Here Comes The Student Loan Bailout

Tyler Durden's picture




 

2012 is the year the student loan bubble finally popped. While on one hand the relentlessly rising total Federal student debt crossed $956 billion as of September 30, and was growing at a pace that will have put it over $1 trillion by the end of 2012, the one data point confirming the size, severity and ultimately bursting of this latest debt bubble was the disclosure in late November by the Fed that the percentage of 90+ day delinquent loans soared from under 9% to 11% in one quarter.

Which is why we were not surprised to learn that the Federal government has now delivered yet another bailout program: this time focusing not on banks, or homeowners who bought McMansions and decided to not pay their mortgage, but on those millions of Americans, aged 18 to 80, that are drowning in student debt - debt, incidentally, which has been used to pay for drugs, motorcycles, games, tattoos, not to mention countless iProducts. Which also means that since there is no free lunch, all that will happen is that even more Federal Debt will be tacked on to replace discharged student debt loans, up to the total $1 trillion which will promptly soar far higher as more Americans take advantage of this latest government handout. But when the US will already have $22 trillion in debt this time in four years, who really is counting? After all, "it is only fair" that the taxpayer funded "free for all" bonanza must go on.

The latest debt bailout, not surprisingly is not titled "Yet another taxpayer funded bailout for those who bought things they can't afford on credit" as that would not be very politically prudent, especially for those politicians who still have taxpaying citizens as their voters. Instead, its name is the much more PC: "Pay as You Earn Repayment Plan." Alas, it really should be called the former, because what it does is it incentivizes Americans to borrow even more Federal student loans, well aware that there will now always be a cap on the associated monthly interest payment which will never leave a mark regardless what the full underlying loan notional is. It also provides for full debt discharge should the borrowers end up with cushy Federal jobs - because the one thing the US government needs afford is more debt-saddled government workers.

What is the "Pay as You Earn Repayment Plan"? The WSJ explains:

A new federal program should make it easier for some recent college graduates to keep their student-loan payments manageable.

The new option, known as the "Pay as You Earn Repayment Plan," lets eligible borrowers sharply lower their monthly loan payments and qualify for loan forgiveness quicker than they might otherwise.

"It's a very good safety net for students who borrow too much," says Mark Kantrowitz, publisher of the financial-aid site FinAid.org. "If your debt exceeds your annual income, you will probably benefit."

 

Pay as You Earn, which took effect on Dec. 21, "is designed to help offset the effects of the recession for student borrowers most likely to take a hit in this tough job market," says Lauren Asher, president of the Institute for College Access and Success, which has pushed for the creation of income-based repayment plans.

Which in the New Normal, means everyone with a student loan will benefit. It also means, that courtesy of knowing this safety net is there, more and more people will take advantage of the government's latest generosity with other taxpayer's money.

What are the terms of this new bailout?

The new program comes at a time when rising student-loan balances—amid a still shaky job market—have weighed heavily on many families.

 

Typically, federal student loans must be repaid within 10 years. At current interest rates, that can work out to a monthly payment of roughly $300 for a borrower with $26,000 in debt.

 

Pay as You Earn, by contrast, limits student-loan payments to 10% of "discretionary income" as defined by government formulas. Borrowers who make regular payments could have the remaining unpaid amounts forgiven after 20 years.

So much for student debt being non-dischargeable: borrow hundreds of thousands, but make your monthly payment of a hundred or so bucks, and in 20 years you will be debt free, courtesy of US taxpayers. Actually, scratch that: one doesn't even have to make a payment!

In some cases, borrowers with low incomes could be required to make a zero-dollar payment and would still be considered current on their loan. Monthly payments can increase or decrease each year based on the borrower's income and family size.

For those who think getting full debt forgiveness in 20 years is far too long, why there's a loophole for that too: just go "work" for Uncle Sam:

Borrowers with public-service jobs may qualify for loan forgiveness after just 10 years.

As for eligibility "constraints":

To be eligible for the program, borrowers must have taken out their first federal student loan after Sept. 30, 2007, and received at least one federal student loan after Sept. 30, 2011. Borrowers also must meet eligibility cutoffs based on the size of their debt, their discretionary income and family size.

 

The U.S. Department of Education's Pay As You Earn calculator, available at studentaid.gov, can help you determine if you qualify. Borrowers can apply for the program online or by contacting the loan servicer that collects their payments on behalf of the federal government.

