Thursday, October 30, 2014

Student Loans Industry Prediction / Commentary : "The Looming Student Loan Crisis"

Hello All,

It's that time of the month I usually share a "Gem of Opportunity" for you to reflect upon. However this time its not I plying an innovative conceptual design for you to mull over. I have in past years offered up predictions surrounding: future inventions regarding dental hygiene, hidden American Naval Installations, the distant future healthcare industry in America, including the Great Generation 2.0 of Americans who are now children living in poverty in the shadow of this "Great Recession".

Today I stick my neck out once more hoping to God I've misread the signs and have misinterpreted my intuition. I rather be gladly wrong than get this prediction correct regarding America's Next Financial Crisis. Our next American recession will be surrounding the Student Loans financial industry. Which is now underwritten by $1 Trillion dollars by the Federal Government and climbing for the stratosphere. The last estimated figure heard in the news here in the States a couple of weeks ago. Was data from October 2011 placing America at $1.2 Trillion Dollars. One trillion dollars underwritten by the Federal government via the private lending institutions (ie banks). The other couple hundred million dollars as unsecured private financing which is: personal lines of credit, HELOC (Home Equity Lines of Credit) loans, 529 State Funding Plans, retirement account loans, etc...

Here's an article from the CFPB (Consumer Financial Protection Bureau) in the Federal Government set up during the 1st term of the Obama Administration. The article is dated from last year in July 17th, 2013. Student Debt Swells, Federal Loans Now Top A Trillion Dollars (Link)

I've lived about 40 years on planet Earth here in America so far. In my human experience nearly every decade of my mortal existence there has been a recession led by greed, negligence, incompetence, and plain ugly corruption. In the 1970's it was the 1973 Oil Crisis and the 1973 / 1974 Stock Market Crash, in the late 1980's the "Savings and Loans Crisis", the late 1990's and early 2000's it was the Dot Com Boom and subsequent Bust, and in the last quarter of 2007 the "Great Recession". I'm a Generation X by birth here in America, as they say X marks the spot. :o) Americans enter into selective amnesia every decade acting like innocent lambs when an economic crisis of our collective making occurs. When we are the hardcore bogeymen of the world as the only super power until that is the Chinese catch up.

Below is a pictorial Image courtesy of "The Wall Street Journal" showcasing 2012 values of the types of student loans.



Right now I foresee 4 Types of Asset Bubbles confronting Americans today in late 2014. First, the aforementioned $1.2 Trillion dollars of Student Loans from numbers of October 2011 (as the latest data sets). Second, Tech Firm valuations during M&A (Merger and Acquisitions) activity when technological firms merge. The most famous recently was when "Mr. Marc Zuckerburg" of Facebook paid for "WhatsApp" at the $16 Billion price tag. It started the reincarnation of the Dot Com asset bubble paying on future hyped performance commercially for something that may or may not ever happen. Other tech firms have followed suit in Facebook's example and that is a dangerous trend indeed. Third, auto sub-prime loans much like what started the housing crisis of the "Great Recession". More sub-prime loans for automobile paper is on the rise, didn't we learn our lesson already? Finally the fourth asset bubble I foresee is that of Sports League Team Owners looking for municipal bond tax payers. To go onto a bloody meat hook so they can build themselves a shiny brand new stadium. Cities like Tampa, Florida are still paying off the last stadium and don't have the stomach hearing about a new stadium. These Team Owners of whatever sports league can do the financing themselves they're just looking for State / Local government welfare handouts.

Our Federal Congress of legislators have done patch work reforms to lower interest rates for Student Loans. Such as the "Bipartisan Student Loan Certainty Act of 2013" tying it to the 10 year Treasury Note for the life of each individual loan. (Source: Aug. 1st, 2013 U. S. News & World Report) (Link) President Obama also took Executive Action with the "Pay As You Earn" existing Federal student loan program. By expanding it to cap at 10% of a student's income which after 20 years time with the loan a portion can be forgiven. (Source: The Chronicle.com June 9th, 2014) (Link)

I still personally suspect this may vent some of the steam from this pressure cooker, but not enough. It may be too little, too late. I'm no professional in the financial industry, however take it as face value from a spiritual intuitive aka an "Oracle Imagineer". This is a prediction that in 2 to 3 years time we're over due for our next American economic recession. Remember every decade of life I've had on this Earth there's been an economic meltdown in America. Our last one was 7 Years Ago in the last quarter of 2007 for the "Great Recession". We're due for our pound of flesh to be paid by the aforementioned criteria of human: negligence, incompetence, greed, and corruption.

