doubt one would be guaranteed to fail, pretty much through no fault of their own.

This all brings up an interesting point. STEM is hyper competitive, the flunk out rates are exceedingly high and the drop out rates for college are also mega high, so what happens to the debt racked up when people couldn't even get the degree? It's still there and cannot be discharged.

Assuming people are working their ass off, diligent, the U.S. university system shouldn't consider college as some sort of survivor game, flunking out as many people as possible. Don't lower the mastery bar yet make sure people can pass that mastery bar.