Student Loan Bubble Starting to Burst

[ВАЛТЕР]

http://www.cnbc.com/id/101012270


Hold on to your asses everyone, here comes the next crisis.


The largest bank in the United States will stop making student loans in a few weeks.
JPMorgan Chase (http://data.cnbc.com/quotes/JPM) has sent a memorandum to colleges notifying them that the bank will stop making new student loans in October, according to Reuters. (http://www.reuters.com/article/2013/09/05/us-jpmorgan-studentloans-idUSBRE9840QJ20130905?feedType=RSS&feedName=businessNews)

The official reason is quite bland.

"We just don't see this as a market that we can significantly grow," Thasunda Duckett tells Reuters. Duckett is the chief executive for auto and student loans at Chase, which means she's basically delivering the news that a large part of her business is getting closed down.

The move is eerily reminiscent of the subprime shutdown that happened in 2007. Each time a bank shuttered its subprime unit, the news was presented in much the same way that JPMorgan is spinning the end of its student lending.





JPMorgan: No more student loans

JPMorgan will not be accepting new private student loan applications, reports CNBC's Kayla Tausche. The decision applies to borrowers for next year.

"It's no longer sustainable and not the right place to allocate capital in the future," HSBC Holdings (http://data.cnbc.com/quotes/HSBC%27B) Group Chief Executive Michael Geoghegan said in a statement the day HSBC shut down its subprime unit in 2007.
"Lehman Brothers announced today that market conditions have necessitated a substantial reduction in its resources and capacity in the subprime space," the press release issued in August 2007 said.
There is over $1 trillion in outstanding student loans, making it the second largest source of household debt after mortgages. Just 10 years ago, student loans stood at $240 billion. About $150 billion of the total is comprised of private student loans made by banks and other financial institutions, according to a report issued by the Consumer Finance Protection Bureau last year.
(Read more: Why falling college enrollment could be good for markets (http://www.cnbc.com/id/101009134).)
The CFPB reported that around $8 billion of private student loans were in default. That number is likely to go higher if interest rates rise because most private student loans, unlike federal loans, are variable rate loans linked to Libor or the prime rate.
JPMorgan's actually the second big private lender to step away from the business. Last year US Bancorp (http://data.cnbc.com/quotes/USB) exited the business. That leaves Wells Fargo & Co (http://data.cnbc.com/quotes/WFC)., Discover Financial Services Inc (http://data.cnbc.com/quotes/DFS)., PNC Financial Services Group (http://data.cnbc.com/quotes/PNC), SunTrust Banks Inc. (http://data.cnbc.com/quotes/STI), and various credit unions as the largest private student lenders. Oh, and of course, Sallie Mae, which was privatized in 2004.

[Popular Front of Judea]

Do read Carney's addendum the next day. "No one is saying that student loans are going to trigger a 2008-style financial crisis." Uh yeah that was what you were implying.

http://www.cnbc.com/id/101015287





http://www.cnbc.com/id/101012270


Hold on to your asses everyone, here comes the next crisis.

[ВАЛТЕР]

I think that this is the beginning of serious instability. Considering how interconnected the economy is, a problem here will result in a problem there. There will be a high demand for skilled labor that won't exist due to a lack of education to provide that skilled labor. Other bubbles are bound to burst. Economic crash is inevitable. This is just the tremor before the shitstorm.

[Zergling]

Finally. I haven't paid off my loan in months. Decided one day I was tired of living from meal to meal trying to "pay my dues to society" and never being able to pay it off. Life has been a lot more chill now. Every once and a while they call me and ask me why I haven't paid. I just tell them the truth. I have no money.

[Paul Pott]

I think that this is the beginning of serious instability. Considering how interconnected the economy is, a problem here will result in a problem there. There will be a high demand for skilled labor that won't exist due to a lack of education to provide that skilled labor. Other bubbles are bound to burst. Economic crash is inevitable. This is just the tremor before the shitstorm.

I don't think that's quite right. Here's a quote from another article on this subject:


In a paper , The Class of 2013, researchers at the Economic Policy Institute showed that young people are not searching in vain for jobs because they lack the appropriate skills or the right education, as many pundits would have it. Rather, they can’t find work because of the weak demand for goods and services....
The EPI study also found that young people aren’t able to “shelter in school” and wait out the bad economy: the Great Recession didn’t make much of an impact on enrollment rates at college and universities. It also found that the wages of college grads between 2000 and 2012, adjusted wages for inflation, fell 8.5 percent.

Capital's crisis is deep and it can't keep the façade of prosperity going forever, but it's a fool's game trying to predict the next Depression.