Student Loan Crisis

Of course, you know students loans are sky high and that, without jobs or while being underemployed or sometimes even gainfully employed, many people are just not paying. That’s called a default. So, that means the lender isn’t getting paid, whether that’s the government or a private institution. You’re probably also familiar with the concept of securitization, though you may not know it by that name. It means that those student loans aren’t really paid to the original lender. The original lender sells the loans for pennies on the dollar as soon as they’re issued. They get paid immediately and someone else has to hope the student pays it back. That allows small lenders with only a little cash to collect and make an instant profit, essentially being paid by the bank to generate money on a low level at which Wall Street wouldn’t bother operating directly. Wall Street wouldn’t bother giving a $10,000 loan to an 18-year old for school, but they’d happily purchase it in two seconds from a smaller entity by making just a phone call. No effort on their part, no need to pay any employees, etc. It’s just another investment for them and an immediately payoff for the small lender. So, when the loans come due, Wall Street yet again can’t be troubled to talk to the student. So it pays someone to do that. That company tries to collect the loan payments, takes their cut, and sends the rest to Wall Street.

Sounds like the mortgage-backed securities debacle, yes? Well, yeah, it’s exactly the same. It’s actually a little worse because Wall Street could own the homes then but now can’t own anything. The best they can do is get the students to work for them to pay off the debt, but that’s illegal no matter how you slice it and will probably stay illegal. God, I really have to use the word “probably” there? I mean, it’s like 98%, but with Trump, the concept of some highly diluted form of de facto indentured servitude is possible, if ever so slightly.

Basically, you know the story. Defaults have spiking, and when they reach a critical mass, the economy crashes. Wall Street is left holding the bag, and that makes us happy because most of us would rejoice at their expense at this point, but unfortunately for us, their failure becomes our failure. If they’re not going to lend any money, companies fail, and the ripple effect we saw with the mortgage-backed securities happens again but with student loans. It’ll happen with car loans, too, and any loan at all that is backed by any collateral or no collateral at all. It’s called loan syndication, and THAT is the new way to make money.

THAT is the weaponized financial tool that is hurting us all.

Seriously, I’m not a crazy conspiracy theorist. I actually worked as an analyst during the financial crisis and analyzed portfolio decisions about these syndications. I worked for a hedge fund for four years. I saw their books. No, I DID their books! And well, I got the heck out of there. And yes, now I don’t have as much money, hence my point that they kind of have a whole heck of a lot of control. Too bad Congress won’t do anything about it.


  1. Great article shedding light on these economic issues. Outstanding student loan debt is like a house of cards that will eventually collapse. A key phrase in your article is “fiduciary duty to constantly raise earnings per share”, which will always create great wealth and great poverty, as one cannot exist without the other in a credit-based economy that strives for infinite growth.

  2. I have a slightly different take on this.

    (1) Executives at companies with more than 1,000 employees have little control over what their companies do, other than buying and selling components. Ask them what R&D in any of their divisions is doing on a particular day — no clue. One of my assignments in trying to turn around a troubled company was to find out what projects were underway and which ones might have so real value in the future (value as in the ability to create revenue). Management didn’t know.

    (2) Technology has changed the relationship between workers and product. We simply don’t need all of the workers to produce the same amount of stuff. Instead, we need creativity to help find new stuff to make.

    (3) Unfortunately, there’s a lag in communications between markets, companies, schools and students. Part of our problem is having too many people lacking skills or with obsolete skills (e.g., COBOL programmers). Finishing high school should not be optional for anyone. Nor should at least a two-year college degree. However, we need to strengthen adult learning and teach people that stopping learning is economic suicide.

    (4) Hand-in-hand with item (3), basic college education should be free, as it is in much of the rest of the world (Europe, the Middle East, China, etc.). That reform takes care of the debt issue.

    Unfortunately, US politics is dominated by a small cadre of rich and greedy who place themselves above law and country, and make the rules in Congress. That’s why a thinking person has to consider seriously the idea of living someplace else. Upwards of 3% of US citizens now live in another country (that excludes military/government workers stationed offshore). Free healthcare (in many cases, better healthcare), free education, lower food and housing costs are powerful incentives.

  3. Reblogged this on sportyoldude and commented:
    I worked up to three jobs as a student just to feed myself and put a roof over my head, and that was in 70″s when tuition was a lot cheaper. part of the reason for the inflated tuitions is the NCAA a pernicious parasite that sucks the money out of schools and universities and gives little in return. they are listed as a non profit an insult to anyones intelligence.

  4. I would like to thank you for following my blog. Although our beliefs may not overlap at times, it is people like you, with an open mind and accepting heart, that give me hope in the other sides of the political spectrum.

    1. Thank you for your comment. I’m glad you’re here. I certainly want to learn about everybody, and when there’s something that doesn’t seem to add up, I don’t run away from it. I ask about it.

      Please share your thoughts about any of my posts and any additional information you may have. You’re welcome here.

  5. I’m still waiting on a national politician willing to push hard on exactly the points you make here. Someone to make it their central issue. Elizabeth Warren is the closest it seems.

    I mean, these are huge problems that can damage a society long term. But most politicians either openly dismiss or at a minimum pay lip service. It’s frustrating.

    1. Thank you, Jon. I support Senator Warren’s opinion on a number of issues. Another is wage theft, which I wrote about a few weeks ago.

      It may be a complex issue, the more likely scenario is the one that you’ve presented. I don’t know that no one cares, but I think they still have this bygone ethos that “everything will work out in the end.” The younger generations can’t justify that outlook.

      Despite what baby boomers say about us, we’re actually MORE responsible than them, and we want some assurances. We’re tired of analogies to “bootstraps” and “grindstones,” and I don’t want to ever hear the word “sticktuitiveness” again. We want data. We want action. We want something real. Who’s going to give that to us is anyone’s guess, but Elizabeth Warren is on my short list of nominees for the ticket in 2020.

  6. Working on keeping my daughter debt free for undergrad, but she’s been told grad school will be on her dime.

    1. Thank you for your comment. That’s a good plan. It’s expensive.

      Debt is inevitable for so many and you may never work in the field you study. Might as well study what makes you happy. That may be the only silver lining.

      I recommend studying in an expensive city to maximize salary potential at nearby employers.

    2. Actually the cost of living in AZ is reasonable and we’ve just approved a $12/hour minimum wage. ASU is also improving its education model.

    3. If she’s staying there, she’s set. ASU merged with Thunderbird, a gradschool I looked at out there. Several of my high school classmates went to ASU or UofA. One even went to NAU.

      I’m happy about the AZ minimum wage increase. I talk about that in last week’s post about Wage Theft. That’s the best solution. We know what we need: give us a living wage, and we’ll take care of the rest.

      I’d be interested to know how much local coverage Arpaio is getting. There’s a national spotlight there, and I’ve certainly written about immigration in general at least four times on TrumpDiaries alone, but sometimes people in distant states are more concerned about certain issues than are the locals.

    4. Thanks for letting me know. From what I’ve read, issuing a pardon is determining that someone is guilty so it doesn’t matter whether the defendant pleads guilty or not. However, given that pardons don’t require any reason and that they are irreversible, no one’s really cares about the details.

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