Wolf Richter: The Young Subprime Debt-Slave Generation

Yves here. It’s obvious that student debt is a train wreck. It’s allowing the higher educational complex (which as we posted last week, spends as little as 10% of revenues on actual education) to operate as a parasite, draining not just young people and any relatives who co-signed, but increasingly the rest of the economy as even those graduates who do have jobs have to give top priority to servicing this obligation, which means they defer or can never engage in certain types of spending, like buying a home.

Yet the severity of this problem is barely acknowledged as a problem among policy classes. Is that because the looting must continue? But even if so, why do colleges and universities have such privileged status?

By Wolf Richter, a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Originally published at Testosterone Pit.

Rising household debt would be a hopeful sign that consumers are once again living beyond their means, that they’re finally spending money they don’t have, that they’re in fact transferring money from the future to the present in their heroic effort to stimulate Wall Street, corporate earnings, and the Fed’s self-esteem, or something. So we jubilate when we see signs of this economic miracle happening once again. We’ve waited for it long enough.

Household debt – mortgages, credit cards, auto loans, student loans, and other debt – jumped $241 billion, or 2.1%, in the fourth quarter 2013 to reach $11.52 trillion, the New York Fed reported. It was the largest quarterly rise since 2007, near the peak of the last bubble. For the year, consumer debt rose $180 billion – the first annual rise since 2008 when the last bubble imploded. But it’s still 9.1% below the all-time record of $12.68 trillion, set in that fateful year of 2008. Very reassuring.

But that household debt has bad breath.

Mortgage balances, which account for 70% of total household debt, rose $152 billion in Q4 2013, to $8.05 trillion. With that whopper, mortgage debt for the entire year increased by $16 billion, the first gain after four years of declines. One-quarter wonder? Originations of new mortgages, after rising steadily since 2011, plunged $97 billion to $452 billion. Down for the second quarter in a row. Investors and private equity funds, increasingly dominant buyers in some markets, have driven up home prices and have successfully pushed first-time buyers and others off the cliff. So this isn’t exactly a sign of health.

Home equity lines of credit declined 1.1% to $529 billion. So total housing debt was barely in positive territory.

Non-housing debt – credit cards, auto loans, student loans, and “other” debt – looked better on the surface with a 3.3% gain that pushed it to $2.94 trillion.

Credit card debt rose $11 billion to $683 billion in Q4, enough to nudge the year into positive territory, for the first time since 2008! Auto loan balances were up $18 billion for the quarter and $80 billion for the year to hit $863 billion, the highest level in the data series going back to 2004. The glory days may be over. In another ominous sign for the auto industry, after the auto-sales and inventory debacles that started late last year, newly originated auto loans dropped in the fourth quarter to $88 billion.

Student loan balances soared $53 billion in the quarter and $114 billion for the year, to end at $1.08 trillion, an unbroken record in the data series of ever higher highs. Student loans now make up 9.4% of total consumer debt and 36.7% of non-housing debt. In 2003, student loans accounted for 3.1% of total consumer debt and 12.2% of non-housing debt. The $1.86 trillion in credit card debt, auto loans, and “other” debt are now a smidgen below where they were in 2004. But student loans have more than quadrupled.

Student loans going to bankrupt a generation.

Not that today’s students are getting more education or a better education or a more useful education, or that they make more money when they graduate – you’ve got to be kidding! Instead, tuition has skyrocketed over the years as universities and colleges have perfected the art of milking the American system of student loans and grants. Students are getting a similar education as before, but at a much higher price. And afterwards, they’re left with a mountain of debt on their fragile shoulders.

Hence, delinquencies. Oh my! Mortgages that were 90+ days delinquent peaked in Q1 2010. For credit cards, the peak occurred in Q2 2010, for “other” debt in Q3 2010, for auto loans in Q4 2010, and for HELOCs in Q3 2012. Since their respective peaks, delinquency rates have dropped. Except for student loans.

Student loan delinquencies were barely above 6% in 2004 and 2005, meandered up to 7.6% by Q3 2007, to 9.2% in Q3 2010, eased off a bit in 2011, then soared. By the end of 2012, they hit 11.7%. Then they dropped to 10.9% in Q2 2013, espousing a tsunami of false hope that it would turn around somehow, only to jump to a new record 11.8% the next quarter. In Q4, delinquencies eased off, accompanied by another round of false hope, to a still astronomical 11.5%.