Speaking of corruption regarding the student loans industry the CFPB (Consumer Financial Protection Bureau) I mentioned above. Seeks $500 Million dollars from a law suit against "Corinthian Colleges,Inc." It's a for-profit college that services 74,000 students with private loans with fraud in overly expensive tuition rates, advertising bogus job prospects and career services at graduation, and illegal debt collection practices to strong arm students. (Source CFPB Sept. 16th, 2014) (Link)

Right now we're swimming in the wild wild west of for-profit colleges and universities be they online only or otherwise. Playing with students fast and loose with their higher education career needs. Not until the financial tide goes back to sea. Will we notice all the naked swimmers as predators and criminals preying on unsuspecting students. Just like when the credit industry dried up during the "Great Recession" crooks like Mr. Bernie Madoff were discovered with their fraudulent schemes.

This is a partial chain of events I foresee as happening when the "Student Loan Crisis Strikes" in 2 to 3 years time. Remember the last "Great Recession" happened during the last year of the Bush Administration in America. The "Student Loan Crisis" may very well begin during the last year of Obama's Administration. An eerie trend n'cest pas? First, the student loan default rates will begin to climb month after month due to excessive interest rates on the loans. Indicators will be from the major banks and lenders servicing students such as: Sallie Mae, Citi Student Loans, Wells Fargo Education Financial Services, Bank of America, and JP Morgan Chase. To name a few. Whereby many colleges and universities will begin climbing on tuition rates nationally across America. The first line of victims will be the for-profit colleges & universities online enterprises followed by their bricks and mortars brethren having their stock market prices plummet. Next the 529 State Plans used as funding sources will deplete ahead of time due to changes in tuition rates in most funding plans. Colleges and University campus will start to trim the low performing baccalaureate programs from their curriculum. Next non-essential staff and unfilled vacancies will be trimmed from the school budget. School Maintenance budgets will also see their planned dollars cut drastically.

However that is only triage before the patient of higher learning in American begins to really hemorrhage as a patient. After the for-profit educational entities bite the bullet next comes public state colleges and universities to follow. Satellite campus locations will start to see their hours of operation shortened until they're furloughed completely. Forcing undergraduate and graduate students to commute to the main campus instead. When this damage control ceases to work for campuses then the core undergraduate or graduate programs will be curtailed as offerings. Delaying graduation dates for students that's if the next semester inflated tuition rates doesn't do them in eventually. University and College student body marches and protests will start to be televised on the news wire across the country. Those students fortunate to have parents in America's top 10% as the multi millionaires will go unaffected by all this turmoil. Otherwise non Ivy League endowment giving will start to see a noticeable drop from philanthropists. Value added supply chain corporations that rely on Universities will start to see diminished orders or non-renewals of their contracts. (ie Text Book makers, Sub-contracted labor on campuses, other logistical services)

Savvy American students will start to consider International English speaking countries such as: Great Britain, the Caribbean nations, Australia, South Africa, Canada, and New Zealand. As alternative destinations for their higher education scholastic needs. This begs the question if American Universities abroad start to feel the pinch as well in funding of their operations? Will the Student Loan Crisis as a financial lending contagion spread to Europe, Asia, or elsewhere internationally? Certainly niche as smaller traditional woman colleges and those servicing Afro-Americans will also see a harsh impact to their campus with any offered curriculum.

We won't know 2014's actual Student Loan numbers until October 2017. By that time is when I foresee this crisis beginning the point of no return. Until that is the Federal government steps in like they did in 2008 with the "Great Recession". Bailing out the banks and other assorted money student loan lenders like "Sallie Mae". Not until another round of a fire sale of some lending institutions brokered by the Federal government in part being sold off before a full bankruptcy. America will only learn years after the fact the ugliness that reared its head just as we're pulling out from our lost decade from 2007. The U.S. government as the chief underwriter may force banks to slash most to all interest rates just to collect the principle loan amounts as payment scheme installments. Since "The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005" written by special interest groups for legislators that sold out Americans. Whereby all qualified education loans regardless of whether a nonprofit institution was involved in issuing the student loans. Can Not Be Forgiven this includes even Social Security beneficiaries as senior citizens or the disabled getting their government welfare checks garnished. (Source: NY Times, Sept. 12th, 2014) (Link)

The Federal Government will be staring down if Usury rates and fees can even be collected. Making it sound more like a form of "Sharia Compliant Finance" operation as conducted by many Muslim nations abroad. Wikipedia: "Usury" Definition (Link) Dare I say "Brace for Impact for the Pigs are Flying"! It's only a matter of time in my opinion and not a matter of "If" that will whip lash America with our next recession. My money or suspicion is it'll be with the "Student Loan Crisis".

Again allow me to reiterate this is my intuition firing off since I personally foresaw the "Great Recession" one full year before it happened. I didn't know squat about the derivative lending global market which led to the housing mortgage crisis. I simply called them "Voo Doo Mortgages" not knowing any better from my own ignorance of the total dynamics at play. Now time will tell in 2 to 3 years time if I was on the mark as X marks the spot. (Generation X'er here) Or if I'm completely an ass talking up my back side regardless of these obvious meta concerns I'm intimidated by in principle by my convictions.