Financial Cryptography

America's other financial crisis - student debt

From the BBC, snipped:

An activist group in the United States has been carrying out deeds that some might think the stuff of dreams - buying and cancelling other people's student debts.

Rolling Jubilee has purchased and abolished $3.8m (£2.35m) of debt owed by 2,700 students, paying just over $100,000 (£62,000), or as it says, "pennies on the dollar".

[snip...]
Debts can be bought and sold in the financial marketplace. But student debt, which has spiralled to an estimated $1.2 trillion (£619bn), is not usually as available to buy as other debts, such as unpaid medical bills.

In this speculative secondary market, third parties buy debt for a fraction of its original cost and try to collect the full amount from debtors.

But these debt campaigners are buying debts and then writing them off.
Debts on sale

The student loan debts cleared by Rolling Jubilee were for students from Everest Colleges, a string of institutions owned by Corinthian Colleges, a for-profit education company.

[snip...]
Student debt can pursue people all through their working lives and into retirement. The United States Government Accountability Office published figures last month showing there were more than 700,000 households with people aged over 65 still repaying student debt.

These pensioners still owed more than $18bn (£11bn) - and officials giving evidence to a US Senate committee said this could mean that student debt repayments could be deducted from retired people's social security benefits.

More than half of student debtors who are over 75 are in default on their loans.

'Symbolic' work

This week, the Federal Reserve chief Janet Yellen warned the quadrupling of the student loan debt since 2004 represented a barrier to social mobility.

John Aspray, national field director at the United States Student Association (USSA), said recent changes in law mean people in medical or gambling debt can declare themselves bankrupt - but to do so for student debt means satisfying an '"undue hardship" criteria, which is very difficult to prove.

"Opportunities for renegotiating are very well hidden," he says.

He says Rolling Jubilee's work was "important and symbolic" as a lot of people "don't even consider" getting rid of their debt.

As 85% of student loans are guaranteed by the national government the USSA is putting pressure on the department to "cut contracts with the worse corporations", says Mr Aspray.

In sum. Some politician's dream of everyone-a-degree has created an unsustainable bubble in student debt slavery. Coupled with the current depression in USA, this means an incredible drag on the mid-range of the middle class for the next 30 years.

Oh dear. It also likely presages the collapse of the university sector as the bubble peaks and drops; many universities will not be able to cope with the halving of student numbers.