The Washington Post recently ran an article that posits defaulting student loans as the next debt bomb that will blow up in our faces. As you can see in the map, debt is bubbling up across the nation like ugly boils about to pop in people’s faces. Whose faces? Well, certainly not the faces of those kind souls who benefit from receiving interest on the loans. Likely the people who get disfigured will be the students who default on their loans, the unfortunates who might have co-signed for the debt and, undoubtedly, the taxpayer who will eventually assume responsibility for the mess.
Does any of this sound familiar? A sense of deja-vu dates back (at least) to the Savings and Loan debacle, when a few ambitious entrepreneurs took rickety S&Ls into the world of high finance. The entrepreneurs (and the legislators who fed at their money trough) got rich; the rest of the country paid for their flyer. More recently (yeah, the burn is still there) we have banks that made real estate loans to folks who couldn’t possibly pay the mortgages, bundled the paper into securities and based profits on these bundles, thus proving that enough dollops of shit melded into a pudding tastes remarkably like chocolate…or so the theory goes.
So, now we have college graduates waving their diplomas in the air, queuing to grab the high-paying jobs…er…the jobs that aren’t there. Without a job, these graduates can’t repay their loans. Bankruptcy isn’t an option, either. Bankers making student loans were bright enough to get laws passed that create a means based determination on repayment. Few people qualify for bankruptcy using the current standards thus the loans are a life-long tail that never goes away, it merely grows longer. Defalcation on payments leads to a never-ending series of additional charges. Credit checks, a part of modern life that extends into getting a job, a credit card, renting an apartment and other situations most people may encounter ensure that the debt causes debilitating damage.
Who would loan $25,000 (average student debt package for 2010 college graduates) or more to a kid just out of high school who is unlikely to find a job in today’s market? Well, try the same folks who underwrote the paperwork on house loans for a property vastly over-valued being sold to a guy who never kept a job longer than three months and never had repaid a loan in his life.
Of course, like most problems, there are no simple answers to what seem like simple questions. There is, however, a thread that extends through all of this. Bravo Foxtrot Mike, to use military terminology. BFM, pronounced bee-eff-emm. BFM stands right there beside OPM. Other People’s Money, to resurrect a term from the 70’s (learned the expression back when I was writing financial management courses). BFM (an acronym I created myself) stands for Big Fucking Money. Banks are the controllers of BFM. Legislators consider protecting BFM the most important aspect of their jobs. And, of course, colleges and universities are a prime example of the creed of BFM. Without BFM, university presidents wouldn’t be receiving million dollar years remuneration. Without BFM, campuses wouldn’t sprawl across hundreds of acres, deposing neighborhoods of small houses which, unfortunately for the residents, do not represent BFM.
Without student loans, most young people wouldn’t be able to afford the tuition. They wouldn’t attend universities. Without students, no BFM. So, banks avail themselves of the opportunity. Young people avail themselves of the loans. Legislators avail themselves of the campaign contributions from the bankers (and bank supported PACs) to ensure that student loans are serious business and not something that can be walked away from like houses or cars or money lent to build giant skyscrapers that are no longer financially tenable. (Thank you, Mr. Romney, for encouraging a young man to seek a less expensive college then to remember that the debts incurred won’t be forgiven. From the mouths of rich people…)
So, the loan crisis (gotta have a new crisis frequently or people might forget how important the news is) meanders from S&Ls to Enron to mortgages to student loans…it’s all a slippery mess. That’s what the people in grease say. Or was that Greece?