In other words, virtually all people who were responsible for the diagonal take off in the Federal student loan total in the current depression are now eligible for what will eventually be full debt discharge.

So let's get this straight:

  1. go to some "everyone who applies is admitted" community college
  2. take on the biggest Federal loan one can get
  3. use the proceeds for everything besides the tuition (of course)
  4. be unable to find a job after graduation (naturally)
  5. plead poverty, accusing evil employers who don't hire those who majored in Foosball, and make "zero" payments while remaining in "compliance"
  6. get a job working for the government, wait ten years, and have the entire loan magically disappear.

And there it is: incentives for the common, and very much broke, man in the New Normal.

If there is anyone out there who thinks this will not result in a "charge it" feeding frenzy and that the Federal student loan total will not go absolutely parabolic going forward, please raise your hand.

Of course, what is not discussed, is who is on the other side of all those forgiven loans. And the answer, dear taxpaying US readers, is starting at you in the mirror. Because all the Federal government will do is transfer the unfunded obligation, which has already been used to satisfy the purchase of goods and services, from one individual to the whole group.

But when one is dealing with the government of a country that is no longer even fit to be defined as "banana", what is adding one more trillion between already insolvent counterparties.

Finally, yes, this means the Fed just tacked on one more year of QE to its $1 trillion/year in US debt monetization, which also means the Fed's balance sheet will now also be used for to fund student loan forgiveness, among so many other things.

Insolvent students of the world, unite!

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Sat, 01/05/2013 - 16:03 | 3125549 Uber Vandal
Uber Vandal's picture

Quite often, I find I am not sure if I woke up in the Twilight Zone or an episode of Sliders.....

Sat, 01/05/2013 - 16:07 | 3125556 francis_sawyer
francis_sawyer's picture

I got my degree in my pajamas... [& after that I made money by being in 'Girls Gone Wild in Cancun' videos]...

Sat, 01/05/2013 - 16:20 | 3125584 ratso
ratso's picture

After GHWB and Congress made it impossible to clear student loans from one's debts in bankruptcy,  predatory educational institutiions and lenders have taken advantage of this involuntary servitude which now enslaves thousands of young people. 

Why should only corporations, municipalities  and the cleverly rich be able to file effective bankruptcies?

LET THEM EAT CAKE!!!

Sat, 01/05/2013 - 16:31 | 3125608 AldousHuxley
AldousHuxley's picture

because rich people want workers and society to take the burden of education cost and risk of specialization so that employable human resources are free for their disposal "at will".

 

privatize profits, socialize losses as well as costs

Sat, 01/05/2013 - 16:35 | 3125619 urwright
urwright's picture

http://www.youtube.com/watch?v=sPJAs_JIkIc

What's the problem?  You actually think you understand the COST!

Sat, 01/05/2013 - 17:48 | 3125826 knukles
knukles's picture

This is all such horseshit.
All's needed is a small bag of the new fangled platinum coins that guy Krugman keeps talkin' about.

Sat, 01/05/2013 - 18:11 | 3125867 A Lunatic
A Lunatic's picture

Indeed, only rather than platinum, I suggest we make the coin out of chocolate and then we eat the mother fucking thing. See, no more debt...............

Sat, 01/05/2013 - 19:20 | 3125983 derek_vineyard
derek_vineyard's picture

those who walked away from homes are now back in multitudes buying homes with federal loans  (only had to sit out of housing for 3 years)

Sat, 01/05/2013 - 20:31 | 3126120 boogerbently
boogerbently's picture

Call me crazy, but shouldn't we pay off the old debts we can't afford before adding to them?

Sat, 01/05/2013 - 20:37 | 3126135 AldousHuxley
AldousHuxley's picture

debt roll over

swap high interest with lower interest debt

allows idiot execs and banksters to continue the game little longer...

Sat, 01/05/2013 - 21:07 | 3126202 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

I would rather have average folks get a bailout instead of just douche-bag banksters. Good luck qualifying for this!

Sat, 01/05/2013 - 22:09 | 3126296 Texas Ginslinger
Texas Ginslinger's picture

Tyler = Dudge

"..blah...blah...but on those millions of Americans, aged 18 to 80, that are drowning in student debt - debt, incidentally, which has been used to pay for drugs, motorcycles, games, tattoos, not to mention countless iProducts..."

Laughable that you compare Apple products to drugs.

