... Debt Slave Collection Business is Booming; Housing and Economic Implications
Congratulations to the University of Phoenix, a private for-profit school, which has the dubious distinction of having 4,359 percent more student loan defaults than Columbus State, the top public school.
A student loan is considered in default when it is 360 days delinquent.
Number of Loans in Default
The above chart from the New York Times article Bad Student Debt Stubbornly High as Collection Efforts Surge.
There is now over $1 trillion in student debt and $76 billion of that is in default reports the NY Times in Debt Collectors Cashing In on Student Loans
As the number of people taking out government-backed student loans has exploded, so has the number who have fallen at least 12 months behind in making payments -- about 5.9 million people nationwide, up about a third in the last five years.
In all, nearly one in every six borrowers with a loan balance is in default. The amount of defaulted loans -- $76 billion -- is greater than the yearly tuition bill for all students at public two- and four-year colleges and universities, according to a survey of state education officials.
In an attempt to recover money on the defaulted loans, the Education Department paid more than $1.4 billion last fiscal year to collection agencies and other groups to hunt down defaulters.
Unlike private lenders, the federal government has extraordinary tools for collection that it has extended to the collection firms. Ms. Cordeiro has already had two tax refunds seized, and other debtors have had their paychecks or Social Security payments garnisheed. Over all, the government recoups about 80 cents for every dollar that goes into default -- an astounding rate, considering most lenders are lucky to recover 20 cents on the dollar on defaulted credit cards.
There is no statute of limitations on collecting federally guaranteed student loans, unlike credit cards and mortgages, and Congress has made it difficult for borrowers to wipe out the debt through bankruptcy. Only a small fraction of defaulters even tries.
"You are going to pay it, or you are going to die with it," said John Ulzheimer, president of consumer education at SmartCredit.com, a credit monitoring service.
Debt Slave Collection Business is Booming
Last year the government paid $1.4 billion to collect defaulted loans of which $355 million went to 23 private debt collectors. Student debt collection is now the most sought-after contract within the industry.
No wonder.
Student loan collectors have the ability to garnish wages, seize tax refunds, and seize other government payments.
Those in the debt slave racket are of course willing to do anything to keep the business alive. Obama wants to expand the program. Of course, so do all the universities and anyone associated with the slave trade.
The schools and slave trade collection agencies are big contributors to politicians willing to accept campaign bribes to keep the student "aid" programs intact.
Student "Aid" or Economic Prison Sentence?
You know the answer to the question if you have any common sense. Student "Aid" is not for the kids. Virtually nothing of importance in the education industry is "for the kids".
From public unions, to aid programs, and even grants, the entire system is geared to sending as many kids as possible to school, hoping to make debt slaves out of them for life.
The only rational thing to do is kill every one of these ridiculous programs cold turkey. Those in the slave trade will fight tooth-and-nail against cutbacks, led no doubt by the University of Phoenix.
For more on Student "Aid" please see
- A Remarkable Comparison: Affordable Student Loans vs. Affordable Housing an email from Eugene Holloway, a Maryland Attorney, on the rising cost of college education.
- Debt for Diploma Schemes: Debt for Diploma Schemes and the Cookie Monster Principle
- Off-Balance-Sheet Budget Fraud: Budget Deficit Accounting Fraud and the Off-Balance-Sheet Student Loan Scam; Time to Scrap Entire Student Loan Program
- Pell Grants Turn Students into Debt Zombies: For Profit Schools Turn Students Into Debt Zombies; It's Time To Kill The Entire Pell Grant Program
- Subprime College Loans, Who is to Blame?: Subprime Goes to College; Students Buried in Debt; Who is to Blame?
- Expect More Student Riots: University of California Campus Erupts In Riots; Student Loan Scam Drives Up Cost Of Education; Expect More Riots
Major Economic Headwinds
The effect on housing and the economy of these disastrous policies are enormous, yet Bernanke is not even bright enough to figure it out.
Please consider a few snips from Central Bankers Fail to Understand Forces Holding Back the Economy; Ten Major Economic Headwinds
Ten Major Headwinds
- Boomers heading into retirement have insufficient savings
- Student debt holds back home-buying, marriage, and family formation
- Ability and willingness of individuals and businesses to take on more debt has shrunk dramatically. Attitudes towards lending, borrowing, and home ownership have changed.
- Bank bailouts at taxpayer expense left banks intact but did nothing for households deep in debt
- Tax policy encourages flight of jobs and capital
- Technology now serves to destroy more jobs than it creates. Please see Robots to Rule the World? Taking All Jobs? Replace Women? for a discussion.
- Untenable pension problems at the city, state, and federal level can no longer be put off.
- Public unions and collective bargaining are structural problems at the heart of the pension mess as well as the heart of numerous city bankruptcies.
- Artificially low interest rates weakens those on fixed income
- Commercial real estate bust on top of housing bust limits further job expansion. How many more Walmart, Pizza Huts, McDonalds, nail salons, Kohl's stores, Office Depots, Home Depots do we need? Where?
Housing and Recoveries
Housing has led nearly every economic recovery for decades. So look at point number two above: Student debt holds back home-buying, marriage, and family formation.
I expect housing to be weak for a decade because of those points. Prices will be stagnant for years as banks work off REOs.
The structural overhangs of inept policies, bank bailouts, mortgage fraud, public unions, and boomer retirements guarantees Bernanke will not be able to stimulate lending to the degree he wants.
Worse yet, Bernanke's policies only serve to increase the economic distortions and the tension between the 1% and everyone else.
Addendum:
Note to All Facebook Users: If you have not yet voted for your favorite charity (it costs nothing to vote), please do so. Chase is giving away $5 million to charity, and I have a cause that I support.
Please click on this this link: Facebook Users, I Have a Favor to Ask, then follow the instructions.
