Students and workers seeking retraining are borrowing extraordinary amounts of money through federal loan programs, potentially putting a huge burden on the backs of young people looking for jobs and trying to start careers.
The amount of student loans taken out last year crossed the $100 billion mark for the first time and total loans outstanding will exceed $1 trillion for the first time this year. Americans now owe more on student loans than on credit cards, reports the Federal Reserve Bank of New York.
Students are borrowing twice what they did a decade ago after adjusting for inflation, the College Board reports. Total outstanding debt has doubled in the past five years — a sharp contrast to consumers reducing what's owed on home loans and credit cards.
Students and workers seeking retraining are borrowing extraordinary amounts of money through federal loan programs, potentially putting a huge burden on the backs of young people looking for jobs and trying to start careers.
Did you read that golden nugget of information above?
We now have more people on student debt than credit card debt.
When I think of my grandfather and his generation, the one that fought in WWII, they had a philosophy of prudent debt usage.
Oh sure, they didn't have access to credit back then like we do now, and that's probably a good thing. But that generation was a generation of savers who paid for most things in the form of cash.
I find it disturbing that we are going through the same government promoted bubble in student debt issuance as we did in real estate debt issuance via Freddie and Fannie. The outcome will be as ugly as the real estate implosion.
It might take form in social unrest in the coming years.
Taxpayers and other lenders have little risk of losing money on the loans, unlike mortgages made during the real estate bubble. Congress has given the lenders, the government included, broad collection powers, far greater than those of mortgage or credit card lenders. The debt can't be shed in bankruptcy.
The credit risk falls on young people who will start adult life deeper in debt, a burden that could place a drag on the economy in the future.
"Students who borrow too much end up delaying life-cycle events such as buying a car, buying a home, getting married (and) having children," says Mark Kantrowitz, publisher of FinAid.org.
"It's going to create a generation of wage slavery," says Nick Pardini, a Villanova University graduate student in finance who has warned on a blog for investors that student loans are the next credit bubble — with borrowers, rather than lenders, as the losers.
We teach young people now to over leverage themselves with debt levels they can't handle, and possibly force them into some type of financial slavery that will impact future economies, or at least the quality of their lives.
Even if those taking on new student debt find a job in the world's worst job market, they will be financially strapped with student debt payments for years.
You can blame Uncle Sam for a continued and reckless policy of too much easy debt.
Most Disturbing
If there's one thing that really frustrates me in this deflationary era: it's how little young people truly understand why and how they are getting hosed.
Decisions made by the Federal Reserve, the President, Congress and even local leaders trying to keep economies elevated will all impact the future of how young people live. And few of them truly understand this dynamic.
Whether it's higher taxes in the future to solve local and federal budget deficits, and/or paying off government debts, or wage deflation stemming from a soft economy muddling along for years, the future prospect for young people sucks.
They face lower gross and net incomes in the future, and at the same time Uncle Sam promotes more (record) student debt as a good thing!
Let's see, that's no job in the future, or one with lower gross and possibly net after tax pay with more student debt payments.
That's the math as I see it for many of today's young people.
Solution
I hope someday soon, young people come to realize how and why they are getting hosed. It's far more complicated than a bad economy and a weak jobs market, but you can blame Uncle Sam.
What's needed is unity among the young. Since they do not and will not have the financial resources to buy politicians, they must focus on their shear numbers and pull together.
This might not ever happen because most young people do not vote. If they do, they tend to get side tracked on what I would call secondary or tertiary issues.
However, if they came together, and not on the side of the right or left, but on the side of youth versus both the left and right they might be on the right track.
Possibly starting their own group, or ideally a new political party. Then and only then will they possibly have a voice supporting their future.
Hope all is well.
J.D. Rosendahl, Rosey