Tuesday, February 24, 2015

Student debt - the next sub prime disaster waiting to happen? Maybe. Almost certain

This has absolutely nothing to do with marketing, demographics, customer experience or the other subjects I write about. This is purely me sharing with you a big concern that keeps raising itself in the media.

When sub-prime mortgages were first talked about they were a page  6 item in the financial press. It didn't take them long to get to page 1.

My fear is that student debt is in the same league as sub prime.

Just look at these facts.

In roughly a decade, outstanding US student loan balances have tripled to $1.16tn, more than any category of consumer borrowing other than the $8tn or so in mortgages. By contrast, car loan debt is $955bn and credit card debt is $700bn.

The really interesting part of the analysis was of the type of loan that was not being repaid. It was the small loan. Clearly, there were loads of young Americans that started a college degree and quickly dropped out. Does that sound anything like the UK? Mmmm

In the FT today (24th Feb 2015) it was announced that the Government was to 'set aside' £2bn to cover potential write-downs in the value of existing student loans in this financial year alone amid an increase in graduates’ failure to repay.

The policy for 50% of young people to get a degree took now account of the demand for their skills and the likely income they would receive. Not good. Dick Stroud

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