Should Student Debtors Buy Silver?

Nearly 1 and 5 households carry student debt.  Pew Research from earlier in the quarter showed that 22.4 million households, or 19 percent, held college debt in 2010, doubling the 1989 amount, and increasing 15 percent since 2007. That means the biggest three-year increase in student debt in more than two decades.  Any of those student debtor households buying either gold and/or silver per a “defensive financial portfolio” aimed at lessening the hazard of “personal economic warfare” would be much better off than one whose portfolio did not even maintain purchasing power.

Let’s say that the average student loan interest rate is about 8%.  The official average student debt rate is about $26,000, but let’s assume for our thought experiment the real one is like, say, $40,000.  Silver, since its price in 2002 of about $5 (not even), has risen in value well above 500%, meaning at least 50% gains each year.  One who has maintained a bank account, to be conservative, has gained, let’s say, 1.5% on their deposits, while monthly inflation in 2012 sat officially between 2-3%. That means a 2002 college graduate with, say, $10,000 saved in silver and $40,000 in student debt, could have -this decade- not only paid of their principal, but also had $28k left over, while one who had not invested in silver would have had to forgo a world of consumerism and impose self-austerity measures.

That is, in 2002, when 1,000 ounces only cost $5,000, our thought experiment subject could have purchased 2,000 ounces of the devil’s metal.

There are two-tiers of college debt, with better to do families paying off or defaulting on loans from private school, and poorer families paying off or defaulting on community college, public university loans. A study based on the Survey of Consumerr Finances, sponsored by the Federal Reserve, is supported by more recent data by the Fed suggesting that student loans since $2010 have amounted to $914 billion in the April-June quarter. The Pew Report showed that the richest 20 percent of households, or those with an annual income of $97,586 or more, were indebted the most to the tune of 31 percent of the overall chunk, up from 28 percent in 2007.  The poorest 20 percent of households also saw their debt grow, to 13 from 11 percent.

Let’s say that this past July one graduated from college with $40,000 in debt, and today bought some silver for an average of $35 an ounce, with all of their savings of about $1,500 for about 42 ounces.  In months, when the price of silver is carried above its old high of $50, a silver investor could make a $600 payment towards their student loan and keep their initial investment.

With that said, that is not that much, basically one payment for many student debtors.

But, as the late Bob Chapman once said, approx. .8% of the US population is currently buying gold bullion. If, let’s say, about one-quarter of that number were buying physical silver,  and so .25% of student debtors for simplicity’s sake. That means, with 25 million households carrying student debt,  62,500 of those student debt households about are purchasing silver.  If they accumulate enough silver overtime, it is likely that not only will they far outpace the interest rates on their student debt (at least for those indebted prior to any further rate increases), but will have an silver balance leftover to sow for the future.

Of course, this is not financial advice, but merely a musing of what can be done about a major problem.

New Federal Reserve data shows that 11% of student debtors are now delinquent.

But, based on official data as this chart is, the true story is that amount of student debtors delinquent is probably something more along the lines of 22-25%. Any student debtor household should seriously look into a silver investment to hedge a negative position such as via student debt.