Rachel Louise Ensign at the WSJ reports that a full 1/3rd of the student borrowers might be classified as “sub-prime” based on their credit score. Not that anyone at the student loan office asked for that because the policy has always been to just give everyone with a pulse a big fat check– as long as they turn around and give that check to the college industrial complex.
Let’s try to unpack this for a second. Lending these folks the money to buy a house– something that may stand a chance of acting as collateral– would not be allowed by any sane banker. But the US is going to cut that check anyways because we’ve all got a right to go to whatever country club college we want to in America.
Is there collateral? The reigning theory in the minds of the college worshipers is that the loans are indeed backed by plenty of collateral: human collateral. All of these borrowers will get jobs as engineers or create a startup like Amazon and that will create plenty of wealth for paying back the loans.
Alas, this vision wasn’t even true in the 1950s when plenty of people walked away from college with degrees in Day Dreaming about Jane Austen or some even more esoteric branch of the liberal arts. Even these folks couldn’t count on making much of a living with the degree back then.
Today, it’s even worse because the law of supply and demand applies to everyone from Albert Einstein on down. The world doesn’t need two Albert Einsteins because only one is necessary to recreate the Theory of Relativity and even that paper wasn’t really in much demand at the time. It’s much worse for others further down on the genius spectrum. We’re just producing too many college educated folks and there aren’t enough jobs to go around.
For some odd reason, we’ve put this reality out of our brain when we talk about the collateral behind these loans. We’re usually flummoxed by the college industrial complex’s use of the average. Just because some people do well after getting a college degree, we can average everyone together and assume it’s good all around.
But this hides plenty of pain for those who don’t get fancy jobs after borrowing gobs of money. They’re squeezed tighter and tighter between an immovable debt collector and the brutal reality that is the job market place. There are plenty who will fail to earn enough to pay off their loans.
This is going to be a real humdinger of a collapse everyone.
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