Data on student loans in the post financial crisis period since 2009 is truly eye opening. Total student loan debt skyrocketed from 100 billion in 2006 to over 1.2-trillion Dollars in 9.5-short years as per Bloomberg. Looked at another way and government issued student loans have ballooned 10-fold since 1990. On a per student basis over the same period debt has jumped from some $16,000 to over $133,000. Of the 1.2 trillion in outstanding loans some 43% or 516 billion is in default, a 3% improvement over the 46% seen in 2014. The problems caused by too much debt, public, private, business etc., etc. plague developed economies the world over. Compounded by a litany of pension and benefit promises that mathematically can’t be kept. In turn made worse by the assorted Zero Interest Rate programs and other unconventional monetary policies designed to promote lending and keep the party going. A party that saw last call in 2008 due to unsustainable debt levels only to have the clock reset with a more diversified, but still clearly unsustainable, debt burden in 2016 on the back of student and auto loans primarily. It amazes me that 8-short years after the fact we apparently require another very harsh lesson in you can’t borrow your way to success and prosperity because return on capital has to exceed cost of capital if default and bankruptcy are to be avoided, basic mathematics and I’m not talking about hinky accounting tricks designed to put lipstick on a pig.
This is Caleb Lawrence Registered Investment Adviser Scotts Valley Drive and Willis Road in the Scotts Valley Plaza, Suite 202 or call me toll free at 888-RICH PIG / 888-742-4744.
You can catch me on the radio at noon each business day as well on California’s central coast. KPIG 107.5 FM in the Monterey Bay or KPYG 94.9 FM in San Luis Obispo.
Advisory services offered through Caleb Lawrence Registered Investment Adviser Inc.