HOW STUDENT LOANS ARE HOLDING BACK HOUSING, ECONOMY

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“The debt load is so high, and the job outlook so bleak, that student loan default rates have almost doubled,” he wrote in a note to clients. “With the economy little improved since 2009 default rates are bound to rise further.”

“This number is greater than all credit card debt outstanding, and second only to mortgages in terms of total national debt.”

EDITOR’S NOTE: Once upon a time in a land we called America, people were prospering because nearly everyone had an opportunity to move up the economic ladder. Then, as human nature is want to do, some people with money controlling the world’s largest corporations decided they could have more money, more profit and higher share prices (wealth) if they simply stopped paying workers well. It wasn’t that these companies were in trouble. They just wanted more money. And being just people, like you and me, they didn’t stop to think about what the world would look like as a result of these short-sighted policies.

As wages went down profits went up for a short while. But of course people could not afford even modest price increases reflecting higher costs of materials. So the companies reduced quality to maintain their “profitability”.  So then we had lower wages and lower quality. But then normal increases in the cost of goods sold and ever-lowering wages took their toll on sales. People didn’t have the money to pay for the goods and services that were being produced.

There was only one thing to do, according to these geniuses, these titans of universe. By giving the worker money to spend, they would maintain sales and could even increase prices and maybe somewhere down the line they could even return to the quality that once adorned goods made in the USA. But there was a catch. If they gave the workers more wages, then THAT they would need to report as expenses which would lower reported profits and of course their wealth (share prices) would go down as the market is a reflection (long term) of ultimate profitability.

ENTER DEBT, STAGE RIGHT: Behold, here is money you can spend on our inferior goods and services that you can spend whenever and wherever you want on anything you want. The Gods call it debt. And debt will liberate you. Debt is a good thing because you can always buy that thing you wanted without saving up for it. So we will give you these plastic cards and you will have the money available to buy what you want.

And we, the money Gods, will also make your student loans from our private banks instead of the public funding. And we, the money Gods, will make hundreds of different types of loans to allow you a monthly payment in each case that you can afford so you can have anything you want — even if all the payments on all the loans are above your ability to pay. We can do that because we are going to give you more debt to pay the old debt.

BEHOLD! We, the money Gods, have created a class of assets that investors want to buy because it looks like they can earn a higher amount buying these assets than other assets they could buy with their investment money. And with student loans, you can’t lose because it is guaranteed by the U.S. Government. And if the U.S. Government doesn’t have the money to pay off these loans then we, the money Gods, will lend the Federal Government the money as long as they print enough money for us, so we can lend it to them. We will buy their bonds at 4% return while they print the money and give it to us at a cost of 0.01%. What a country!

So now we have lower wages, lower quality, and a mountain of debt that nobody can pay. Plus we have no jobs that could pay off student loans, which were made with investor money, just like all the other loans that were made with investor money. The money Gods, never at risk, made all the money that could be made and then tossed fictitious losses over the fence onto the taxpayers who had no money to pay for those losses. Exactly how the Banks could lose money when they never had any risk of loss is something that nobody has quite explained to me.

But as shown in the article below, the failure of the U.S. economy to provide jobs that provide sufficient wages to pay for the bills we have run up is now creating the inevitable result — nobody can pay for anything. And student debt is more onerous even than a mortgage. So the newbies that we always depend upon for “starter housing” are not there and they are not going to be there.

As goes housing, so goes the economy.

Surging student loan debt threatens homeownership

SEE ENTIRE ARTICLE ON housingwire.com

by JACOB GAFFNEY
Monday, December 12th, 2011

College graduates may not be able get onto the property ladder as soon as they’d like due to the costs associated with funding higher education.

According to Rick Palacios, a senior research analyst at John Burns Real Estate Consulting, student loan debt now totals $865 billion, which is an average of $25,000 per student.

“Student loans are going to be yet another hurdle for the housing market to overcome,” Palacios said. “Faced with mounting student loan debt, poor job prospects and stagnant wages, an increasing number of people aged 25 to 34 have moved back in with their parents.”

According to John Burns, almost 6 million 25- to 34-year-olds now live with mom and dad. This number is up 26% from 2007.

The current rate of homeownership rate for this demographic stands at a 10-year low for under 30s. The rate for 30- to 34-year-olds is even worse, at its lowest rate in 17 years.

