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 "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, 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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WTFUD's picture

sorry MwiseG for not reading your post before responding to mr. wakethefuckup ; promise not to make that mistake again.

Those further education colleges and universities public & private alike specialising in sheep dip courses as per TD's comments ( you know the ones financed by the ( taxpayer ) Gubberment; are they entitled to bailouts in much the sameness as GM, TBTF etc etc? If yes then could you maybe come up with a rough figure, including the unemployed ( real totals please ) as to what % or proportion of the population are subsidised ( in ) directly by the Gubba!; maybe a graph going forward also for good luck. cheers

DanP1966's picture

OR.....nobody will pay the debt at all.

HardAssets's picture

Screw the made-up-out-of-thin-air 'debt'.

Theyve had 100 years to undermine the value of our dollars and to steal from the taxpayers.

They owe us.

chubbar's picture

Just look where this is going though. Right now if someone gets a full ride scholarship in ROTC or a military college, they owe roughly 5-8 years back in the service depending on the program they go in on. They don't owe a dime after their initial commitment.

Doesn't this start to look a lot like that program? So someone (with shitty grades) can essentially pick some party college, fuck off the whole time and run up potentially 200K+ in loans living the life of reilly and in the end gets it forgiven in 10 years. Or, 20 years of no payments if he runs out, knocks up his girlfriend and gets a shitty job because he never studied or cared about getting a useful education. That model even starts to look like the generational welfare families we see in the ghetto, except these guys get to stick the gov't/FED with 200K right off the bat. Just fucking WOW! What kind of college professor jobs program is this? Fuck, I might even go back to college myself. Hell, the whole country would be signing up for that program.

DoChenRollingBearing's picture

N N Taleb, in his new book Antifragile, takes aim at debt, bailouts and many other fragile systems.  The student debt problems is yet another of a long series of big government errors that have been allowed to go too long.  I continue to explore more ideas in Taleb's new book.  Bad ideas, like bad parts of any system, should be eliminated.


fonzannoon's picture

The last thing this is, is an error. It is absolutely purposeful. You just may not like the purpose.

phyuckyiu's picture

"Once you’ve initially qualified for Pay As You Earn, you may continue to make payments under the plan even if you no longer have a partial financial hardship."

From the website. Being broke ftw.

phyuckyiu's picture

"Pay based on what you earn—Under Pay As You Earn, your monthly payment amount will be 10 percent of your discretionary income, will never be more than the amount you would be required to pay under the 10-year Standard Repayment Plan, and may be less than under other repayment plans."

From the horse's mouth. -Never- more than 10% of -DISCRETIONARY- income. I think i'm going to major in hydroponics at my local community college, you can retake these classes 3 times (it used to be more gasp) before they finally tell you to grow up, right? Man this is gonna be fun.

P.S. Feel free to garnish my Social Security i'll never see to get your money back.

AldousHuxley's picture

get rid of H1B and half of college administrators and watch aMerican kids get jobs and cheaper education.

John_Coltrane's picture

Won't work.  Hard to replace a physical scientist or engineer with an accountant, lawyer, massage therapist, psychologist or fine arts major.  Americans are too lazy and/or stupid to major in the hard sciences where there are so many unfilled positions.  That's why the H1Bs are necessary.  Just look up the how few technical degrees are obtained by Americans now-a-days.

pods's picture

H1Bs are necessary to fill the need for highly qualified, low paid workers.

Nothing more.  


loneranger's picture



The foriegn student program for graduate programs has been subsidized by the US govt. for many, many years.  See the research from George Borjas :

Naturally, when the government subsidizes a program it creates a surplus of workers in a field and wages therefore go down.  While the insentive to obtain a gradute degree in math or science from someone in India or China is still great, it is not so great for US students.  The flood of graduate degrees in math and science has greatly depressed the average wage of the IT workers and made decent jobs in these fields very scarce.  

The H1B program should have been stopped years ago.  It is a subsidy for bloated universities and corporations that demand to fill seats and supply cheap labor at the cost of the US taxpayer and future generations.

These 'hard science' jobs are hardly that anyhow.  Very little of what one does in these jobs on a day to day has anything to do with even basic math and more to do with ass kissing and sucking up to those who hold the wallet.

linrom's picture

H1Bs are the reason why Americans don't study science and engineering. They figure that you must be a dumb twit to go into those fields.

