What Happens When The Student Loan Bubble Pops?

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Student loans are the new mortgage bubble–massive amounts of debt that many of the debtors won’t be able to pay back, all being securitized, monetized, and swapped around with little risk to the originator, and can’t be discharged in bankruptcy.

I, and my parents, just got sued by National Collegiate Trust for failure to pay; in doing my research on what our options are, I’m finding that I’m not alone–there are apparently many people going through the same thing that I am right now. And that got me wondering.

So, I’m asking:

  1. What happens when the bubble goes?
  2. How does it go?
  3. Fallout from the burst?

(and 4. does anyone have direct advice for dealing with National Collegiate Trust?)

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I’m really sorry that’s happening to you. It’s stupid and unfair. You are not alone.

Our economic rules permit too much income to be diverted from working graduates and professionals into unproductive debt service. The bankruptcy rules are misaligned and have created a too-tempting source of income for the idle, rich kid class and the professionals they employ.

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Yeah. It sucks, and I’m currently stuck in a panic-anxiety cycle at the moment. But, even with that eating up brainpower, I’m wondering:

What happens when enough people like me default on their loans? Do we get Great Recession II: The Loans Strike Back? Or will the “cannot be discharged in bankruptcy” thing keep that from happening? Or will they just start mass-foreclosing on what meager assets the students, or their cosigners (like my parents wince) possess? Or… what? I know enough about this area to know the extent of what I don’t know, which is why I’m asking, and looking for discussion.

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I’ve worked as a full time practicing attorney — but in various nonprofit, social work-y capacities — for more than 20 years. During that time, I’ve also represented debtors who were injured by predatory lenders though it’s not my primary area of work.

My own law school loan costs over $600 a month and that’s continued more or less for more than two decades. Could I have paid it off by doing transactional work or by working for an insurance defense firm? I have one or three friends who have. Without sharing stories, I feel I can assure you with confidence that you’re not alone.

So . . . we don’t know each other as well as we should for this sort of discussion. Talk to lots of different professionals and people and ask for their opinion and then please factor mine into the mix. Assign it whatever weight you will. I’m not competent to give “advice” under these circumstances — not that you were asking for advice instead of a discussion.

First, do not doubt that the people harassing you and your family will behave like evil robots. And do not doubt that the courts will fail to provide you with appropriate protections. So it’s a good idea to get ahead of the ball as much as you can instead of waiting to see how awfully they behave.

Second, if you have not already done so, please reach out to your more progressive elected representatives and the federal Dept. of Education to share your story and ask for options. If constituent staff can be assigned to help you, the chances of relief increase, esp. in an election year.

Set aside 90 minutes to reach out to them at least a few times a week. Outside of the 90 minutes, figure out how to put the whole mess out of your mind and concentrate on other things. At least on Friday, dayenu.

If we were related — and I do feel a perhaps irrational connection to you based on your writing here — I would also suggest you consider finding someone in HRC’s campaign who has their act together and share your story there.

Until the issue impacting so many of us is adequately politicized, the sane legal reforms and remedies cannot come. More light must shine on the life-stealing injustice and economic absurdity of negating the otherwise productive income of so many educated professionals (and their parents!) with short-sighted debt service.

I feel so angry when I think about it. I feel very sad that you and your parents have to think about this ridiculous but very painful problem.

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Go to the media if you can bear it. In an election year, with it being a sticking point in the Democratic side, there may be a point to your efforts. I don’t say this lightly, since in this day and age getting death threats for making a marginally controversial opinion heard seems common place.

I scared shitless about what happens to me after graduation, and that’s with everyone telling me how “safe” my major is. It’s a big risk just to try and obtain financial security. You have my empathy, my moral support, and anything else I can provide.

It’s sad that my fantasy is winning the lottery to pay off friends’ college loan debt.

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I agree. I think media are likely to be an important part of individual and organized responses. I wondered whether HRC’s campaign or one of the other elected representatives might suggest the same thing and/or help connect someone willing to share their story with one or more other campaigns. Many hands make light work.

Regarding your graduation, it’s not so much finding a job or not finding a job. It’s diverting so much income for a silly reason. It doesn’t make sense to burden new graduates with any debt. They have less money to spend on goods and services.

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I’d say student loans are far different than the mortgage bubble for one simple reason: it’s relatively easy to discharge mortgage debt by going into bankruptcy. Yes, you lose your home and you have a potential 10 year scarlet letter on your credit report it still gives you an opportunity to start over. Student loans on the other hand are incredibly difficult to discharge because they typically survive bankruptcy.