In American culture, credit card delinquencies have always been highest, with a range of 8.5% to 10.2% between 2004 and 2008. During the crisis, they spiked to 13.7% before dropping again. In Q3, 2012, a new phenomenon occurred: for the first time ever, credit card delinquencies, at a still lofty 10.5%, were trumped by student loan delinquencies. The gap has widened since with credit card delinquencies at 9.5% and student loan delinquencies at 11.5%.

The official student loan delinquency rate, as dizzying as it is, actually covers up a problem that is even worse: many borrowers don’t have to make payments yet because they’re still in school. If the delinquency rate were calculated based only on borrowers who have to make payments, it would be much higher.

It’s our student-loan subprime fiasco. In the age group below 30, 38% of the borrowers had credit scores of under 621, and 29% had scores between 621 and 680. At that lower end of the credit spectrum, student loans grew the most during the year:



These borrowers at the low end of the credit spectrum are least likely to be able to service the mountain of debt they took on to attend schools that often left them unprepared for a job that pays enough, if they can even find a job in one of the toughest job markets for young people in recent memory.

Not that the rest of the consumers aren’t struggling: of their total debt, $580 billion was 90+ days delinquent. And 332,000 of our unsung heroes who were trying to move the economy forward and fatten up corporate earnings got as reward a bankruptcy notation jotted on their credit report during the fourth quarter, up about 8% from a year ago. And consumers hounded by third party collections – guys calling them incessantly to wring the last dime out of their wallets – is a story that simply gets worse. In 2003, less than 9% of all borrowers got hit by collections. During the crisis, the number peaked at 14.7%. Over the last two quarters, they dropped below 14%, halleluiah. But the average collection amount has ballooned inexorably from $900 in 2003 to over $1,500 now.

But their problems pale compared to the masses of young people who’re dogged by a lousy credit score and an outsized burden of student loans to be paid off over decades with the shrinking real salaries for the lucky ones who have jobs. And the unlucky ones can’t even ditch that debt in bankruptcy, unlike other debt. They’re starting out their working lives broke, and they stay broke. It will handicap their contribution to the economy for years to come. They’re our first debt-slave generation.

“There is never a good time to raise the minimum wage,” explained Joseph Sabia, an associate professor of economics at San Diego State University. The Capitol Hill briefing was co-sponsored by the Employment Policies Institute, which is tied to the fast-food industry. Read….. Why My BS-O-Meter Redlined In The Minimum-Wage War

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  1. JGordon

    To quote Yves: “Yet the severity of this problem is barely acknowledged as a problem among policy classes. Is that because the looting must continue? But even if so, why do colleges and universities have such privileged status?”

    I firmly believe that you all at NC are extremely intelligent; although as far as I can tell you all do have a bit of a lack as far as wisdom goes. As far as differentiating between intelligence and wisdom, I’d say that you can see how something works in the immediate sense, and then make it work: for example a nuclear plant or an interesting monetary system and getting the immediate benefits of lots of energy and nuclear bombs or a speedily growing economy with plenty of industrial jobs. But then not be willing, or able, to think a couple more steps down the line where you will have mountains of horrifyingly toxic nuclear waste to deal with–or ruined indigenous cultures and wrecked environments–pretty much forever, if we are considering things on the human timescale.

    But anyway, I say the move because I have always found Charles Hugh Smith to be an endless font of wisdom, and he addressed the very topic Wolf writes about today, just yesterday, and in a manner that clarifies and answers (in a manner satisfying to me at least) the question Yves posed above:


    Now, CHS has a background in philosophy, and I personally believe that that makes him eminently suited to take on questions like this. As least when I read what he has to say my BS detector has never gone off. Oh, I like Wolf too. I have enjoyed his work since I first started seeing his posts appear on the zh site. Philosophy and grappling with deep questions about reality and humanity just appeals to me more.

      1. j gibbs

        Smith is on the right track, but is higher education really necessary at all, given the availability of knowledge at the click of a mouse? What these colleges are really selling are credentials. The problem is, employers aren’t buying the product.

        1. huxley

          A degree or multiple degrees and/or graduate degrees is still absolutely necessary. At most, degrees from the right schools with the right majors only qualifies the candidate for the possibility of consideration, not an actual position. The demonstrated willingness to toil for their profit at your own expense in an unpaid internship may improve your chances somewhat.

