College Bubble Update: Default Rates on Student Loans Soar to 15%

by Mac Slavo

While unemployment for college grads is 15% according to Bloomberg, we know for a fact that the overall rate of unemployment, per economist John Williams of Shadow States, is actually at around 22%.

In 2010, as the buzz of economic recovery swept over the nation, we were warning of the unemployment crisis and how it would affect college graduates who were told that once out of college they’d be quickly absorbed into the job market where they’d make all of their wildest financial dreams come true.

For college grads, it gets even worse. Not only can they not find a job, but they are putting financial pressure on their parents, who will now have to continue providing a home, food, and utilities until such time that their boomerang kid can get some meaningful work and contribute financially to the household. On top of that, they are debt laden with an average debt of over $23,000 once they graduate college.


We seem to have entered an era of perpetual and unshakeable financial bubbles and the next ripe bubble to burst is in the student loan market.  Student loan debt has become the fastest growing debt sector throughout the economic recession.

Those dreams of white picket fence success are now turning into nightmares, as massive default rates in the $1 Trillion college debt industry loom, according to a new report from the Department of Education.

The millions of students who graduated in 2008, 2009, 2010 and 2011 are now facing the toughest job market in U.S. history, with unemployment by some accounts equal to or exceeding the Great Depression. Some 85% of college graduates have plans to move back in with mom and dad in the hopes our economy will recover. But as we have seen over the last year, there has been no such recovery, and without an income, many college grads are finding it impossible to make good on their loans. The most recent data show that over 300,000 Americans from nearly 6,000 different schools defaulted on their loans in 2009.

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Growth at for-profit colleges has been incredible and tactics used at these institutions reflects patterns seen with the subprime mortgage operators.  They target low income markets and exploit government backed loans and pump them through local area lenders.  It is a bubble of mammoth proportions and it is no surprise that data released by the Department of Education only a few days ago reflects a default pattern reminiscent of the subprime crisis.  Default rates on student loans at for-profit institutions are absolutely abysmal.

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