Student Loans Near $1 Trillion Hurt Young U.S. Buyers: Mortgages

From Bloomberg:

Roshell Schenck has a Ph.D in pharmacy and earns $125,000 a year, yet can’t qualify for a mortgage for a house for herself and her 9-year-old daughter. The 2008 graduate of Lake Erie College of Osteopathic Medicine, in Erie, Pennsylvania, has more than $110,000 in student debt.

“I’d love to buy and can afford to buy,” said Schenck, 28. Since lenders place closer scrutiny on college loans than in prior years, she says, “it’s almost impossible for me to get a loan. My debt is crushing my chances of purchasing a home.”

As outstanding student debt approaches $1 trillion, it’s one more reason record-low interest rates aren’t doing more to boost housing. The tighter lending standards that have emerged in the wake of the recession weigh particularly on younger, first-time home buyers, according to a Federal Reserve study sent to Congress on Jan. 4. These households tend to be younger, often have relatively new credit profiles, lower-than-average credit scores and fewer economic resources to make a large down payment, the report said.

“Potential first-time homebuyers have been disproportionately affected by the very tight conditions in mortgage markets,” Federal Reserve Chairman Ben S. Bernanke said at a homebuilders conference last week. “First-time homebuyers are typically an important source of incremental housing demand, so their smaller presence in the market affects house prices and construction quite broadly.”

The Fed’s white paper said 9 percent of 29- to 34-year-olds got a first-time mortgage between 2009 and 2011, compared with 17 percent 10 years earlier. “These data suggest a large decline in mortgage borrowing by potential first-time homebuyers due to not only weaker housing demand, but also the effect of tighter credit conditions,” the Fed said.

Outstanding education debt surpassed credit-card debt last year for the first time, according to Mark Kantrowitz, publisher of FinAid.org, a student loan website. Recent college graduates carry an average debt load of more $25,000 each, which can limit their ability to qualify for mortgages even if they’re fortunate enough to land a job in a market with an unemployment rate of 9 percent for 25 to 34 year-olds.

Calling it a “student-loan debt bomb,” the National Association of Consumer Bankruptcy Attorneys warned Feb. 7 about the effects of rising student debt on recent graduates, parents who cosigned their loans and older Americans who have gone back to school for job training.

‘Drag on the Economy’

“Just as the housing bubble created a mortgage debt overhang that absorbs the income of consumers and renders them unable to engage in consumer spending that sustains the economy, so too are student loans beginning to have the same effect, which will be a drag on the economy for the foreseeable future,” John Rao, vice president of the NACBA, said on a conference call.

People age 25 to 34 made up 27 percent of all home buyers in 2011, the lowest in the last decade and compared with 33 percent in 2001, according to the National Association of Realtors. At the same time, first-time buyers last year accounted for 37 percent of all purchases, the lowest since 2006, when home prices peaked and the housing boom was showing cracks.

“Students coming out of college are burdened with more debt than traditionally they have been, and they are also coming into an economy that is underperforming previous recoveries,” said Rick Palacios, a senior analyst at John Burns Real Estate Consulting LLC in Irvine, California. “These things pile on each other and tell us it’s not going to help the housing recovery right now.”

http://www.bloomberg.com/news/2012-02-16/student-loans-approaching-1-trillion-hurting-first-time-buyers-mortgages.html

Subprime: Those lovely student loans keep coming up on mainstream media articles. With funding for Universities drying up on the state level the gap will have to be shouldered by the students with more loans. Even Obama the Great referenced the cost of tuition in his State of the Ponzi address by taking a jab at the Universities. With the trillion dollar level reached (or about to be reached) it's only a matter of time until this tuition bubble pops. Comments under articles referencing the student debt time-bomb show younger people have caught on to the rip off and are very hesitant to take on the debt in exchange for a degree. I'm guessing that at some point even the wall street boys get pissed off as earnings get hurt due to younger Americans unable to afford big ticket items. Or perhaps serfdom is the way of the future for this country as 50% of S&P 500 revenues are derived overseas, affording less importance on the American consumer.

I hope to see students turn on their Universities as the cost of education is out of control, leaving millions of young Americans buried in debt. With younger households unable to purchase homes, how do boomers expect to sell their homes and retire? Oh, well they can sell them (so long as they aren't underwater) but for a much lower price than they ever imagined. But even the boomers are getting hammered with student loan debt as many of them are going back to school in order to increase their earning potential.