          Once conferred the blessing of actual consideration, the candidate must still run the gauntlet, as employers take a sadistic pleasure in persecuting prospective candidates on multiple levels: HR interviews, interviews with managers, interviews with retired managers, Interviews with client and vendor managers, technical interviews, other oral examinations not otherwise specified, written proficiency examination series, personality evaluations, IQ tests, problem-solving tests, medical evaluations, DNA testing, substance-abuse testing, past-life regression evaluation, and background checks up to and including casual and/or indirect acquaintances and/or people you might just happen to run into in the future. The prospect can be disqualified at any point for any reason, including those which are technically prohibited, including but not limited to ethnic origin, religious affiliation or lack thereof, political affiliation or lack thereof, age, gender, driving record, music and/or video download history, and country club membership eligibility: too tall, too short, too pretty, not pretty enough, slight halitosis, wrong cologne, wrong hair color/too short/too long/baldness, improper attire (gray suit instead of brown suit, tattoos/piercings).

          Assuming you survive the inquisition with limbs, attitude, and finances intact, the evaluation process hardly ends upon hire, as all and any employees can be expected to jump through endless such hoops throughout the course of their careers. Worse still, you can and will be required to socialize with coworkers and managers, during and after working hours, weekends included. Neither do you dare discount the suggestion to relocate to Amarillo. And don’t be surprised if you sneeze twice in two minutes and get frogmarched out the front door with your lunch bucket.

          If you think that’s a lot of trouble to go through for sixteen bucks an hour with no benefits and no PTO for the first five years, I would agree with you, but employment these days requires you to concede that your life is not your own. If you don’t like it, they still have a massive pool of even more desperate wannabe serfs from which to select other subjects. “Next!”

          1. sebastian mack

            huxley is absolutely correct. all those seeking salvation “(chasing paper) through these methods not only contribute to a bad routine process, they perpetuate the idealism that it is effective (even when they are failing in their own efforts). i would say more but huxley summarized it very well.

          2. Chris

            And then there’s “women and minorities and the differentially abled encouraged to apply” hurdle.

            Good luck applying for any public and many corporate jobs if you don’t qualify.

    1. Cocomaan

      Always loved CHS’ stuff. The idea of accrediting the student and not the institution is powerful.

      It’s obvious to everyone that higher ed needs a sea change of ‘creative destruction’ that industries like music have undergone as a result of the internet. Rather than institutions feeding records to the public, the artists have gained a little more say in distribution and advertising. Not perfect, mind you, but it’s a major change.

      Higher ed won’t be perfect when it’s fixed, either. But it’s not sustainable as is, that’s for sure.

      1. Moneta

        When you look at the dependency ratio it is no as bad as one thinks when including both the retirees AND under 18. The shift is going from young to old… so the writing is on the wall… money WILL be shifting from education to old age everything.

        We are still stuck in the status quo mode but it won’t last.

    2. Andrea

      Charles is a great favorite of mine.

      I presume JGordon refers to the top post at Charles, “How to make a million, Extorsion creates its own antidotes”, by Eric A. I’ll treat only that.


      It is an optimistic piece, deliberately and openly so, as in cherry-picking one aspect, from a sorta-libertarian perspective. (“Sorta” because all genuine efforts in this direction are kind of mixed.) That is fine, and I have a lot of sympathy.

      However, it is also naive.

      Let’s take health-care as an ex. Cash on the spot service – which pretty much existed long ago in the US – is, without a doubt, a partial, and I’d say reasonable proposal, for low-level health care, but can’t handle the really expensive stuff.

      Now, a country (community, group..) might decide to forgo top tech / hospital / first class medicos / pharma treatments, judging them to be unnecessary, harmful / ridiculous on various grounds / too expensive / whatever. Fine.

      Knocking out the middle man, or those who have ‘captured’ the ‘market’, rests on the presumption of a partly ‘free’ (see libertarians) populace, who can self-organize – thereby joining voices from different, community-oriented perspectives (e.g. socialist.)

      The piece ignores power relations and the role of the State. It rests, at best, on the vision that if the State is absent, things will improve. That may be so. Confrontation, of course, is avoided.

      But the middle-men, the experts, the Corporations, the Central Authorities, will not allow it. The extortion is what they live off.

      US citizens are being squeezed, in three areas: home ownership (which many want, that is the culture), education and health, for which ppl will starve themselves, pay every last penny they have, risk all, go bankrupt, homeless, mad, etc.

