Student Loan #Debt & The #Education Bubble

Posted: March 6, 2014 in Excess and Algorithms
Tags: , , , , , , , , , , ,

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by @anarchyroll

A lot has been written about student loan debt, but apparently not a lot of research has been done into the subject. The Department of Education releases default rates once a year, but that is just about it. Are you surprised at this? So was the New York State Federal Reserve Bank. Two analysts working their essentially had to do a bulk of the research that is now often cited by the media and protest groups.

They found that the percentage of 25-year-old college graduates with student loan debts essentially doubled while the average loan balance increased 91% from 2003 to 2012.

Economists are looking at education borrowing as the next bubble that could burst and drag down the US economy along with it. Much like the housing bubble, there are a lot of government backed loans being given away with a rubber stamp to large amounts of people who are unable to immediately if ever repay. Government officials are openly comparing student borrowing to the mortgage-backed security crisis of 2008. And remember, this article opened with the fact that there has been little study and even less data available on the subject.

Mortgage backed securities, credit default swaps, and derivatives trading are all complicated things. Let’s keep the education bubble concept simple.

Student loan debt in America = $1.2 trillion (with a T) more than any other form of consumer debt.

Much like the series of articles written about quantitative easing (QE), there will be multiple articles written about student loan debt as well as the debate over raising the minimum wage. These are the three economic issues I feel most passionately about and wish to shine light upon. Let those numbers listed above wash over you for a bit. Do you know anyone dealing with student loan debt? How are they doing? What is their quality of life?

It’s not just the loan or the interest, it is the unemployment, underemployment, or complete non-existence of careers in the fields thousands if not millions of students are graduating with each year. It’s not just the monthly payment on the loan(s). It’s the monthly payment on the loan plus rent, utilities, food, transportation, etc.

The Education Bubble and the student loan debt crisis are one and the same. They are intertwined, they are two terms describing essentially the same thing.

How is higher education a bubble akin to the dot-com, real estate bubbles, and other asset bubbles? We’ll cover that in part 2…

  1. KB says:

    You might consider writing about those who successfully discharged student loan debt in bankruptcy.

    1. Michael Eric HEDLUND v. The Educational Resources Institute Inc. et al., case number 12-35258, in the U.S. Court of Appeals for the Ninth Circuit (May 22, 2013);

    2. In re Robert Jacob SCOTT and Sarah Jane Scott, Debtors. Robert Jacob Scott and Sarah Jane Scott, Plaintiffs v. U.S. Department of Education; Educap, Inc., The Education Resources Institute (TERI), et. al, Defendants. Bankruptcy No. 07-14317. Adversary No. 07-01367. United States Bankruptcy Court, W.D. Washington, at Seattle. September 25, 2009;

    3. Christian D. MENDOZA, Chapter 7, Debtor. Christian D. Mendoza, Plaintiff, Educational Credit Management Corporation; Hemar Insurance Corporation of America, Defendants. Case No.-01-53238-MM. Adversary No. 01-5283. United States Bankruptcy Court, N.D. California. June 20, 2007;

    4. In re Lorna Kaye NYS, Debtor, Educational Credit Management Corporation, Appellant, v. Lorna Kaye Nys, Appellee. No. 04-16007. United States Court of Appeals, Ninth Circuit. Argued and Submitted February 15, 2006. Filed April 26, 2006. 446 F.3d 938; and

    5. Krieger v. Educ. Credit Mgmt. Corp., No. 12-3592 (7th Cir. Apr. 10, 2013).

    The Hedlund case in 2013 and Scott case in 2009 are significant. These two cases clearly expand the law in favor of student loan debtors who reside in the nine western states. Both Hedlund and Scott were in their 30s, healthy, well educated, had graduate studies from respected universities (not diploma mills or questionable trade schools) and were employed, and they successfully discharged most of their student loan debt in bankruptcy.

    This is a trend that the mainstream media has not picked up on.

    Also, see the excellent law review article by Jason Iuliano, Ph.D., “An Empirical Assessment of Student Loan Discharges…”, American Bankruptcy Law Journal, September 2012. He makes the case that millions of debtors could successfully discharge their student loan debt if they merely tried.

    Finally, the excellent book Bankrupt Your Student Loans and Other Discharge Strategies, 3rd Edition (2009), by Chuck Stewart, Ph.D., publisher Stewart Education Services. This book makes the case that the Department of Education will significantly reduce a debtor’s student loan debt, in an out of court settlement, if the matter is brought to bankruptcy court. Dr. Stewart’s own case can be found at California Central Bankruptcy Court case LA04-19681ER, filed August 2004.
    Chuck Stewart, Ph.D.
    3722 Bagley Ave. #19
    Los Angeles, CA 90034-4113
    310-838-6769 (f)

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