“The debt load is so high, and the job outlook so bleak, that student loan default rates have almost doubled,” he wrote in a note to clients. “With the economy little improved since 2009 default rates are bound to rise further.”

This number is greater than all credit card debt outstanding, and second only to mortgages in terms of total national debt.

“Even more troubling is the rise in debts associated with for-profit college and trade schools, whose revenues come primarily from debt available through federal government programs.,” said Palacios.

On Oct. 25, the Obama administration announced that it is taking steps to increase the affordability of higher education and aid those laden with outstanding student loan debt. In the short term, until the changes can take, current graduates will be relegated to the rental markets.

Their eventual introduction into the housing market will provide a boost, unless their credit profiles are degraded from lack of student loan repayments.

Write to Jacob Gaffney.

Follow him on Twitter @jacobgaffney.


18 Responses

  1. @neidermeyer——–

    you still don’t get it.

    you said-

    ” I trust North Dakota … but let California and Illinois print unlimited money and it hurts everyone ,, not just people in their state..”

    North Dakota does not print money, nor unlimited money……….jeepers………….North Dakota only funds the credit and only the credit taken out by the people in North Dakota,,,,,,,,,,thus if nobody in North Dakota took out a loan, there would be no printing of money…………

    What we are talking about is the interest payments,,,,,,,,and what we are talking about is if the interest payments as profits whether to line the pockets of private banks or to line the pockets of the state……………jeepers——–and if the interest payments go back to the state, magic,,,,,,,,,,,there goes not needed taxes………..

    I have come to the conclusion you do not know about money and credit and the history of it. As it is made confusing, to confuse the general population.

  2. Responding to Mr, Neidermeyer:
    You raise the issue of the impact of the Euro-zone problems. Those problems stem not from lack of coin to pay the bills of Greece, Italy and Spain, but “who” is going to be on the hook. The big Euro Banks bought that debt, then insured it with credit-default swaps (in turn mostly issued out of NYC). Under the “normal” course of events, the banks would simply collect from the default-insurance issuers. However, with the “haircut” proposals coming out of Brussels, there will be no insurance, as there will be forced principal reduction (which does not trigger the default insurance). And therein lies the big fight.

    Getting past that, ultimately the euro will bust up. It is an illogical currency, a creature of the romanticized notions of EU bureaucrats, not grounded in the realities of Europe. The usual course of action for the “underbelly” countries is to devalue the currency when they get into a jam. That worked, rather well. With the common Euro, that technique is taken away. Hence, I predict that the Euro will eventually dissolve, at least for the outer-rim countries. The Euro may well continue for the Northern participants, including Latvia. It will not be the catastrophe that pundits predict; the old independent currencies were not a catastrophe either, just a bit awkward to work with.

    The deflation of the US Housing market is more serious and a lot more immediate than you might think. Right-wingers are perfectly prepared to install both internment camps (see: Senate Bill 1867, for which 100% of republicans and a number of democrat Senators voted) and for expulsion of Hispanic migrants, already taking place (after internment in immigration (ICE) detention camps). Detention, or internment, is already here, and will predictably be expanded, mostly because right-wingers do not like “them,” the “aliens”. Remembering that Barry, for all his oratory, does not exactly strike out to blaze any bold paths, the possibility of a republican take-over of the Senate and/or the executive is out there. Never underestimate what dumb things your neighbors are capable of. Do your neighbors speed on the highway? How about on town streets? Do they own guns? Why would you conclude they would oppose detentions and expulsions?

    The fecundity rate for US women is 1.9. The rate you need to maintain a population is 2.1. [Interestingly, the rate in Germany is 1.6; in Italy it is a staggering 1.1. Absent migration from Turkey, Germany’s population would have collapsed. As it is, the former East Germany will revert to wild forest within 75 years. No people.].

    The difference is made up by immigrants. Cut off immigration and you shut down construction. Start expelling people and you create a big demand vacuum. That, inevitably, results in collapsing prices and abandoned homes. By the millions.