      A friendly clinic that gives primary care for 20 – 30 dollars? That might be lauded, then tolerated, then shut down pronto.

  2. middle seaman

    Yves says that the higher educational complex spends as little as 10% of revenues on actual education. This meager percentage contradicts the reality in several top universities I closely familiar with. It’s interesting to find out how that figure was arrived at.

    The reality of student loans amounts to crimes against our younger generations. In the long run, our society is gladly taking small portions of poison that accumulates and eventually will kill our way of life. With two Republican parties, a rightwing president and no signs of reversing this trend, we are stuck for good.

  3. j gibbs

    College has always been a waste of time and money, for anyone not pursuing a technical education. It was a waste of time and money in the early Sixties, but of course it was a lot cheaper, too. At an august Ivy college that will remain nameless, I found myself surrounded by drunks and skirt chasers and football players, all looking forward to careers in advertising and banking. The serious students were in medicine and engineering. The faculty was largely superannuated, bored and lazy. Full professors gave the same lectures year after year after year, and you could buy a full set of notes for $10 and skip the boredom of class. Nobody seems to talk about higher education the way it really is. It is surrounded by more secrets and euphemisms than female anatomy.

    People need to realize the future is not landing a job and clinging to it like a three toed sloth. Every job is designed to capture surplus labor for the boss. If I were young today I would learn to cook and open a sandwich shop in a lively city. Even a food truck would be a better investment than four years at a college surrounded by debt slaves and over privileged punks.

    1. Bradford Castalia

      “College has always been a waste of time and money, for anyone not pursuing a technical education. It was a waste of time and money in the early Sixties, …”

      What a sad perspective on college education j gibbs conveys. As someone who started college education in the early sixties I can report not having wasted my time and (scholarship) money. And though I obtained a scientific education (that subsumed technical training and work-study experience) the aspects of my college years that I found most educational were in sociology, human relations, and a broad (inter-) cultural awareness that has been a boon in my life far beyond the value of money.

      “Imagination is more important than knowledge.” (Albert Einstein). This is what I learned from my sixties college education. This has nothing to do with money.

  4. Moneta

    It is one of the rare sectors that actually hires educated individuals for their credentials and experience. Restructuring this industry would require a lot philosophical questions that the US has not been able to address in other sectors that are downstream from this one.

    The education system has grown around the boomer bulge… 5 workers per retiree were able to afford the outgrowth. And boy has the education system grown! But as this ratio drops to 2.5/1, there will be a day of reckoning.

    If the average SS payment is 20K and there are 5 workers, that would mean 4K per worker. But that number would be zero if deficits don’t matter and the payments are just tacked on to the debt and the Debt-to-GDP is left to rise. But if the worker ratio drops to 2.5/1, that means 8K per worker. Real money if deficits matter and it has to come out of their pockets. Same thing happening in the education system… a good chunk of those student loans are paying for the pensions and the growth due to the boomer bulge.

    1. Jess

      What you say about SS would be true if it wasn’t for the fact that as a result of the 1983 SS “reform” us Boomers prepaid some $2.1 trillion of our own retirement into the so-called “trust fund”, with that money then being spent and replaced by IOU’s which could be redeemed by fairly taxing the rich. But that won’t happen until the revolution.

  5. Student loan debt serf

    Ironically enough, my $88k in student loans was offset in the last 24 months by a nearly $100,000 increase in the price of my home. Gotta love those upper middle class neighborhoods with good schools! What’s even more ironic (or moronic) is that I bought my home at quite literally, the bottom of the bust. I had no money to buy earlier because I was too busy paying off the nearly $200,000 in student loans when I graduated in 2004! And I’m probably the luckiest guy I know on this respect!

      1. j gibbs

        Of course, that should be Eddie. Don’t know how that happened. He was a tough guy. Perhaps he still is. Sorry.

  6. JTFaraday

    “Is that because the looting must continue? But even if so, why do colleges and universities have such privileged status?”

    a). No, they don’t, but Citibank does.

    b). The schools serve as vehicles through which the Board can pursue their business and other interests, (including political interests). You don’t expect them to fund that all by themselves do you?

