All Financial Wisdom
Student debt is the new time bomb of the financial system
One of the consequences of the financialisation of the economy since the 1980s is the strong increase in private debt and its silent costs derived from this abusive concept that is the magic of compound interest. Delinquent student loan debt is estimated to be between $900 billion and 1 trillion dollars, far surpassing credit card debt.
Jobs that do not require any qualification
The most worrisome fact is that the student debt default rate has increased 17%, and that 39% of jobs that graduates currently hold do not require any kind of academic degree. Hundreds of thousands of engineers, architects, or lawyers drive a taxi, do housework, or work as waiters in restaurants. As is fully expected, the precarious salary they receive for these jobs does not allow them to pay the debt incurred while in school.
This is the future that awaits millions of young people in the world who are indebted to acquire a profession that will provide them with the dream of progress. As it had been so for decades, no one noticed the profound social change humanity was experiencing in overcoming these goals.
According to data from the Fed, the proportion of outstanding US student loan balances outperformed credit card balances. The $956 billion dollars in student loan debt exceeds the 10.5 percent of bad credit card debt, and is also well above the delinquency of mortgage debt, credit lines and auto loans. How does this compare to the average American household debt? Check this handy infographic here.
According to official data, the delinquency of student debt has almost doubled since 2003, from 6.1 percent to 11 percent today . However, this debt can actually be much higher given that the Fed underestimates the real rate by not considering deferrals, deferred payment requests or reduction agreements in payments. In other words, real delinquency can be around 20 percent, which would imply a serious collapse for the financial industry that is fueled by the generation of credit and the constant collection of interest reproduction.
In an (albeit somewhat dated) article published on CNBC , Scott Cohn cites the following facts of this problem:
- The average college student graduated in 2011 had $ 26,600 in student loan debt
- 70% of graduates have student debt
- 8 percent of the graduates work in jobs that did not require a university degree
- State budget cuts have increased tuition costs, and families are increasingly required to borrow larger loans to finance education.
Like Mark Cuban recently stated, the student loan bubble is the new pandemic that threatens our financial system. And as new jobs are not generated fast enough with pay in line with labor expectations, this pandemic will continue to plunge into the predatory path of compound interest. The delinquency of student loan debt leaves us at the gates of the next subprime crisis. A crisis that will have more devastating consequences than even the financial crisis of 2008.