  3. I think we’re not looking deep enough into what is going on.

    There are too many of us on this earth. Anytime anyone talks about humans, it’s in terms of too large populations, forthcoming lack of food and desasters. Everything is being done to push to:
    – kill us through orchestrated breakdown of our bodies (Monsanto, Pharma, sugar, pollution, loss of habitat and loss of means to feed ourselves)
    – kill ourselves (despair, hopelessness and suicide);
    – kill each other (survival of the fittest through “economic” wars)

    In order to get rid a at least half the population, so that we can start all over again and pursue that course of lerning more and more and more about the Universe and whrther there are other planets we could go and conquer.

    I know. No one wants to read this. The evidence is there, though…

  4. @Jan van Eck ,

    I think you’re looking too far into the future ,, we will have a sub 50% housing occupancy rate (not that anyone will care at that time) when/if the “debt crisis” in Europe which is now in the bank run stage … isn’t halted… We are trying to halt it with enormous amounts of cash and T-Bills provided at 0% by the Federal Reserve… If Europe crashes hard our banking system will too… That’s where we get food shortages , wild inflation , and millions of people dying from the cold , starvation and lack of necessary medications.

  5. The humans on this beautiful blue planet are spiritually, morally, and financially bankrupt…let the purification begin…

  6. The observation that students saddled with debt are not going to be able to enter the housing-purchase market is only one part of the looming problem. Picture the posture of the “Republicans,” that the “illegal immigrants” all have to be deported (in practice, this means the 11 million Spanish-speaking ones; nobody is suggesting deporting undocumented Canadians). Ponder the implications of this policy: those 11 million people live in housing units, either homes or apartments. After they leave, you will have yet another 3.5 million empty housing units sitting out there. And the US population has a negative birth rate: all that keeps the population from shrinking is the immigration.

    For those who want to kick the Hispanics out: who is going to buy those 3.5 million houses? Who is going to rent those empty apartments? Nobody? Watch the landlords go bust. Another 3.5 million units going through foreclosure, then to stand empty. Truly a bleak prospect.

    And you thought buying a home was an “investment”?

  7. cubed ,

    Just thinking of the inflationary aspects of giving states that are the equivalent of teen girls with a credit card a magic printing press.. the money doesn’t stop at the state border … it affects all the other states.

    It’s like being married to someone that won’t stop spending … you can’t have 50 states printing … it’ll be a race to see who can outprint the others, the first one to print it and spend it wins!… I’d be all for the federal gov’t printing US currency directly and not going through the federal reserve.

  8. The key isn’t whether it’s a state or federal bank, the key is taking the power away from the existing banks. If a government (state or federal) bank simply created and loaned money at MINIMAL (just the cost of doing business) rates, as Michael Hudson says, “like how the feds supply our roadways”, the parasitic banks would no longer be able to compete…. they’d all die a horribly pleasant to watch death screaming the whole time about how unfair life is. Wouldn’t you love to hear Jamie Dimon whining about how unfair life is? I mean, he does it now when he’s making unearned millions, how high pitched and annoying would he be if he was running short of cash?

    In order for the world to survive this calamity, we need debt forgiveness; seeing as how they’re all or nearly all fraudulent anyway, and we need for banks to be the gears that move a viable economy once again. That can only be done by not charging us an arm and a leg just to live life. This concept of making people pay their entire lifetime for a degree and a house to hang it in is ludicrous and has never been the way of civilized people before bankster greed took over.

    When the hammer finally comes down on these assholes, humanity as a whole can forever celebrate International Schadenfreude Day together, and there will be puppies and butterflies the world over. And when the Dark Lords are all gone, life will be good again and we can go back to brewing ales and smoking Old Toby.

  9. @Cubed,

    Haven’t gone to a department store in 4 years. Goodwill does it for me. Have been cooking everything from scratch for… 55 years. Cheaper, healthier and keeps me in shape. I knit, crochet, get old 100% solid wood furniture that I refinish, drive an old 95 car I keep running, ride my bike. So long as I have running water, heat and electricity to get on internet (my jobs are sent through it…), I’m good.

    Oh, and cell phone, for work.

    Got a big box of cash and I use plastic only as a security: I couldn’t see myself with wads of cash. Too risky. But no credit card debt.

    Freeeee! Once the house bit is resolved, I’m good.

  10. @enraged

    you said
    “IN-SA-NI-TY!!! I can survive the “old” days. Anyone wants to join?”

    Yes, I have, 3 years. I went all cash, no credit. No credit cards, no bank loans, no nothing from the banking industry.