  7. taunger

    Student debt is a huge problem, but you aren’t focusing on the reality. “If the delinquency rate were calculated based only on borrowers who have to make payments, it would be much higher.” That is be. There are now # classes of debtors: federal and private. The federal ones can pay based on income. There is no good reason for federal debtors to be delinquent. Of course, there is still the effect of massive debt on decision making, but not the bankruptcy and other I’ll effects associate with default. Until NC commentators acknowledge the strange set of incentives with student loans, I can’t take the commentary seriously.

    1. RanDomino

      Payment based on income? Do you mean deferments? Those only last so long. If your job description for three years after getting your anthropology of psychology degree is “barista”, then the deferments can run out well before you’re realistically able to pay, much less meaningfully participate in the economy.

  8. Dan Kervick

    Yet the severity of this problem is barely acknowledged as a problem among policy classes. Is that because the looting must continue?

    Possibly. But I think the main thing is that they don’t think it’s that much of a problem. The members of the policy class are lawyers, and most of them probably had to pay law school debt three or four times as high as the average undergrad debt. Their attitude is probably, “Suck it up kids; that’s the price tag for joining the knowledge class.”

    Of course, the political sustainability of that attitude depends on a viable job market for college graduates returning.

    We have long given up on the idea that educating talented and deserving young people is a public investment that should be shared for the benefit of the whole society. These days, higher education is viewed primarily as an individual career choice that boosts the student’s long-term earnings.

    1. Yves Smith Post author

      Enrollments at law schools have dropped 15% over the last 2-3 years. That’s clear evidence that the product is overpriced.

      And many older lawyers didn’t pay for their education. A fair number had parents who paid for or subsidized law school.

      1. j gibbs

        Law school was a bargain in 1965-67, but in those days only about 1/2 of the class got jobs worth having, and this was at Harvard.

  9. allcoppedout

    Student loans are an obvious train wreck. The actual situation may be more akin to having a time machine and choosing to go back to the Titanic’s maiden voyage to experience drowning.

    HE could be provided nearly free with distance techniques and social media connections. We should already be in this position. Most of the UK actually jumped aboard the crashing US train in the triumph of neo-liberalism. Much of the idea was to create and exploit a global education market. Academics have been almost entirely complicit in this.

    The problems are deeper than the finance. It’s hard for those of us with a lot of sunk costs gaining degrees and the rest to admit, but most of schooling is a child-minding and ranking process only loosely connected with education. Our time is mostly wasted and there is little evaluation of our soaked-up ideas on education as a good thing. I don’t want to deny it could be, but I increasingly see what we get as another version of bowing to the blue and white chequered rabbit. Many in here will have done the late nights with the books or in the lab, but like all fraud victims we tend to denial. I remember my mates, cricket and rugby more than the classrooms and lectures (perhaps I repress the trauma). I can jog my memory to teach, but even I can link little in the syllabus to my management work. This was also true even of my earlier lab work.

    If we test people away from exam schedules or some time after essay writing we find little evidence of much learning. In some of my work I found no one in a management class of 28 could remember what their last lecture had been about, despite 100% approval of the lecturer. Shades of my desperate primary school headmistress who couldn’t elicit the name of the ‘Spanish’ explorer she had been droning on about. Vasco da Gama was Portuguese. We got 100 lines for not paying attention. My learning? Dad went in to protest the collective punishment and took me to the library for some books on Vasco after I related some of the rot I had picked up in class. Turned out the guy was a financier.

    Seriously, ask yourself what is the rational evaluation of what we get taught, how it is taught, why it is so expensive, how it contributes to the work we do, why we focus on learning activities most are no good at and at a time brains are still wiring themselves … maybe read various evaluation body reports on superb standards in our state schools when the average Chinese kid is two-and-a-half years ahead of ours and private education never dies.

    The problem with Charles Hugh Smith’s nearly free HE (which we should already have in place) is the general problem with efficiency. We don’t need the banks or HE as they are or other rich parasites enslaving us by debt (old tribal origins) but what plan do we ever have on the redeployment of efficiency gains? The “plan” is crony capitalism as the great leveller. How did we educate ourselves to believe that one!