Assuming that you use a pc, how often do you have to reimage the piece of shit..??

 

Sat, 01/05/2013 - 22:32 | 3126330 hungrydweller
hungrydweller's picture

Loser.  You actually think that including iGadgets was the intent of the post.  Eat your Cheetos and spunk somewhere else fuckweed.

Sun, 01/06/2013 - 09:54 | 3126791 GetZeeGold
GetZeeGold's picture

 

 

 

I'm thinking that Texas douche.....must be from around Austin. You really can't classify that place as Texas though.

Sun, 01/06/2013 - 14:24 | 3127270 knowless
knowless's picture

his comments used to be better, his stance that the cpi and other bls data weren't being grossly manipulated sort of shut him up after a while though.

Sun, 01/06/2013 - 22:12 | 3128438 3.7.77
3.7.77's picture

This is ginslinger not gunslinger

Sat, 01/05/2013 - 22:34 | 3126335 hungrydweller
hungrydweller's picture

Dudge?!!  What a drumass!

Sat, 01/05/2013 - 22:49 | 3126357 Doomer
Doomer's picture

They are comparable because they all have nothing to do with getting an education.

Now go pull your head out of your ass, and lay off the gin.

Sun, 01/06/2013 - 09:56 | 3126839 centerline
centerline's picture

Real asswipe statement TG.  Everyone here has noticed the iThings have become the centifugal bubble puppy of the last few years.

Apple products are excellent.  No doubt.  But are the epitome of rapant, hedonistic consumerism - with a typical following that sounds more paid marketing for Apple than anything else.  Hence, deserving to be listed as Tyler put it.

Sun, 01/06/2013 - 14:29 | 3127282 knowless
knowless's picture

they also market directly to college students through their schools with minor discounts, i'm assuming that they know full well that most of the people buying their products are doing so with student loans... soooo..

Sun, 01/06/2013 - 14:37 | 3127296 HardAssets
HardAssets's picture

Drugs ? 

Ever watch a teenager stare mindlessly at their various iGadgets ?  (The ones with all the nice tracking software). 

Back in the day, when I went to college, we spent our money on important things . . . like kegs of beer.

Sun, 01/06/2013 - 13:35 | 3127159 linrom
linrom's picture

For Christ sake, he is Pete Peterson.

Sat, 01/05/2013 - 22:56 | 3126361 Doomer
Doomer's picture

You do realize the douche-bag bankers get the money, right?

It is always the same, some fools and the bankers that lent them money both get bailed out.

Not to mention supporting a vast higher education complex that is turning out graduates with fancy, expensive degrees with no prospects.

This is just infuriating.

 

 

Sun, 01/06/2013 - 11:14 | 3126917 847328_3527
847328_3527's picture

Doomer is correct! This 'student bailout' is nothing more then another bank bailout recharacterized as 'helping the poor students.'

Sun, 01/06/2013 - 13:43 | 3127170 jeff montanye
jeff montanye's picture

the old way of directly subsidizing public education through college was too inefficient: the bankers didn't get enough of the money.

Sun, 01/06/2013 - 11:33 | 3126939 centerline
centerline's picture

True.  But let's look at an even bigger picture...  the system MUST derive yield.  Or it dies.  It requires new debt to be created, and at an increasing pace.  Hence, the need for massive population growth.

Problem is that the system was terminal from it's birth - just like us.  It reached it's practical organic maximum potential (given various global constraints, resources, etc.) a little over a decade ago at least.  So, in order to sustain the system, TPTB needed to cram down more debt.  The answer on how to do this?  Bubbles.  A whole new paradigm of economic behavior.

This particular student loan debacle is simply the next big bubble.  Could be the last bubble.

All bubbles prey on human vices.  Usually greed.  This one is particularly evil because it leverages the average person's inability to reconcile and face reality.  It preys on fear.  No one wants to face a period of decline.  No one wants to find themselves unemployed and thinking thier profession is dead.  No one wants to think that thier kids will do worse than them in terms of standard of living as measured by what we call "normal."

And now, quite cleverly, this bubble most likely has been given new life.  Not just by can kicking on the payments - which surely will be backstopped via more monetization - but also by creating new incentive for additional debt.  The new motivation being a mix of greed, fear, and "playing the system."  But, as we all know... once J6P figures out how to play the system...

