One-Third of Student Loans Are Subprime Loans

Simply deleting this item from the Drafts folder about a Wall Street Journal story last week that, along with a lot of other anecdotal and statistical data in recent months, suggests a looming disaster for student loans in this great nation … well, that just didn’t seem like a wise thing to do.

The number of student loans held by subprime borrowers is growing, and more of those loans are souring, the latest signs that a weak job market and rising debt loads are squeezing recent graduates.

In all, 33% of all subprime student loans in repayment were 90 days or more past due in March 2012, up from 24% in 2007, according to a Wednesday report by TransUnion LLC.

Meanwhile, the Chicago-based credit bureau found that 33% of the almost $900 billion in outstanding student loans was held by subprime, or the riskiest, borrowers as of March 2012, up from 31% in 2007.

“If you become subprime, it’s more likely that you will not pay your debt,” said TransUnion Vice President Ezra Becker, who oversaw the study.

Indeed, Mr. Becker. As you may have guessed, some of these borrowers weren’t subprime borrowers until they took out student loans, quit college, and then (for obvious reasons) started missing loan payments.

While the study didn’t provide any details, my guess is that the percentage who became subprime borrowers due to their student loans is very high simply because, at that age, you can rack up a lot of student loan debt, but, as I recall, credit card companies normally don’t give you a big enough rope to hang yourself with.


3 Responses to One-Third of Student Loans Are Subprime Loans

  1. DCX2 February 4, 2013 at 2:21 PM #

    If I ran a four-year university, I would be very scared right now. Attendance in the numbers needed to maintain the university’s lifestyle will become impossible once the student loan bubble bursts. When that happens, the cash flow will evaporate and we will get a lesson in just how elastic the demand for higher education truly is. People will stop attending major universities and some of them will have to shut down. Mostly it will be smaller branch campuses, but one day there will be a Lehman-style event in higher education where a big name university becomes history. I highly doubt there will be the political muster to bail out such institutions, given the animosity that the right wing usually displays toward higher education and our current dire fiscal straits.

    I think out of these ashes, a new path to higher education will appear. No longer will it be worth pursuing a four year degree. Instead, I think you’re going to find more and more people getting associate’s degrees (or even just certifications) on-the-cheap from community colleges, who will probably benefit from the other universities’ losses. Maybe you’ll also see people pursue multiple associate’s degrees for a fraction of a single bachelor’s. These new degrees will hopefully be focused on what careers the job market needs (e.g. health care, tech), as opposed to what careers the students would like (e.g. literature, philosophy)

    • FreemanDjango February 5, 2013 at 6:07 AM #

      I wonder what role the internet will play in the new higher ed scheme?

      I agree that people will be forced to look for training in areas where there is work, rather than the liberal arts where there are few jobs. The idea of a well-rounded, liberal arts education is nice but it runs into the reality of having to earn a living at some point. If you don’t have any job skills, then the fact that you’re also in debt for a worthless degree is doubly hard to swallow.

      • DCX2 February 5, 2013 at 3:07 PM #

        The Internet is already starting to influence higher education. My wife is going for a paralegal certificate right now, and only two of her five classes this semester are located on-campus. The other three are offered online.

        Universities are using a thing called “Blackboard” (I can hear my wife groaning now…it’s apparently not very intuitive) to handle their online media. It comes with the typical problems you would expect from online behavior, such as the Internet going down while taking a test, or a homework assignment that was sent was not properly received. By and large, however, it works well enough for its designed purpose, however I personally find the online courses inferior to the real-life thing.

        I have seen a few professors trying to use Blackboard in a manner that goes beyond what is possible or easy in the real-world, so there is some uncovered promise in the tools, but these tools need more time to improve before they will be competitive with physical classrooms.

        However, the “online textbooks” are perhaps the most pernicious of changes. You are granted a temporary license to read the book using a web browser. Your license is lost at the end of your class. The books are only slightly less expensive than their physical counterparts, and quite often you have to buy the homework separately from the online textbook. If you thought the physical textbook market was a scam, you ain’t seen nothin’ yet.

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