When the financial and general press get around to giving the departing Obama Administration – now just days away from happening – all the credit for the booming economy to be inherited by Donald Trump, let’s hope they don’t neglect to mention some of the messes Obama has left for the next president to clean up. Besides opening up the jails and Guantanamo, Obama will be leaving Trump with a bunch of other fiascos he created that will take years to fix and billions of taxpayer dollars to remedy.
And no, I’m not talking about Obamacare or the federal debt.
I’m referring to the burgeoning student loan crisis that has yet to reach the implosion point but that will likely happen sooner rather than later. And since it hasn’t yet reached the flash point at which time it must be addressed, that means the bubble will continue to grow until it eventually splatters onto other seemingly unrelated areas, spreading the mess farther and wider beyond anyone’s current expectations.
I call your attention to the Consumer Financial Protection Bureau’s most recent report on student loans.
The report comes from the CFPB’s Office for Older Americans and its Office for Students and Young Consumers. And appropriately so, since the point of the report is to show how the student loan crisis has spread quickly into the lives of older people, putting their retirement incomes and savings at risk.
The headline news from the report is that “the number of consumers age 60 and older with student loan debt has quadrupled over the last decade,” according to the CFPB, “and the average amount they owe has also dramatically increased,” from $12,100 to $23,500 in the 10 years between 2005 to 2015.
Even worse, the percentage of delinquent student loans owed by borrowers 60 and older has jumped from 7.4% to 12.5%, with nearly 40% of those 65 and older in default. Yes, you read that correctly: Forty percent.
As a result, more and more people have had their Social Security benefits garnished for failure to pay on time – yes, the government can do that. Fortunately, it doesn’t happen to a lot of people, but it does happen. The CFPB says the number of people who have had their government benefits “offset” to pay student loan debt has risen to 40,000 from less than 9,000.
Not surprisingly, the CFPB points out that the growing mountain of student debt among older people “is not only the result of borrowers carrying student debt later into life, but also the growing number of parents and grandparents financing their children’s and grandchildren’s college education. Today, the majority of older student loan borrowers have loans that were used to finance their children’s education. They may have taken out these loans directly or co-signed on a loan with the student as the primary borrower.”
Also not surprisingly, since these older people are busy servicing loans for family members, there’s less money left over to finance their own retirements, which automatically worsens another crisis, namely the retirement crunch, putting more pressure on the already underfunded Social Security program.
“Among household heads nearing retirement, age 50 to 59, those with outstanding student loan debt have less saved for retirement than their counterparts without student debt,” the CFPB said.
The report doesn’t go into the other more obvious consequences of the student loan mess, such as the number of younger borrowers who can’t move out of their parents’ homes and start their own families and buy homes, cars and other things because they’re spending most of their money servicing their own loans, many of which are in default. That was the subject of previous CFPB reports, plus several similar ones from the Federal Reserve Bank of New York and many others.
Naturally, of course, as in previous CFPB reports on this subject, the private sector comes in for a lot of the blame for the student loan crisis, specifically the companies that service the loans. But not the federal government, which has issued the overwhelming majority of student loans under President Obama, who essentially nationalized the business shortly after he took office.
Conveniently, the CFPB has no jurisdiction over the federal government’s student loan origination machine, only private lenders that make a small percentage of loans and private companies that service the loans. So, according to the agency, only the private sector, which controls a small sliver of the business, is to blame for the crisis.
Indeed, no less than seven pages of the 29-page report are devoted to older borrowers’ complaints about loan servicers, including servicing problems and errors, misallocation of payments, failure to provide loan information, and of course “debt collection practices that cause financial distress,” such as “aggressive and hostile tactics” and threats.
There’s nothing about how the federal government has encouraged families to take on massive amounts of debt in order to send their children to college. Nothing about how colleges and universities have been happy to raise their tuition rates through the roof knowing that Washington will supply an endless amount of money to help finance them, while the schools have not a penny invested in the game.
Eventually, like the mortgage crisis before it, this bubble will burst, with lots of unexpected casualties in the fallout.
And guess who’s left to clean up the mess? Mr. Trump, you’re going to need a big bucket.
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INO.com Contributor - Fed & Interest Rates
Disclosure: This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.