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I wish it would affect scammy for-profit schools and prompts an interest in supporting public colleges/community colleges. But who am I kidding?

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Fuck, the cunts in charge are such vicious scum.

I wish you the best of luck, and the rest of the world for that matter. Clinton needs to be indicted, ASAP.

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The student loan bubble is bad news for retiring baby boomers:

  • The baby boomers will soon be retiring in VERY large numbers.

  • More than previous generations, their savings are mostly in their houses. Big family houses, and the occasional McMansion.

  • And so as they retire, they need to downsize. The proceeds of the sale is supposed to fund their retirement.

  • For previous generations that mean selling largely to much younger college and university graduates, now starting families and able to get mortgages because of their potential income.

  • But now students are graduating with multiple decades worth of debt, and far lower chances of finding a job to match their diploma or degree. They can’t get mortgages on top of that debt.

  • And so the baby boomers have a problem.

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Some of us could! Of course, I’ll be paying off the house when I’m 69, which isn’t ideal. Because the kids will be back in with us, having their own student debt.

But, theoretically, I’ll have my student loans paid off ten years before the mortgage ends, maybe I could then move that payment over to pay off the house sooner…

Ah, the vagaries of financial maneuvering twenty years hence!

Also, younger couples traditionally move into a starter home and then upsize when they can. Those are the baby boomer house buyers. The way things are going their kids are going to get the house when the parents die and then sell it to anyone they can and split the money. So watch for the upcoming housing fire sale!

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Only if the insurance company can prove anything. :slight_smile:

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Fair enough: Increasingly they can’t get mortgages on top of that debt.

There’s another effect in play: When the mortgage bubble popped, banks suddenly got more conservative with their loans.

Now a lot of people who WERE making their mortgage payments on time, suddenly couldn’t get their mortgages renewed. And were forced under. Now people couldn’t get car loans, and GM and Chrysler, barely hanging on to begin with, went under.

You’ll see the same thing when the loan bubble pops.

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Yes and no. We bought in 2013, after the crash and before the recovery. And we got a rate lower than we would today. We are on the hook for a long haul, but as people who moved a lot when we were kids, we’re content to not do it anytime soon.

Will we go underwater anytime soon if things crash again? Who knows. But we also don’t care. We have no plans to upgrade and that stability is worth a lot. If the loan bubble pops, well, I guess we’ll be seen as the good guys since we’ll just keep paying it off (also at very low rates).

There was an interesting story in the Times a few months back about college grads moving overseas and not paying back their loans. Sallie Mae continues to call their parents and their friends and they’re certainly going to be in some deep shit if they ever come home again, but a loan crash is exactly what I think they’re hoping for. Forced exile is a terrible decision to have to make in order to survive. But I think there will be a lot more questions about other passports students might hold in the future.

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I guess their parents didn’t cosign the loans?

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Yes. That is absolutely the key.

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@bibliophile20, NCT is notorious; when they see you don’t have much to offer they’re going to go after your parents. If you love your parents, lawyer up now. Don’t put it off! If you’ve never consulted a lawyer before it can seem intimidating, but I’ve never regretted seeing one when faced with trouble.

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Well, that’s a nasty little one-two punch.

One thing I’m specifically wondering is: What happens, both socially and economically, when, even when the debtor can’t pay (not won’t, but can’t), and the debt still exists? Especially if said debt is being monetized somewhere like the mortgages were.

And then there’s the personal issues to the debtors. It’s been pointed out here on BB before that debtors’ prisons are making a comeback.

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At least two things happen.

First, the debt paper is generally discounted and sold to a series of holders in due course, i.e., debt collectors, each potentially more low rent and marginal than the last. They hang around hoping circumstances will change or that hidden assets or income will be discovered eventually. I’ve read that even social security benefits can be attached though I’ve not researched this recently.

Student debt is regulated onerously. That’s why it’s important to contact constituent staff at an elected rep’s office and the Dept. of Ed. and, as @d_r suggests, an experienced, reputable attorney.

Second, debtors and/or creditors eventually mobilize and lobby for legislative relief for their injuries. For the past 30+ years, it’s probably safe to say that creditors have done most of the mobilizing.

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Reminds me a bit of the bimetallism debates of the late 1800s. The wealthy wanted to stick with the gold standard to push for deflation, and the poor wanted a gold-silver standard to push for inflation (simplifying massively).

As for the rest, on the larger social scale, it sounds like we’d have less of a crash, and more of an extended strangled sigh as all of the student loan debtors get squeezed out of a notable chunk of their lifetime productivity, if not putting them essentially in perpetual poverty.

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