    Schools teach us honesty is the best policy. That works how under the Gresham’s Law of the workplace? Educational evaluation has the following generic steps:
    1. courses
    2, reactions (admission we are emotional)
    3, learning
    4. changes in individual behaviour
    5. changes in group behaviour
    6. changes in organisational performance
    7. implied better world

    How would any of that work if the love-trust notion of organisational behaviour rooted in classroom theory already makes course content irrelevant to working conditions? We talk very little on the relations between education and competitive advantage. That we can make it more efficient in money terms is blindly obvious. Unnecessary overheads are massive. We have the technology and plenty of spare capacity in social, sports, theatre and hotel ‘classrooms’ for people experiences. Yet we know almost nothing about how any of what we do turns to wider social advances. Think of the shiny things dotted about our newsrooms. These are prime examples of successful higher education, are they?

    HE faces the crisis, say, of British Shipyards against mass production. We have been subsidising the inefficiencies (and have transferred these to finance from manufacturing generally) though in a market that had buyers at inflated prices because people know the real thing in education is not content but certificate prestige. I can present a business plan to reduce HE costs to less than 10% of now at better quality. I did at conference in 1995. All agreed it could work and all wanted to bury it. The snag is certificate prestige. Everywhere, you find education is not what we think. There are systems everywhere like the UK “public” schools (even the USSR had them) and on to Oxbrdige, Ivy League and so on. At INSEAD, a French business school, I did a straw repeat of some work by Jane Marceau a the making of business elites and found almost everyone I taught had come up through a connected royal route of the right schools and universities.

    We get education debates wrong as soon as we utter the word thinking we know what it is. The rich know and want to keep an expensive product because it favours existing wealth and disadvantages those who can’t pay. Once we are talking about educating for financial success we are already trapped in neo-liberalism and massive assumptions about work and reward. What work did we do on the likely effect of pouring graduate certificates into the job market? Have we succeeded in producing these ‘highly skilled’ people, or dropped the standard? Google the answer to ‘critically evaluate process and content theories of motivation at work’ and award yourself a business degree when you find the 2,500 word answer.

    We need more than financial reform, interesting as these figures are.

    1. Jess

      Nice post, but can I ask one favor: Don’t refer to Higher Education by the acronym HE. My immediate Pavlovian trained reaction is that I’m reading another religious post about “HE” (Gawd) by F. Beard.

  10. PaulW

    Are they really innocent victims? I’ll certainly cut them more slack than my Baby Boomer generation – the authors of this mess. Perhaps willing victims? It’s so much easier to adopt herd mentality than to think for yourself. Maybe this should not be viewed as something bad. Instead look upon it as a Darwinian exercise to separate the willing victims from those able to think for themselves. After all, we are talking about a generation of intelligent human beings, not a bunch of cows heading to the slaughterhouse.

    Years from now, when we look back at the destruction of everything good in our society, we’ll notice that the general apathy and willful ignorance was what led to it all. Shouldn’t those most apathetic and ignorant be the ones who pay the greatest price?

    1. run75441

      Students are the only class of citizens who can not go bankrupt. To make a suitable comparison, were LTCM, Lehmans, Wachovia, Morgan, Chase, AIG innocent? Yet they walked away free of legal entanglement. Students can not do so in the short run and must wait 20 or so years of low income to be absolved of debt only to have it turn up as income. Even in default, the gov. makes money on default greater than 100% of the loan.

      The amount of debt carried by students has impacted the housing market while those who have no student debt are more likely to be buying a home sooner.

    2. Moneta

      Those who think are also being herded to the slaughterhouse. It’s just a different one using ostracism which can be even more brutal if one is social.

    3. Banger

      Well, I’ always read to blame the victim–it takes two to tango! But the Darwinian view of evolution is, first of all, not the Darwinian view of evolution, it is a perversion created by Darwins chief “defenders.” Actually Darwin noted that cooperation was very important in evolution and in maintaining species. Since the 19th century the idea that “individual” survival has been replaced by cooperation both inboth inter- and intra-species cooperation and synergy. We live in a linked eco-system not an Olympic competition. Western man believed all that competition nonsense because that was the ethic of the time and it is the ethic that is destroying us today.

      As a practical matter, people who are burdened by permanent debt become little more than serfs and in the big-picture their stress-level will be high; their tendency to have bad marriages will increase as will the stress level of the kids (causing various social problems). Additionally we will see more frowning people in the world which makes us all more miserable even if we do not realize it.

      On balance, as social policy, allowing people to suffer from high debts is not good for society or the economy since these people will tend to not take creative risks particularly in a tight job market.

