56% of student loan borrowers will have to choose between loans and necessities

 According to this new CNBC article, citing a Credit Karma survey, 56% of people polled who owe student loans say they will have to choose between paying student loans and buying food and paying their rent.  The article goes on to say that 45% of borrowers expect to get behind on their payments, and to become delinquent, at some point.  The article says that even many people with incomes of over $100,000 a year will have trouble making student loan payments.  

Pure and simple, the federal government is going to eat most of the $q.4 trillion or more of the government owned student loan debt.  Most people can't afford to pay it.  It's just that simple.  But no one wants to admit that.  Think about it, you're not considered responsible enough to buy an alcoholic drink at age 18, but you can sign a contract for $40,000 to $100,000 in debt when you have no means to pay it at the time.  Think about that one.  

The smart people that can't afford it simply won't pay it, and will take the hit to their credit.  What are they going to do?  Repossess their brains?  There are over 40 million Americans with student loans, over $1.8 trillion in total student loan debt now, and the average payment is estimated to be about $400.  Around 37% of student loans weren't being paid on time in the spring of 2019, a year before the pandemic (the Nerd Wallet article with that info has since been updated to more current stats, but I read it myself in 2020).  

Honestly, I'm 57 years old and currently homeless, though I'm a working artist and blogger.  I just don't earn enough to rent a place to live.  I'm GLAD that I didn't go to college.  While my economic life got off track for several reasons in recent years, not going to college is one of the best decisions I ever made.  I didn't have the money to go, not even close, when I graduated from high school.  My parents didn't save money, because of the dynamics going on in our house.  I didn't have a strong direction in life at age 18, so I probably would have been on the 5 or 6 year plan, bouncing between majors, if I had gone to college.  I knew I wanted to have my own business at some point, and I didn't need a degree to hire myself.  There was nothing I was really interested in that required a college degree.  So for me, avoiding college was the right decision.  That's just me.  

But today, in 2023, it's a much different world than it was when I was 18.  A college education does not guarantee people a high paying job when they graduate anymore.  It's a coin toss, at this point, depending on a whole range of factors.  Some people with degrees will make millions more over their lifetimes, and many other graduates will struggle with their student loan debt for decades.  This issue is just beginning to hit a crisis point, and I believe it will be one more reason college enrollment will continue to drop in the next several years.  Young people who are not from wealthy families will see their parents, aunts and uncles, and other adults struggling with student loan debt, and huge numbers will take alternative paths in life.  I believe the coming recession, and its lingering aftermath, will be another reason that will force a complete restructuring of not only student debt, but the entire college and university system.  

I've been predicting a "College Apocalypse" since a chance conversation led me to do about 20 minutes of research, back in 2017, and I learned what SLABS (Student Loan Asset Backed Securities) were.  After learning about SLABS, I knew then the whole higher education system would reach a crisis point within 5 to 10 years.  The can got kicked down the road for three years, due to the pandemic, but it's now becoming apparent there's a HUGE crisis in higher education coming.  Student loan payments are supposed to start again in October.  Most people with those loans can't afford to make the payments, pure and simple.  Like commercial real estate, this is another major crisis we are heading for, and it won't end well.  

I'm doing a lot of my writing on Substack these days, check it out:

Steve Emig The White Bear's Substack

There WILL be a mass student loan payment revolt this fall

This is a short interview with Landry's CEO Tilman Fertitta, whose business owns high end restaurants like Morton's, The Charthouse, and many more top brands.  He says straight out that the high end restaurant business is slowing this summer.  This interview is from late June or early July of 2023.  He also says that he fully expects a further pullback in business when people have to start paying their student loans again.  

In this humorous YouTube short video, we see a guy with an exceptionally high amount of student loan debt, preparing to make his loan payment.  How do you feel about making your student loan payments?

