EduBubble

An unsigned piece at Barron’s lays out some of the ways that investors are trying to game the chances of bankruptcy reappearing in the student loan world. Some Senators introduced the “Fairness for Struggling Students Act of 2013″ that would bring back bankruptcy for private student loans. What about public loans? Sorry, Congress isn’t stupid and it doesn’t have hundreds of billions of spare cash lying around that would allow them to swallow that bitter pill. Different spanks for different ranks, suckas.

Barron’s suggests that Sallie Mae is on pretty stable ground because they’ve been asking for co-signers on the loans. Sure, maybe some kids would go bankrupt, but not Mom and Dad, right? Oh, I don’t know. From what I can see, Mom and Dad are stretched to the limit themselves. They drained their 401k and home equity to pay for that ticket to the middle class’s climbing wall and now they can’t rent out the spare room because Junior’s back living in it. Social Security is already garnishing SS payments to cover defaults. This isn’t just a problem facing 20-something liberal arts barristas who aren’t making enough tips at the coffee shop. It goes up and down the economic spectrum.

Is your money invested with Discover Financial? Surprise, you may 13% student loans in your portfolio.

In my experience, stories like this are usually filled with overly positive mistakes as the spinmasters at the companies try to talk the reporters out of printing bad news. But the worry is printed between the lines. Welcome to the next sinkhole of toxic debt.