The Zacks Analyst Blog Highlights: Barclays, Nomura Holdings, Bank of America,
JPMorgan Chase and SLM
CHICAGO, June 6, 2013
CHICAGO, June 6, 2013 /PRNewswire/ --Zacks.com announces the list of stocks
featured in the Analyst Blog. Every day the Zacks Equity Research analysts
discuss the latest news and events impacting stocks and the financial markets.
Stocks recently featured in the blog include Barclays Plc. (NYSE:BCS), Nomura
Holdings Inc. (NYSE:NMR), Bank of America Corp. (NYSE:BAC), JPMorgan Chase &
Co. (NYSE:JPM) and SLM Corporation (Nasdaq:SLM).
Get the most recent insight from Zacks Equity Research with the free Profit
from the Pros newsletter: http://at.zacks.com/?id=5513
Here are highlights from Wednesday's Analyst Blog:
Student Loans: The Next Frankenstein?
While the U.S. economy is taking baby steps to return to normalcy with a
rebound in the housing market and a continuous uptrend in stock prices across
most indices, a staggering student debt burden of over $1 trillion is waiting
to explode into a full-blown crisis and drag down the economy. To make matters
worse, student-loan debt has even exceeded credit card and auto loan debt,
with delinquency levels exceeding all forms of debt.
Highly delinquent mortgage loans had earlier led to a sub-prime mortgage
crisis, which led to the collapse of several financial giants like Lehman
Brothers and Merrill Lynch. While Britain's Barclays Plc. (NYSE:BCS) and
Japan's Nomura Holdings Inc. (NYSE:NMR) separately acquired the operations of
Lehman Brothers, Merrill Lynch was acquired by Bank of America Corp.
(NYSE:BAC). Several other leading banks like JPMorgan Chase & Co. (NYSE:JPM)
also felt the after-effects of the prolonged recession.
Thus the obvious question now is whether student loan debt is the next
'Frankenstein' in the making for the U.S. economy? This trillion-dollar
question might sound odd, but the reasoning behind it may lead us to give it a
What Led to the Debt Pile?
Rapid strides in globalization and technological advancements have gradually
affected careers and wiped out many mid-level professional jobs -- Darwin's
principle of 'survival of the fittest' emerges again. This has led the larger
pie of the 'bottom of the pyramid' Americans to opt for a four-year college
degree so that they are equipped with a professional grade and have
specialized skill-sets to have an edge in the competitive job market.
According to National Center for Education Statistics (2012) data, the cost of
an average four-year college stint for tuition, lodging and boarding has
presently skyrocketed to about $22,000 a year from under $9,000 (adjusted for
inflation) in 1980-81. However, median family income has remained relatively
stable at about $50,000, compared to $46,000 in 1980 (adjusted for inflation).
In order to bridge this gap, most students end up taking high loans with
expectations of higher earnings and steady employment after passing college.
However, the dearth of new jobs has compelled a large section of students to
remain unemployed. Moreover, the recession has also driven most states to
adopt austerity measures and budget cuts, which in turn has resulted in fewer
grants for college and increased tuition fees for students.
The easy availability of loans from diverse companies such as SLM Corporation
(Nasdaq:SLM) has further served as an enticement for students to take the
plunge as the federal government has emerged as the prime lender with lesser
credit requirements and reduced monthly repayment facilities.
Consequently, student loan debt has reportedly increased by 13.9% annually
from 2005 to 2012. However, panic buttons were pressed only when it hit the
The huge pile of student debt has robbed the economy of potential first-time
home buyers, the bulk of which are between 25 and 34 years old. A healthy
housing market augurs well for the overall economy and is one of the leading
indicators of economic growth.
However, already saddled with a mountain of debt, most young buyers fail to
qualify for home loans; even those who do qualify are often reluctant to take
on another large monthly payment. The vicious cycle is thus repeated – dearth
of demand in the housing market impedes economic growth and leads to lack of
jobs. The decision to buy other big-ticket items such as cars is also being
deferred, thereby weakening other possible growth drivers for the economy.