Here's the basic stats.  There is now $1.774 trillion dollars of student loan debt in the U.S., spread across 43.6 million people.  You can check out those stats, and others here.  As most of us have heard, the pandemic inspired student loan moratorium on payments ends in September 2023.  Interest starts accruing again in September, and payments are supposed to begin being made again on government backed loans in October.  

As most of us have also heard, about 2/3 of Americans have been living paycheck to paycheck, with little or no savings.  People live at a wide variety of levels, but a huge number of people are just getting by these days, whether they make $40,000 a year or $150,000.  According to this article from May of 2022, that's about 166 million people.  Here's a fun stat most people don't know, according to the BLS, the total U.S. "labor force" is 166.95 million people in June of 2023.  Those are the people that actually have jobs, out of the approximately 330 million Americans.  So roughly the entire U.S. working population is already struggling to make their monthly bill payments.  

Pure and simple, a huge part of those people who owe student loan debt cannot afford to start making those payments in October.  It's probably the vast majority that really can't afford those payments comfortably. While many may try to start making payments, I believe we will see at least half of those 43 million people not pay their loans to start with, or get behind in payments within a few months.  Multiple indicators, like the continued rise in credit card use, suggest tens of millions of American are already tight, or actually struggling, financially.  In addition, the economy is slowing rapidly on most every level, and nearly every economic indicator says we're heading into recession at the same time.  That means more slow business, and more layoffs in the future, which will exacerbate the problem.   

I truly believe that these trends will combine into an organized movement of people simply refusing to pay their student loans, at some point this fall.  As I've said many times before, I simply predict the inevitable.  

Most people can't afford another $400+ monthly payment, and they won't stop feeding their families to pay that debt.  They will look at all their other bills, and then to their returning student loan payment, and think, "What are they going to do if I don't pay, repossess my brain?"  And they just won't pay, and will take the hit to their credit scores.  That will coalesce into a mass movement at some point, to simply refuse to pay, in all likelihood. 

So that's yet another factor in the coming  mega recession I see heading our way.  I could be wrong, which, of course, is possible.  If that's the case, and everyone DOES make their payments, then those payments become a $17.2 billion monthly hit to an already slowing economy.  That's a loss of over $200 billion (1/5 of a trillion dollars) hit to consumer spending, per year.  That's a lot of money not going to restaurants, local stores, clothes, cars and trucks, and everything else, which is the point Mr. Fertitta mentions in the video above.  

  This is a bad situation any way it plays out.  But it will play out, one way or the other, and we, as a society, will have to figure out some way to work through this mess.  And all the other messes (commercial real estate, hundreds of nearly insolvent banks, affordable housing and homelessness, etc.) currently at crisis levels.  

Why is there so much student debt these days to begin with?  Few people have heard of SLABS, or Student Loan Asset Backed Securities.  Since the Great Recession, student loans have been packaged into debt instruments like Mortgage Backed Securities (MBS).  You remember those?  Subprime MBS< along with CDO's (Collateralized Debt Obligations) Those are what helped crash the economy in 2008.  Because of the Great Recession, the loan requirements were raised, and a lot less residential MBS and CDO's were created since.

But, let's face it, like Margot Robbie explained in the linked MBS clip above, these investments made out of thousands of bundled up loans, made an insane amount in fees for investment banks.  So after the Great Recession, investment banks used this same concept to create SLABS out of student loans.  And the total amount of student debt soared.  They also created Collateralized Loan Obligations (CLO) out of business loans.  And Commercial Mortgage Backed Securities (CMBS) out of commercial real estate loans, and Asset Backed Securities (ABS) out of car loans and even credit card debt.  Same racket, just different loans used to do it.  That brings is to 2023, where instead of this scenario happening with subprime home loans, it's happening with student loans AND commercial real estate loans AND business debt, AND auto loans, AND even some credit card debt.  Now you know.  Take cover.  

I'm doing a lot of my writing on Substack these days, check it out:

Steve Emig The White Bear's Substack