    4. Stelios Theoharidis

      I am probably one of that ‘herd’ that you are speaking about. I have pretty much worked all my life, from paper routes as a child, restaurant work as a teenager through university, various internships, free work for non-profits and student organizations. I did this while attending university, carrying more than full student course loads. Everyone around you pressures you to pursue higher education, the slaughterhouse you speak of is one of the most esteemed places in civilization, one which we invest our surplus into, one where discoveries occur, and many of humanities brightest individuals pursue this direction. It is a hard option to stray away from and it is generally encouraged as a pathway towards becoming a productive and contributing member of society. Individuals that are purely interested in the value of knowledge usually do not go into the drudgery of private sector in the hope that they can pursue their intellectual interests directly through academia. I really tire of the business propaganda against academia, it is the corporatization of the university system that has been the most problematic for those institutions as a whole. The endless drive towards trying to simulate market forces to transform universities by administrators that are often bent on pursuing their own fiefdoms has drastically driven up the costs for education. We mock the for-profit universities, while continuously trying to ape them as institutions, it is patently absurd.

      Similarly, I really get sick of hearing the nonsense about soft degrees versus STEM. I have a social studies background, but I work in the sciences. There is nothing that a science degree carrying individual can do that I cannot learn on the job. I have actually been the person that has survived 4 rounds of layoffs, while many STEM degree carrying individuals have been laid off. Why do you think people buy apple products so frequently, is it the components or the design? Who do you think does the design, it is certainly not the scientists. I think that human resources have burdened workplaces with their absurd checklist based hiring programs. It is a mismeasurement of the capabilities of individuals. If you couch that in an environment where employers don’t want to invest in training then you have pretty problematic circumstances for the prospects of most potential employees, regardless of their background or their merits.

      I finished a masters degree in 2006 and went straight into an career that wasn’t my goal in life but paid the bills. The cost of my student loan payments at the time was roughly 30% of my after-tax income. I didn’t complain, I got a second job. The really tragic thing about being burdened by loans is the opportunity costs to both myself and potentially to society as a whole. You take an entire generation of bright, ambitious, idealistic students and you drain them. I would seriously take a subsistence wage if I could have a positive impact on society and I have had to shelve the numerous ideas floating around in my head that could potentially have positive impact on society as a whole or create technological advancement / efficiencies. While in the realm of ideas, mine may not work out in the end. But, consider taking an entire generation of individuals with ideas on how to stem environmental destruction or improve social welfare and letting them flounder. Society as a whole is missing out on some potentially transformative ideas while their youth live in debt derived indentured servitude. That is very problematic as far as the future is concerned. Post-college and into the 30s is often the time when people are willing to take those risks as they are often not concerned with the stability necessary for having children. They can succeed and they can fail, but it is that churning that creates innovative businesses, non-profits, or other projects.

      1. j gibbs

        It would certainly be better for our society to underwrite the cost higher education for those capable of absorbing knowledge and applying it constructively. But given that it chooses to leave each student burdened by the entire cost, does it make sense for people to tie these student loan anvils around their necks?

        The knowledge is all around us and freely available at the click of a mouse. It is the diploma that costs all that money.

      2. H. Alexander Ivey

        Nice post, but what quite is your position? Your words and sentence structures shows a real understanding of writing, probably polished at the universities you attended – which would suggest that universities are a positive experience, yet we all agree that that experience is too expensive and is thus not really positive.

        My apology if this post seems like an ad hominum, it really is an comment from an English teacher to a commentator with writing talent.

    5. savedbyirony

      “Are they really victims”? – it’s a little dated, there is only so much that can be covered in an hours time and has been pointed out here on this site many a time PBS and the shows it carries will only go so far at best in exposing the rot throughout our society’s institutions, but Frontline’s “College Inc.” (available for viewing on their website) goes a good distance in exploring this question and the student loan business.

    6. jrs

      They may be intelligent (let’s say so) but at that age one isn’t always inbued with much of an understanding of the world. So they may have raw intellectual processing power, they may even have some knowledge of something (something they learned in school let’s say), but what use is it in making career decisions if it’s not knowledge of how the “real” world works? And they never taught that in K-12 when I went to it. Our time was spent on ancient history and math I’ve never used etc. etc., but explorations of the actual workings of the economic system that would confront us not so much so. Think for oneself? But one has to be aware enough to even ask the right questions: is it true that hard work and education lead to sucess etc.? And what if one has been told all one’s life they do? It’s not so easy to see beyond a pardigm when one has no experience. But the knowledge is getting out there ….