Blankenstein's picture

Baloney.  At least as far back as the 70s and 80s kids weren't interested in studying math and science in middle school and high school, let alone study it in college.  It wasn't cool enough, it was for nerds.  Instead most were wanting to be the cheerleaders or jocks and up-to-date on the current pop culture.  Then many who went to college wanted to be managers and stock brokers and earn the big bucks not giving a flip about learning and increasing their knowledge.  

loneranger's picture

Not true.  These government sponsored programs go back to the 80's and possibly further back.  Wages in these fields have been surpressed for decades.

Get the government out of the way so that the market can determine what a fair wage is for engineering and science programs.  If engineers could make a decent living with job security then kids would line up for jobs requiring advanced degrees in math and science.

In fact, you made the point is well known that managers, stock brokers and others make far more money.

Until those with 'knowledge' are also rewarded financially for having that will (as they should) stay away from dead end careers...where you can be replaced by H1Bs and outsourced labor.  In fact the decision to replace those scientist and engineers is made BY THOSE WITH MANAGEMENT DEGREES.

We can not say anything about how lazy a generation is without first asking ourselves how their behavior was impacted by a government subsidized/manipulated market.


caconhma's picture

The only question is: How long will this shit continue? How long will our Chinese friends continue funding our prosperity?

The country supporting parasites and and destroying its productive capacities is doomed. This becomes the Soviet Union II where people stop working. There is no reasong to do anything productive including getting real education!

duo's picture

why can't I do "pay as you earn" for child support and alimony?

knowless's picture

because women are generally more supplicative to the state? men must be suppressed. (just in general, biological/uneducated scale) goverment needs to be the father/husband, the state will undermine and usurp, for it's benefit, all structures of authority.


divorce maintenance payments go to the state then from the state, they determine what comes in and what goes out, after they take their cut..

it's best to avoid a state "marriage license," also try to avoid whores.


just saying is all. tired of watching men broken by this shit.

LeisureSmith's picture

Tranquilize Restless Angry Population Program or TRAPP for short.

chaartist's picture

In a while they will use this leverage and give free homes and loan forgiveness to everyone wanted to die in foreign resource based invasions or against hungry home uprising coming soon without media coverage.


QQQBall's picture


Government Error is redundant

AldousHuxley's picture

government error = accidental correct answer?

HardAssets's picture

Yeah, that guy seems to actually think that its all a 'black swan' accident that these crashes happen.  What a load of crap.

Its like the 'investigations' after the Crash of 29.  They came up with all sorts of b.s. cycle theories and other excuses without looking at the priimary role of central banks. Their findiings weren't an 'accident' either.

AldousHuxley's picture

debt = servitude.


now smart motivated youngsters (who usually starts social revolutions) are now in servitude of status quo via debt and only way to redeem themselves would be to work for the rich or die for the rich via military service.



ShrNfr's picture

So don't sell yourself into servitude stupid.

Cathartes Aura's picture


servitude begins in the mind, and if one is willing to serve to get what they're told they "want/need" then that's what the nation will have, serve-ants.

AldousHuxley's picture

well it is either student debt slavery or nothing since manufacturing got offshored and manual labor is done by illegals for shitty pay.


serve-ants can't free themselves. Another master has to rescue them. Lincoln's factory masters wanted blue collar workers, so he freed the agricultural serve-ants in the south from plantation masters.

Only way to win is have  a massive regime change.

Cathartes Aura's picture

I don't believe it's ever just "either/or" - there are so many ways to exist in the world, one merely needs to stop looking to the dominate system for answers, and get creative.

waiting for a "massive regime change" is like voting - it's the least you can do, just sitting back and moaning about the way things are, and relying on a system to provide for you, mentally and/or otherwise.


Mudduckk's picture

I do manual labor Hux. Born and raised US citizen. Seven years of post hs ed. Two degrees. one BS and one MS. I do it because I like it. I get paid to do it because peeps like my service and I charge a reasonable price. So I have my own biz. its a stratiegic good fit. I cant be fired. the work is essential. the work cannot be offshored. and if in ten years time when my kids are grown enough to work and job market still sucks and the government is even further along in full retard mode, my kids will have a place to work.

its not hopeless as you make it. in fact i see others around making the same choice. not all gardeners are mexican. in fact ive seen a few all female crews. they do it cuz they like it. they be brown schewddy and filthy but still babealishious. if you want it bad enough, you do the work. man i want on that crew.

 save the regeime change bs and get a job. ya hippie!


ps btw did not down arrow u.