Statistics reveal that over 40% of around 40 million student loan borrowers
across the country are 25 years old with an average outstanding loan of
$25,000. Unless this huge demographic segment repays the debt, their credit
score will not improve and they won't be able to get any credit in the future.
And deciding to pay off all student loan debt would perhaps rob them of the
ability to afford anything else with the shrinking job market and reduced
discretionary income. The Catch-22 situation for college graduates is further
aggravating the problem with rising delinquency levels.
Unlike other forms of debt, student loans are unsecured and do not have
collateral attached to it. This might also be a significant factor behind
Taxpayer's Money at Stake Again?
With changing regulatory landscape following the latest recession, bad debts
and loses due to write-downs of credit card and mortgage debts could fall upon
banks and financial institutions, but student debt solely relies on the
government for a bailout. Will it be worthwhile to shoulder such a huge debt
burden and put the taxpayer's money at risk while the economy is aiming toward
a full recovery?
The impending crisis could be triggered as early as July 1, when interest
rates on student debt is set to double from 3.4% to 6.8%, without any
intervention by the government. This would escalate interest costs from $7,965
The Democrats are currently working on a plan to freeze the interest rates for
the next two years. On the other hand, the Republicans have passed a bill to
link the interest rate to a market-based system which is recalculated every
year, subject to a cap of 8.5%. However, the White House has threatened to
veto it, citing increased interest burden and uncertainty for the larger mass
of the student community.
Preparators of the argument in favor of reducing the interest burden or even
waving of some of the loans have argued that if profit-making entities like
banks can avail loans through the Federal Reserve at discounted interest rates
of 0.75%, the students should also get the same benefit to hone their
education and learning skills and develop the human capital of the country.
Until then, the looming debt obligations are delaying enrollments for students
or even forcing non-enrollments in some cases, as college degree that was once
synonymous with academic finesse and workforce readiness has now become
synonymous with debt and under-employment
Can the economy afford to sustain such a loss to the human capital or will it
be just to incur a short-term loss by waving of the loans for a long-term
Want more from Zacks Equity Research? Subscribe to the free Profit from the
Pros newsletter: http://at.zacks.com/?id=5515.
About Zacks Equity Research
Zacks Equity Research provides the best of quantitative and qualitative
analysis to help investors know what stocks to buy and which to sell for the
Continuous coverage is provided for a universe of 1,150 publicly traded
stocks. Our analysts are organized by industry which gives them keen insights
to developments that affect company profits and stock performance.
Recommendations and target prices are six-month time horizons.
Zacks "Profit from the Pros" e-mail newsletter provides highlights of the
latest analysis from Zacks Equity Research. Subscribe to this free newsletter
Zacks.com is a property of Zacks Investment Research, Inc., which was formed
in 1978 by Leon Zacks. As a PhD from MIT Len knew he could find patterns in
stock market data that would lead to superior investment results. Amongst his
many accomplishments was the formation of his proprietary stock picking
system; the Zacks Rank, which continues to outperform the market by nearly a 3
to 1 margin. The best way to unlock the profitable stock recommendations and
market insights of Zacks Investment Research is through our free daily email
newsletter; Profit from the Pros. In short, it's your steady flow of
Profitable ideas GUARANTEED to be worth your time! Register for your free
subscription to Profit from the Pros at http://at.zacks.com/?id=5518.
Visit http://www.zacks.com/performance for information about the performance
numbers displayed in this press release.
Follow us on Twitter: http://twitter.com/zacksresearch
Join us on Facebook:
Disclaimer: Past performance does not guarantee future results. Investors
should always research companies and securities before making any investments.
Nothing herein should be construed as an offer or solicitation to buy or sell
Zacks Investment Research
800-767-3771 ext. 9339
SOURCE Zacks Investment Research, Inc.
Press spacebar to pause and continue. Press esc to stop.