      While there are plenty of people who claim victim status who may have just been making bets that didn’t pay off (those who assumed housing would go up say), in my mind the bet for going into student debt is such a losing one that’ it’s hard to conceive of anyone making it with more knowledge. What do you get: 4 years of being young and enjoying it fully at best. But a lifetime of debt and unlike the house you can’t even walk away.

      General apathy and willful ignorance is the destruction of everything. The most apathetic and willfully ignornt might be Obamabots (often old enough to know better, in fact aware enough of the value systems that would lead them to choose better, but choosing blindness). 18 year olds who believe the world is like their elders have told them because it was when they grew up, not so much so. But the knowledge will percolate down, the millenials may not raise their kids to get in the troubles with student loans they did.

      1. rur42

        I remember when young people couldn’t get a credit card. Then CC folks discovered the youth market and started sending HS kids CC offers — wow, free money.

        I think a lot of student debt was the lure of “free money.” Of course not really free, but it doesn’t have to be paid back right away.

        How much of student loans actually went to pay for education? Some of the students I know with high student debt never lived so well as they did when they were college students. Lots of time off, money to party, money to buy toys and keep up with iTunes. Money to fly to Europe, go to Florida spring break, Cancun, etc. New computers, smart phones, appliances, hi-speed internet, the whole shebang.

        They may never live that high on the hog again.

        I’m thinking of a journalism major I know, who had a BA, but thought he could break into the big time if he got Master’s degree. He did, and went into debt 60K. That was 3-4 years ago, and he hasn’t had a fulltime job since. His new Macbook (bought with student loan free money) got stolen, and now all he can afford is a Chromebook. No hi-speed internet, he has to find free hotspots. No car, his phone bill is paid by his parents. He’s 30-31 or so. But very well-educated.

        Part of the problem is the was some colleges suck people into to taking the loans. I have a nephew who was out of work, decided to get a Pell grant and take some courses at a local community college. Lots of unemployed people in the area were doing this and business was booming at the college. We warned him not get get sucked in to student loans — and discovered later when he’d dropped out that he got a loan for $4500 free money–for one quarter. “They just put a piece of paper in front of me and made it very easy to get the loan.” (That’s his story and he’s sticking to it.) He spent the money on a lot of things, none of which had anything to do with education.

        Two anecdotes don’t prove anything. But I think they represent what happens to a lot of folks who get bogged down in student debt.

  11. washunate

    I think of it in terms of I’ll Be Gone, You’ll Be Gone.

    So the Right says individuals are on their own to raise money, and the Left says spend more government money, and that leaves few to ask what all this money is being spent on.

    It’s not a problem right now, though, because young people are powerless in terms of occupying positions of formal authority, and older workers who have some decision-making ability in our institutions so far are comfortable being complicit in the process. Politicians won’t care until one of those two things changes.

  12. Banger

    These day, unless they are certain about what they want to do or are full-scholarship students I advise young people to avoid expensive college and stick to trade schools and community colleges. College has followed the trend in ALL social institutions in the United States, dominated by the hustler-class. They exist for their own benefit and peripherally for the education of students.

    In fact, the whole idea of education is in flux at this time. Ideas pioneered by social and neuro-scientists are largely ignored both in ElSec and post-Sec education. The system will continue for some time but I advise apprenticeships, online learning, mentoring and so on. Another alternative is that I know college-age kids who play music, deal drugs, dumpster-dive, couch-surf, travel around the country in informal networks–maybe they are preparing for the future? These kids, btw, were those that tended to populate Occupy and are not going away.

  13. Katniss Everdeen

    And, lest we forget, these are the same young “invincibles” whose health insurance payments are required to make Obamacare work.

    Perhaps there’s a deal to be made here. No-fault student loan forgiveness for a promise to buy an Obamacare policy.

    It’s bargaining power, but there’s been so little around lately that maybe people no longer know it when they see it.

    1. H. Alexander Ivey

      Ha! Who says you don’t need a smoke filled back room! (Hugh February 18, 2014 at 8:09 am in Matt Stoller’s recent posting). If exchanging student debt for Obamacare is not a conspiracy, I don’t know what one is.

  14. Min

    “Yet the severity of this problem is barely acknowledged as a problem among policy classes. Is that because the looting must continue?”

    It is not looting so much as keeping people in their place. Better not to have an educated proletariat. But if they get higher education, keep them down by other means.

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