Cugel's picture

The trouble is that reckless borrowers bid up the cost of services to the point where they are unaffordable without reckless borrowing. Fair or not, a degree is a check box on a lot of HR lists.

logically possible's picture

I would consider it reckless lending that bids up the cost of services. Without reckless lenders, you would not have reckless borrowers. Looks just like the housing bubble and every other government subsidized program when you look at it that way.

TruthHunter's picture

What's left out of this analysis, it the other side of the bubble.   The schools aren't interested in efficiency either.

The cost of education has been growing much faster than inflation.

The fact is the present educational model is obsolete. With modern technology, the cost can be a fraction

of what it is now.  

John_Coltrane's picture

But not just any old degree.  You need to know how to actually do something-especially problem solve.

FoeHammer's picture

Huffing Unicorn farts from Grade 1-12 in a public school setting doesn't allow for critical thinking. There are plently of folks that are/were effectively being brainwashed. You don't know any different as a fucking kid. Not to say the kids are blameless either...

AldousHuxley's picture

critical thinking happens AFTER college

when students start thinking about the bullshit 16 years of education they went through and can't get a job to pay the loan off, while foreigners get free college degrees by their native governments and get jobs in USA.



nmewn's picture

"critical thinking happens AFTER college"

Are you fucking high right now?

August's picture

With zero knowledge of history or ethics, and plenty of gaming experience, America's collegians will prove to be optimal pilots for those 30,000 drones soon to be dominating the Homeland's airspace.

Lon Horiuchi was a fag.

Salon's picture

No statute of limitations on crimes against humanity.

He shot and killed a woman holding a baby.

He saw her through his sniperscope. It was no accident.

nmewn's picture

Yes...there is no statute of limitations for murder.

Freddie's picture

Many Americans have not forgotten who Lon is.   Someday......

Ralph Spoilsport's picture

Damn right. Someday.

“Pound-for-pound, component-for-component, dollar- for-dollar, you will not find a better rifle,” says the new spokesman for H-S Precision in Rapid City. His name is Lon Horiuchi, a government assassin who retired from the FBI in 2006. AFP called to ask him if this was also the weapon he used to blow away the face of Vicki Weaver at the remote area of Ruby Ridge in Idaho in 1992, but he did not return the calls.

August's picture

AFP called to ask him if this was also the weapon he used to blow away the face of Vicki Weaver at the remote area of Ruby Ridge in Idaho in 1992, but he did not return the calls.

Thanks for posting this information, which was news to me; apparently LH retired from the FBI in 2008 (very likely on disabilty due his own post-traumatic stress), and has moved into the private sector, selling sniper systems to the feds.

May a slow, humiliating and painful death find you, Lon.  Food poisoning, or whatever.


Edelweiss's picture

  I remember watching events unfold in the news at Ruby Ridge, and Waco.  It still makes me angry.  The media, at the time, villified the Weavers' and Koresh's group.  If you remember the commentary in the MSM, you'll recall that the attitude was one of "they did it to themselves".  In both cases the govt was clearly the aggressor.  The way those situations were handled opened my eyes to the violence the state is willing to, and capable of directing at us. 

boogerbently's picture

So, Is David Koresh/Branch Davidians some sort of martyr/heroes, now?

Son of Loki's picture

Raging Airplane Passenger Duct Taped to Seat



The pitfalls of apparently mixing alcohol and air travel were taken to a new level when an evidently intoxicated man was constrained to his seat with duct tape on an international flight.

Iceland Air said the man went on a rampage on a New Year's Eve flight from Reykjavik to New York, hitting, screaming at and spitting on other passengers.

Passengers took matter into their own hands, taping the man to his seat.

swmnguy's picture

Great.  Now the TSA will start taking away any tape I have in my carry-on.

CheapBastard's picture

EBT people rushing to go to school and max out their loans while living in their Section 8 housing.


It's a wonder life!

S5936's picture

You got it. Fuck this solid citizen bullshit !! I'm going back too. Need to dust off the bong first ... The new normal ... Yeah baby !!!

ToNYC's picture

You mean, socialize losers on the Plantation re-run, to pay all costs.

TrulyBelieving's picture

The generalization that 'rich people' want workers and society to take the burden of education and risk is not only incorrect but exposes the social agenda of AH. Propagandist often will not deny the evil of a situation, but will simply redirect the blame to a class of people viewed as the enemy thereby protecting the real antagonist.