Student Loans Another Bubble : Federal Intervention At The Root

Interesting observations on the catastrophe that is federal student loans. It wasn't on a path to default or national debt crisis until the feds took over the system in 2009 under the Obama administration.  It was a political move to get as many young people as possible to be dependent on the government for their well being and therefore voting to maintain federal support in loan management.

Remember the dropping of the interest rate just before the election in 2012 and then how it jump back up after? This was just one of the manipulation Mr Obama used to keep the young voter corralled in the socialists camp.

But the author's observation that the recession is over begs some "willing suspension of disbelief". The economy is still headed down and will not recover until basic economic factors that support free markets are implemented, that is Conservative principles. The work every time they are used.

A Crisis in Student Loans?
Source: Adam Looney and Constantine Yannelis, "A crisis in student loans?" Brookings Institute, September 10, 2015.

September 16, 2015

Between 2000 and 2014, the volume of outstanding federal student debt nearly quadrupled to surpass $1.1 trillion and the number of student loan borrowers more than doubled to 42 million. Moreover, default rates among recent student loan borrowers rose to their highest levels in twenty years.

A study by the Brookings Institute, however, reveals that the increase in default is associated with the rise of borrowers at for-profit schools and, to a lesser extent, two-year institutions, which traditionally did not represent a large proportion of borrowers.

The data show that the number of non-traditional borrowers increased steadily since the mid-1990s as enrollment in less selective institutions increased, additionally:

• Enrollment in for profit and two-year schools surged during the recession as the weak labor market encouraged many to return to school, and to borrow to do so.
• The combination of new enrollment and rapid turnover resulted in a flood of non-traditional borrowers out of school and into loan repayment after the recession.
• Nontraditional borrowers appear to be a particularly vulnerable and high-risk population.  They tend to be older, from lower-income families, and tlive in poorer neighborhoods.

By contrast, traditional student loan borrowers have avoided default and delinquency because they experience more favorable labor market outcomes, relatively high earnings, and are more likely to come from higher-income families in the first place.

On a positive note, recent trends indicate that the number of new borrowers at for-profit and two-year institutions has dropped substantially, due to the end of the recession and increased oversight of the for-profit sector.