What a sorry state this country has devolved into. America the Great, not.

The purpose of this blog

While associated with the other scam bloggers, SubprimeJD has a broader scope than just the law school scam. As a law graduate and young attorney I have personal experience and knowledge of how the law schools are ripping of their students. Maybe pre crisis they knew they were fudging the data but figured that the majority of their graduates did alright. Post crisis, with the economy going to shit, with law firms laying off thousands of associates, coupled with absurd increases in tuition, without a doubt these schools now know that they are operating a scam for a good portion of their graduates. Throw in the scam blogs, mainstream media articles, ABA statements and the most recent letter from Senator Boxer, the schools are now on at least constructive notice, if not actual notice, that they are operating a scam that is harming thousands of graduates every year.

As a decent person, it is my duty to warn potential law school applicants about the dangers and risks associated with attending law school at the present time. Throw in the student loans and it's a recipe for financial and emotional ruin. For some insidious reason, peonage and slavery have returned to America, this time in the form of student loans. It matters not if it takes you 3 years after graduating to find decent employment. The student loan will grow and grow and can never be defaulted on. If you find the practice of law disgusting and just can't bear life in the field, it matters not, the loan will follow you. If you borrowed over $100,000.00 your situation can turn precarious. With shot credit, you will be charged more interest for all financed purchases. Be prepared to save as much money as possible while paying rent and the loans in order to purchase a car without getting raped with 20% on a car loan. Prepare for a life of less while you find others that don't have a college degree earning the same if not more money than you without having to pay any student loans off. Prepare to be infuriated. This is not time to go to law school, especially if you have to finance your attendance with student loans.

In addition to scam blogging as my regular readers know I also discuss markets, with an emphasis on commodities, debt, and precious metals. This is an extremely important time in American economic history. For the first time perhaps since the civil war we face a grave crisis threatening our nation. For the first time in our history, we face bankruptcy. This is why I post charts about silver, gold, the dollar, crude oil and the debt levels. I'm no economic expert, I'm a personal injury lawyer. I studied political science and got a law degree taking courses in fucking evidence, civil procedure, family law, et al. However, I have spent the last 4 years reading about economics like a mad man. Since I realized something was very wrong with our economic system, I made it a mission to learn as much as I could. Many people will discredit the things I say because I'm not an authorized voice to speak on such matters. I have no masters in economics, I'm no professor at some prestigious university. However, I specifically recall reading article after article from University professors proclaiming in the summer of 2008 that the US would avoid a recession while economic disaster was weeks away. I called bullshit and said the stock market would crash to 6500 with the financial system imploding on itself. Lo and behold I was dead on. So either I'm a genious and these professors/economists are all captured by groupthink, or I got lucky time and time again and they are lying to us. Believe whatever you want, just don't forget my silver and gold calls.

Nevertheless, as I stated before, I'm no expert in this area but I can say with some confidence that I have a good idea of what's going on. I learn from some of the brightest minds out there that don't get much media exposure and willingly share the wealth on this blog. I have had several readers catch on to the ponzi (our cute little reference to the global economic system) and have taken action to prepare for the coming troubles. Perhaps we are wrong to prepare. Oh well. I'd rather be stuck with supplies (water, food, arms, medicine) and precious metals then be caught unprepared in the event of economic dislocations as a result of a failing monetary system. I work nearly everyday and save as much as I can. I have the luxury of living at home even though I can move out tomorrow. I'd rather give up some privacy and independence in exchange for being able to save as much as possible for as long as I can. If you this option I suggest you also use it.

This is the message of this blog. In as simple words as possible our economic system is in trouble and instead of the problems being cyclical this time they are structural in nature. In addition, for the first time in modern economic history, we have an energy crisis even though oil producers are pumping at the max. Our debt backed high powered interest growing money is hitting the wall of limits to growth due to energy issues. We also squandered our wealth as a nation by going into obscene debt to the point where a central bank has to print trillions of dollars just to keep the show going. The list goes on and on. I can't change the future but I can prepare MY future. A nice quote I heard the other day, "no one plans on failing, but people do fail to plan."

Just trying to get as many people on board as fast as possible before its too late. I will continue to provide as many FACTS as possible so you all can make your own independent judgments. The media is doing its job serving their corporate masters. I'm doing my job by giving out the warning. Thanks for all the support.

Peace

PS Good job Nando with the ABA panel! That was some good exposure. Keep up the scatological toilet bashing!!