Sun, 01/06/2013 - 13:37 | 3127161 linrom
linrom's picture

Hello, Hypertiger

Sun, 01/06/2013 - 15:51 | 3127480 centerline
centerline's picture

lol.  That's certainly not me!  But thanks!

I have read some of HT stuff though.  Mostly the newer stuff over the last couple of years.  There are a few of us around here who are on a similar page...wavelength.  Not doomers by any means.  Just trying really hard to see the truth for whatever it is.

I read alot - and try to seek out all sorts of different theories about how our world really operates.  I then do my own best to keep an open mind and use each of those "frameworks" to see how well the facts seem to fit.  HT's framework tends to match up better than most others.  It is also "broad" enough to allow many more detailed explainations to work as compliments.

What I like most about HT though is his use of simple terms that are easy to discuss.

 

Sun, 01/06/2013 - 14:41 | 3127308 HardAssets
HardAssets's picture

THANK YOU for saying it !   The people in this country are do damned f*cking dumb that they'll buy any line of bull.  We're heading full speed into feudalistic socialism/fascism and the dopes will think its all about  'helping the people'.

Sun, 01/06/2013 - 01:43 | 3126599 WTFUD
WTFUD's picture

Ah [sigh] booger. . . the fact is there is no intention to pay off the debt. . . all the Johns & classical academics have done the fracking sums. . .only Plan Z remains ; to keep the Greastest ever Ponzi alive by feeding fresh blood until we are all zombies. . .just like in japan.
for ref type Olympus Ex CEO exposes or read his book. . . the hostility by the MSM towards him for daring to expose Zombie multinationals is testament to what else lurks out there in the shadows. . .best we dont know us mugs. . . for it's sure to be coming or more likely arrived in one of your own backyards. . .biggest laugh i get is the Myth constantly spoused on c flem bc. . . . . . regarding ALL THAT FIAT CASH RESTING ON THE SIDELINES. . .burning a hole in big business pockets. . .just awaiting fiscal cliff or new tax con or growth or War or pick your own or pick'n'mix. .

Sun, 01/06/2013 - 14:33 | 3127289 knowless
knowless's picture

eventually they will completely undermine family formation, classic attribute of a slave population: no family ties.

Sun, 01/06/2013 - 12:07 | 3126999 unrulian
unrulian's picture

I'll eat it....and I'll be back withyour interest in the morning

Sat, 01/05/2013 - 18:47 | 3125923 Bicycle Repairman
Bicycle Repairman's picture

Yes this adds to the debt.  But who's going to have to pay the debt?  The children.  So it's fair.

/sarc

Sat, 01/05/2013 - 19:24 | 3125972 Michaelwiseguy
Michaelwiseguy's picture

Oh my poor dear Bicycle Repairman. It's 100% guaranteed, No one is ever going to pay back the national debt, it's just too much. Everybody knows that, even those with a sub-standard American education.

PS

I figured out what the end game for the USA is;

http://www.zerohedge.com/news/2013-01-05/two-spaniards-self-immolate-due-financial-problems

Sat, 01/05/2013 - 20:35 | 3126078 Michaelwiseguy
Michaelwiseguy's picture

A followup to David Wilcock and Drake Interview;

http://americankabuki.blogspot.com/2013/01/the-one-peoples-public-trust.html

A conversation with Heather Tucci-Jarraf, Trustee of The One People's Public Trust http://www.youtube.com/watch?v=paz5lEoxXrc&feature=player_embedded  
You have the Right to know

http://removingtheshackles.blogspot.ca/

Sun, 01/06/2013 - 00:45 | 3126522 Ralph Spoilsport
Ralph Spoilsport's picture

David Wilcock and Drake Interview? Wilcock is a gullible twit as evidenced by believing in this fraud calling himself Drake. For instance, Wilcock bought into the embarassing debacle of Ben Fulford and Drake predicting that all the TBTF bankster crooks will be arrested and beaten senseless by all the martial artists in the world uniting and flying business class to the US to set things right for us. Didn't happen did it. Neither was the earth destroyed by the planet Nibiru as these idiots predicted.

Sun, 01/06/2013 - 00:54 | 3126549 knukles
knukles's picture

But they're right so far about our Reptilian Overlords remaining silent, invisible and hidden behind the scenes so no one can see or hear them and prove they really are in control!

 

 

 

 

sarc/ (As if necessary, then again some folks are gullible, ya' know?)

 

For sale, special offer, nictating membrane softener, eliminates that rapid give away blinking...