    Will others join me?

    No debt is fun. I get to create, make money, and I owe no one.

    And by fixing things, and by buying second hand, why I help in keeping inflation down.

  11. It is no more simple than I posted,,,,,,,,,,,,,below,,,,,,,,,,but the rules make it so complicated that you can’t see or understand…………because when you look at the rules, the UCC codes, the state UCC codes, why they are so complicated…………all done on purpose to make it complicated so you don’t understand…………….

    Why on earth does it need to be complicated?

    It is complicated per the UCC codes only so you can be took. And who created those UCC codes, and more regulations, and more codes,,,,,,,,,,,,,,,,why the banks do thru lobbying…………on and on it goes,,,,,,,,,,,but simply start a state bank and the scam is done with…………….and then get the US Gov’t to take back control of the Federal Reserve and all is done with debt problems

  12. @neidermeyer…………

    you said——-

    “The trouble is the state bank is creating “money” / “currency” denominated in US Dollars … I trust North Dakota … but let California and Illinois print unlimited money and it hurts everyone ,, not just people in their state..”

    NOOOOOOOOOOOO

    You ain’t got it yet. Review my postings and research.

    The state bank is creating money or credit from nothing but book keeping entry, BUT, and a big BUT, the interest goes back to the the state treasury to fund the state or the people living in the state, so HOW DOES THAT HURT EVERYONE? It doesn’t, because the interest profits go back to fund the state operations, which are the people in the state. As opposed to funding the pockets of the big banks, and only big banks have clot with the federal reserve. Big Difference.

    There is nothing wrong with creating money from nothing, from book keeping entry, as long as it is from the people of the state or Country to which the profits or interest go back to fund it’s operation. But, with our present system, money is created from nothing, or book keeping entry, and the interest goes to line the pockets of the big banks…………as opposed to BACK to the People. Big difference.

  13. @Carie Do you know how to contact Spitfire? We are from the same state I missed her post a couple days ago concerning attorney representation.

  14. I’m with you, Enraged…
    I love goats, sheep, cows, chickens, growing my own fruits and veggies—and bike riding!

  15. Cubed ,

    When you’re right you’re right … The trouble is the state bank is creating “money” / “currency” denominated in US Dollars … I trust North Dakota … but let California and Illinois print unlimited money and it hurts everyone ,, not just people in their state..

    I say we shut down the fed and have the US government print currency directly (economies have outgrown artificial constraints such as the gold standard) with a policy of price stability (as we have with the fed now) and a goal of 0-2% inflation … trouble is the horse has already left the barn … just today with the bank runs in Europe we’ll see the unelected Fed give away our money by the container ship load before the end of business wednesday…

  16. Students’ loans are not holding housing and the economy.

    Stop drowning in a flea spit and trying to drown the fish.

    Banks are holding housing and the entire economy by screwing up titles and refusing to fix them. Lack of clear titles screw up workers (parents) who had promised the kids they would help with student’s loans but no longer can because banks are after them even though the house was paid off eons ago. Banks screw up jobs. Banks screw up everyting.

    Students’ loans are only a resulting symptom. In a very short time, food will be considered the “problem” when banks start holding the means to produce it, harvest it, transport it, make it available, etc.

    And economists will say: “Food is holding the economy”. Give me a break. A real break. Tear down the banks, get our money back, reverse government, get back to basics or don’t become alarmed when we grow our own food in our yards, desert supermarkets, desert gas stations and ride our bikes, stop bying cars, get a goat and a couple of sheep, allow neighbours to have a cow or two and start reverting to trading. “I’ll give you my sheep’s wool for 2 gallons of milk”, “I’ll fix your shoes if you can sew me a dress”, etc.

    IN-SA-NI-TY!!! I can survive the “old” days. Anyone wants to join?

  17. The only thing holding back the economy is the god damn monetary system,,,,,,,,,,,,,,jesus christ already.

    As I posted below in the article

    REALTORS NEED TO STEP UP, OWN UP AND THINK LARGER

    The only thing holding back the economy is Wall St and banks, and every state can do as the North Dakota state has done since 1919, they were very smart back then and still are. States just need to start a State Bank, like State Bank of California, and they become like a mini Federal Reserve and the state bank hooks up with all other banks in the state and credit unions,,,,,,,,,,,,and then when loans are made, and interest is collected, why after expenses and salaries, why all profits go back to the state treasury………….really simple.

