Counterparties: Misspent youth
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Thereâ€™s a reason why we think Americaâ€™s young generation is doomed (besides the rise of theÂ emoji, that is). TheÂ FT and theÂ WSJ both report that the young are no longer partaking in the great American sacraments of bingeing on credit card and mortgage debt. Instead, theyâ€™re racking up record amounts of student loans.
The number of student loan borrowers and the average balance have both jumped by 70% in the last eight years, according to new data from theÂ New York Fed; whatâ€™s more, as Pew Research also shows, student loan debt was the only major type of debt to increase during the downturn. Delinquency rates on student loans are also soaring — for all age groups.
The problem with this turn to student debt, theÂ Center for College Affordability and Productivity reports, is that there simply arenâ€™t enough good jobs. Specifically, there are roughly 28 million jobs requiring a college degree in America, but some 41 million employed college graduates in the workforce. This is partly whyÂ the NYT recently said â€śthe college degree is becoming the new high school diploma.â€ť
Investors areÂ snatching up securities backed by student loans, and SecondMarketÂ will soon let issuers sell securitized loans directly to investors. But does this mean thereâ€™s a student loan bubble? Not quite, saysÂ Lisa Pollack. She points to a few aspects of the market which might make it prone to overheating: debt-to-income ratios for new college graduates are too high, lenders could rush into the student loan market knowing that student loans canâ€™t be discharged in bankruptcy, and colleges are in a perpetual race to raise tuition.
But Pollack also notes that college is still largely a good investment: Fed research has shown the cost college education can usually be recouped in 10 years or less. If there is a student debt bubble, it probably wonâ€™t put clusters of companies out of business, as the dotcom and mortgage bubbles did. Some 85% of student loans are owned by the government –Â private student loans are still a small part of the market. Which means that the approximately $1 trillion outstanding student debt looks less like a quick-bursting bubble and more like a slow, constant drag on the economy. And, arguably, on youth itself. — Ryan McCarthy
On to todayâ€™s links:
A day in the life of a freelance journalist: Telling people you can’t work for free -Â Nate Thayer
The problem with online freelance journalism -Â Felix
The Washington Post is going to try sponsored posts -Â Digiday
Senate report blames JPMorgan execs — not just a single trader — for $6 billion trading loss -Â Dealbook
“Dimon has tried to create a one-man show that he is able to micro-manage” -Â Euromoney