Modern Day Sharecroppers

Have you been watching the Student Loan bubble in the US? According to the WSJ, more than 12% are now delinquent. If you look at each borrower’s situation (financial condition and amount borrowed) a growing number of Student Loans are sub-prime. Interesting parallels between housing loans and student loans exist.


Housing: loans were made to people who couldn’t pay the mortgage who bought homes they never really could afford. The financial industry made all the money and everyone else paid. The government nationalized the mortgage reinsurance industry through Fannie Mae and Freddie Mac with the US taxpayer to foot the bill for all defaults. With the banks made whole there was no need to force foreclosures. After all, if the bank takes over the house then they have to maintain it! Why not just leave the delinquent borrowers in the house- rent/mortgage free- so they can do the up keep. Sort of like tenant farming.

Education: loans were made to prospective students who got degrees in fields with no jobs. The loans propped up the university system allowing them to raise tuition faster than inflation making institutional elites (professors, administrators, etc.) rich or get paid full time for very part time work. The government nationalized the student loan industry through the takeover of Sallie Mae leaving the defaults to be paid for by the US taxpayer. Also, student loans can’t be discharged in bankruptcy so you will be owned by the state until you pay off your debt. But you do get to keep your diploma and 15% or more garnished from your wages for at least the next 20 years. How’s that for a modern day sharecropper?



The best businesses in America are those where you can personalize your gains and socialize your losses. Or for the gamblers among you… like always playing with the House’s money.