Sun, 01/06/2013 - 01:00 | 3126558 Ralph Spoilsport
Ralph Spoilsport's picture

Are there any more of these cool sunglasses left?

https://www.youtube.com/watch?v=inZUDMGJsKo&feature=youtube_gdata

Sun, 01/06/2013 - 01:50 | 3126603 Michaelwiseguy
Michaelwiseguy's picture

Don't bore me with talk of reptilians. You have to truly understand the spiritual energy literally within you, where, why, and how it exists. You can only get a sense of it if you can sit through all 4.5 hours of this video.

(-Marko Rodin Lecture-) Vortex Based Mathematics

https://www.youtube.com/watch?v=qgMlfz-flz8

Sun, 01/06/2013 - 02:07 | 3126618 Ralph Spoilsport
Ralph Spoilsport's picture

Howya doin' with your chakras? The path to enlightenment is not without risk. Attempting to utilize vortex math to transfer ki for later use in the next bardo will fuck your shit right up.

Sun, 01/06/2013 - 02:54 | 3126651 Michaelwiseguy
Michaelwiseguy's picture

I'm learning how to use the power within me for defensive purposes. Everyone has the right to protect themselves and their own natural rights using this tool. I'm also exploring how to use it in a collective consciousness way to multiply the effectiveness of the energy against our enemies and those who wish to enslave us.  It seems to be working pretty well so far. Just learning about the power within you makes it easier for you to sleep at night and walk without fear. It's not a good idea to use the power in any way that may offend the Creator, unless you don't mind going to an eternal death when you die.

Sun, 01/06/2013 - 09:59 | 3126840 GetZeeGold
GetZeeGold's picture

 

 

 

Everyone has the right to protect themselves

 

Not according to Obama and Feinstein.

Sun, 01/06/2013 - 14:36 | 3127294 Michaelwiseguy
Michaelwiseguy's picture

That old slave master cunt Feinstein will be dead soon enough of old age and Obama is out of our lives in 4 years. 

Sat, 01/05/2013 - 21:20 | 3126219 Bicycle Repairman
Bicycle Repairman's picture

No, no no, the accursed babies boomers loaded all this debt on the children and grand children.  Now the children are loading debt on the children and grandchildren.

WILL THIS MADNESS NEVER END?????????????

Sat, 01/05/2013 - 22:30 | 3126321 Michaelwiseguy
Michaelwiseguy's picture

Virtually all the baby boomers will be dead in 20 years.

Sat, 01/05/2013 - 22:50 | 3126355 Bicycle Repairman
Bicycle Repairman's picture

Over the next 20 years the piling on of debt which began with the greatest generation will largely be done by Gens X & Y.  They'll change exactly nothing.

Sat, 01/05/2013 - 23:30 | 3126398 Michaelwiseguy
Michaelwiseguy's picture

Nothing needs to be changed at this point. Every fiat currency fails without exception. The US currency will fail in a couple months to a couple years at most. It will be an absolutely spectacular event never seen before in history.

Sun, 01/06/2013 - 10:04 | 3126845 centerline
centerline's picture

Flawed concept of the mechanism of change.

Sun, 01/06/2013 - 00:46 | 3126534 conspicio
conspicio's picture

They'll be dead sooner than that under Obamacare (ah, but I joke...). And the debt laden youth of today (and those yet to be born, if they make it past the Planned Parenthood trip) will have little qualms voting the shit out of that "eldercare euthanasia/rationed care/death panel" crap in droves once the issue is framed in the sloganized 160 characters or less hashtagged hipster lingo they eat up like an 80s blow whore and spun across some youtube viral along with .com anything. Get the fuck outta the way and die already granny! You're sucking up MY air, now you old bag! #yourdebtisyourdeatholdhag

Sun, 01/06/2013 - 15:02 | 3127344 HardAssets
HardAssets's picture

"No, no no, the accursed babies boomers loaded all this debt on the children and grand children. Now the children are loading debt on the children and grandchildren."

You don't get it.

The value of peoples dollars have been reduced by 96% through bankster money printing. They raided the soc sec 'trust fund' that was supposed to be for retirement.

There was a great rip off of the material resources of the population to a very small group of banksters, corporate insiders, and their paid off government whores. 

And now they blame those who got the shaft for the debt & cry that we need 'austerity' ?   How dumb are people to buy that line ?

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