Did The Student Loan Bubble Just Pop?
Critics of higher education – or, more accurately, critics of the way higher education is currently being done in the US – such as myself have been pointing out for some time now that there is a subprime bubble in the student loan market much like there was a subprime bubble in the home loans market in the last decade.
The student loan bubble, also like the housing bubble, has been inflated by endless government subsidies and gurantees, policies passed with certain social engineering agendas in mind. We subsidized subprime home loans because the politicians thought increased home ownership would make us a better country. We’ve been subsidizing student loans on the same premise except with college students instead of homes.
But in order to induce lenders to make student loans to subprime borrowers the government has had to create a lot of inducements. Subsidies and federal backing for the loans kept the loans flowing, and the banks also benefited from students being disallowed by law from discharging student loan debt through bankruptcy.
It was a sweet deal, but now it appears as though even with these protections, the student loan market has grown too perilous for some lenders. A couple of financial industry giants are apparently pulling out of the market altogether (via Zero Hedge):
U.S. Bancorp (USB) is pulling out of the private student loans market and JPMorgan Chase (JPM) is sharply reducing its lending, as banking regulators step up their scrutiny of the products.
JPMorgan Chase will limit student lending to existing customers starting in July, a bank spokesman told American Banker on Friday. The bank laid off 24 employees who make sales calls to colleges as part of its decision. …
“The private student loan market is continuing to decline, so we decided to focus on Chase customers,” spokesman Thomas Kelly says.
What this means is that even with all the government backing and subsidies for student loans (entirely private student loans were rare before Obamacare, and non-existent by law after) banks still can’t make money on the loans.
How big of a deal is this? Last year national student loan debt eclipsed national credit card debt in total amount.
You read that right. Americans have more student loan debt than credit card debt, and the student loan market has gone so sour the big banks are pulling out.
This is yet another government-created disaster waiting to happen. Or, perhaps, is starting to happen right now.
Tags: higher education, student loans
