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Saturday, November 05, 2011

The sub-prime student - bad news

Before the dreaded word "sub-prime" entered the general vocabulary it had been talked about on the inside pages of the financial press for at least a year before.

As we all know the term was applied to property that people bought on cheap credit, the value declined and they couldn't afford the mortgage repayments. 

Well the term sub-prime is now being applied to students who have much in common with a dilapidated apartment that nobody wants to buy that has too much debt and too little demand. Sorry guys, this is not supposed to be an insult but rather an interpretation of the facts.

This article in Business Week is worth reading. It is scary and also applies to the UK. 

To give you a feel for the magnitude of the problem. The outstanding value of student loans in the US is $500 billion and is expected to reach a $1,000 billion ($1,000,000,000,000) this year. 

Maybe they should provide all potential students with red pills before they start to accumulate debt?

This issue has mega serious financial implications but at more local level it highlights the declining purchasing power of the younger consumer. Let's hope bank Mum and Dad has strong lines of credit. Dick Stroud

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