Counterparties: America’s trillion-dollar student debt burden

By Ben Walsh
May 14, 2012

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Over the weekend, the NYT had a great, in-depth look at soaring student debt figures, and the picture is not pretty: over the last decade, tuition and fees at state schools have increased 72%, and public funding per pupil has dropped 24%.

Student loans are now a generational rite of passage – 94% of students borrow to earn a bachelor’s degree, up from 43% in 1993. The total value of student loan debt has passed $1 trillion, up from $852 billion halfway through 2011. As the Federal Reserve shows, it’s not just the young who bear the burden: a third of the value of outstanding student loans is owed by those older than 40.

Congress, for its part, is currently wrangling over a bill that would prevent federally subsidized student loan rates from doubling to 6.8% beginning July 1. Looking at that debate, Will Wilkinson makes the point that interest rate subsidies are just another form of spending that could be better directed at scholarships for students of modest means. And Conor Friedersdorf takes that argument one step further, calling indebted college graduates a “privileged class” on whom spending money “in a country with impoverished immigrants and struggling high school dropouts and hard-pressed single mothers” is pandering at its worst.

While lower interest rates would help, Mark Kantrowitz and Mark Schneider point to students’ bleak income prospects: “Debt is a problem only if students don’t graduate or if graduates can’t get jobs that pay enough to allow them to repay their loans. Taking on $25,000 in student loans to earn an additional $25,000 per year is a good investment; borrowing $100,000 to earn an additional $5,000 per year is not.” Josh Barro also notes that loans are just one way to fund higher education – direct state funding of public universities is the most obvious alternative.

Absent increased direct state funding, Mike Konzcal thinks that when the government acts as a lender to students, it should lend as cheaply as it can while still making  a profit – which it’s doing at the moment.

It’s also worth wondering if the flood of student loans has made a college education more expensive. Without allowing students to take on unrealistic loads of debt, it’s hard to imagine college presidents saying, as Ohio State’s did to the NYT: “I don’t think a lot about costs.” – Ben Walsh

And on to today’s links:

Details
The DOJ actually has no idea how many execs have been convicted over the financial crisis – WSJ

Yikes
How Pixar literally almost deleted Toy Story 2 – Kottke

JMorgan
JPMorgan, apparently not immune to irony, lobbied for the loophole that enabled its massive loss – NYT
Former JPM CFO: Controversial unit’s strategy was always “hedging for profits” – Bloomberg
Jamie Dimon reportedly berated Paul Volcker and a Fed official at a dinner party last month – NYT
JPMorgan unit’s entire London staff could be fired after surprise $2 billion loss – Bloomberg
JPMorgan is investigating whether London traders hid derivatives losses – FT
Why tri-party clearing services – like JPMorgan’s – should be regulated as utilities – Econobrowser
Five hours in the life of Dodd-Frank and JPMorgan – Rortybomb
Jamie Dimon’s failure - Felix

Wonks
Why we need targeted action to help the long-term unemployed – NYT

Reuters Opinion
Obama and the politics of party unity – Chrystia Freeland
Break up the big banks – David Rohde
How to protect the euro from a Greek exit – Hugo Dixon
The strange vogue in dumping U.S. citizenship – Atossa Abrahamian

EU Mess
EU officials now more or less openly discussing a Greek exit from the euro – Bloomberg
What history tells us about the increasingly likely Greek exit from the euro – Economic Musings
Greece could leave the euro “very possibly next month” – Krugman
Greece’s deputy PM: We’ll run out of money in 6 weeks if we reject bailout program – Telegraph
Greece Can No Longer Delay Euro Zone Exit - Der Spiegel

Housing
Ally Financial’s mortgage unit files for bankruptcy – DealBook

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