    And all those profits in terms of interest collected by the present bank system all go to line the banks pockets and wall st – do you want this?

    Well all those profits, with a state bank go back to the state, and thus taxes will be lower, property tax can be eliminated,,,,,on and on the benefits……….

    But everybody wants to argue over the present robbery by the banks………..

    why OWS should be just collating for each state to create their own state bank like North Dakota…………..presto magic, problem solved.

    and if each state does create a state bank,,,,,,,,,,,,why your present bankers will have to get a real job————-

    sounds good to me……….

    But, I guess all will still argue and add more protection rules———–

  18. Bank representatives and government officials are pushing to put the finishing touches on a broad settlement of most state and federal investigations of alleged foreclosure improprieties that could force five large banks to make concessions worth roughly $19 billion.

    Housing and Urban Development Secretary Shaun Donovan and state officials hope to reach a deal as soon as this week, though any agreement could be delayed by unresolved issues including the naming of a monitor to oversee the agreement.

    The settlement would end months-long negotiations among federal officials, state attorneys general and the nation’s five largest mortgage banks: Ally Financial Inc., Bank of America Corp., Citigroup Inc., J.P. Morgan Chase & Co. and Wells Fargo & Co. The talks center on the banks’ use of “robo-signing,” in which employees approved legal documents without proper review, and other questionable foreclosure practices. Representatives of the five banks declined to comment.

    The value of the settlement could be as large as $25 billion if it includes California, which left the talks in September. California accounted for 13.1% of all mortgages outstanding at the end of September and 10.8% of all loans in foreclosure, according to the Mortgage Bankers Association. Without California, the value of the deal is likely to be roughly $19 billion, people familiar with the talks said. A spokesman for California Attorney General Kamala D. Harris declined to comment.

    The dollar value of the deal would include the value of principal write-downs, interest-rate reductions and other benefits to homeowners as well as cash penalties.

    The Obama administration has been pushing for a 50-state deal, but its efforts have run into opposition from labor unions and liberal groups that have warned that the proposed settlement is inadequate. Previous efforts by the administration to deal with the foreclosure crisis have been criticized as falling short of expectations.

    It isn’t clear how many states will agree to a settlement. Besides California, attorneys general in Arizona, Delaware, Massachusetts and New York also have expressed reservations about a potential deal. New York Attorney General Eric Schneiderman has had several conversations with Mr. Donovan in recent months, people familiar with the matter said.

    “We remain engaged with our federal counterparts to ensure there is real accountability for misconduct in the mortgage industry and significant relief for those who have suffered through this crisis,” a spokesman for Mr. Schneiderman said.

    Administration officials have viewed the foreclosure settlement as a chance to break the foreclosure logjam, increase the number of reductions in loan principal and provide other assistance to homeowners. Banks, meanwhile, would like to reassure investors and put questions related to foreclosure practices behind them.

    But several issues remain. The two sides still must choose a monitor who will be responsible for seeing that banks comply with the agreement; they also still are working on a mechanism under which states can act to enforce the settlement.

    Among those being considered for the monitor position is North Carolina Commissioner of Banks Joseph A. Smith Jr. A spokeswoman for Mr. Smith said he was unavailable for comment.

    Former Federal Deposit Insurance Corp. Chairman Sheila Bair was approached a few months ago about the job, but said she wasn’t interested because of other commitments, according to a person familiar with the situation. She won’t reconsider, this person said.

    Negotiators still are ironing out details to determine what additional legal claims prosecutors could bring once a deal is signed. Under the proposal, banks would be released from legal claims tied to servicing delinquent mortgages as well as certain mortgage-origination practices, but government officials still would be able to pursue claims related to the packaging of mortgages into securities.

    Even if a deal in principle is reached, the formal announcement of the agreement could be delayed until January. Once a deal is agreed to, it is likely to take a month or two for the legal language to be finalized, people familiar with the discussions said.

    Write to Ruth Simon at ruth.simon@wsj.com, Nick Timiraos at nick.timiraos@wsj.com and Dan Fitzpatrick at dan.fitzpatrick@wsj.com

    http://online.wsj.com/article/SB10001424052970204336104577094772749499652.html

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