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College Used to Be the American Dream -- Now It's the American Nightmare

Escalating delinquency rates make student loans look like the new subprime.

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And no wonder, this Administration is as committed to “affordable education” as previous Administrations have been to “ affordable homes“:

President Barack Obama championed easy-to-get loans during the campaign, calling higher education “an economic imperative in the 21st century.” A spokesman for Education Secretary Arne Duncan said the goal is “to make student loans available to as many people as possible,” and requiring minimum credit scores would block many Americans from going to college.

It isn’t hard to see why Team Obama is all on board with student debt peonage. Students have always been important forces in revolutionary movements: they are high functioning, live in dense communities, which facilitates organizing, and are naive enough to believe their actions can make a difference. Inescapable debt greatly increased the risk of fighting the established order; a mere arrest record hurts employment prospects. Of course, Republican criticism of overly generous student lending also has to be taken with a fistful of salt: Conservatives view higher education as indoctrination camps for socialism. So on odd days, they’ll try to rein in student funding and on even days, will blame unemployment on unskilled American workers losing out to the better trained and harder working Chinese. (This is not to deny that the US is in a serious higher education cost bubble, which in large measure is due to expenses that have nothing to do with the quality of teaching, such as much bigger and better paid administration staffs, and lavish facilities, like upscale gyms).

Like buying a house, getting a higher education was part of the American dream, a way to invest to build a secure future. Reckless lending and the costly efforts to socialize the losses are turning both into American nightmares.

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*Annualized is NOT the quarterly rate X 4. It’s treated as a compound growth rate. And yes, I checked the WSJ figure against the Fed’s second quarter household debt and credit report to make sure they did mean a 4.6% increase in the quarter, as opposed to a 4.6% annualized rate of increase. This is also the start of a new school term for most students, so one would expect new students entering college to produce a bigger increase than in the other quarters of the year.

 

Yves Smith is the founder of Naked Capitalism and the author of "ECONned: How Unenlightened Self Interest Undermined Democracy and Corrupted Capitalism."