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 - 21:01 | 3126189 gnomon
gnomon's picture

This is ceasing to be funny.  Groping old men for ten years to negate your student debt sounds like Kafka.  The old Soviet Union has nothing on us, not anymore.  

Sat, 01/05/2013 - 22:23 | 3126313 nmewn
nmewn's picture

Actually its quite funny, in a twisted sort of way.

Lets not teach real history with cause & effect, lets break it down into meaningless "feel good moments in time".

TPTB have indeed learned a few things from Soviets...but I still don't think they can handle the strain of keeping all those plates in the air ;-)

Sat, 01/05/2013 - 17:21 | 3125757 Oleander
Oleander's picture

Students in RI arrived this week to find the Sawyer School locked. These students will lose time devoted to studies and all that federal money they used will be forgiven now. 

They can have their records to try to get into other programs. 

The money simply evaporated!

Sat, 01/05/2013 - 17:14 | 3125735 ball-and-chain
ball-and-chain's picture

Why blame the students?

Once again, it's the banks.  They have no skin in the game.  The debts are covered.

What students need is the right to go bankrupt.

Bankruptcy solves a lot of problems.

http://www.angrysinner.blogspot.kr/2013/01/saturday.html

Sat, 01/05/2013 - 19:34 | 3126015 Everybodys All ...
Everybodys All American's picture

Students need to take personal responsibility. The claim of this level of ignorance is not an excuse. If it is then they should not have made it past the admission office.

Sat, 01/05/2013 - 20:40 | 3126143 Salon
Salon's picture

Why blame anybody?

Why punish taxpayers by making them pay up the difference?

Sat, 01/05/2013 - 21:26 | 3126232 FreeMktFisherMN
FreeMktFisherMN's picture

I hear you. This is why while obviously there are powerful luciferians/illuminati people behind the scenes who have tremendous control, the people themselves who go along with the MSM and 'safety' in exchange for liberty are complicit. You do still have a choice. Yes, the deck is stacked against the guy who pays his bills, mortgage, etc., but you can still be a responsible, accountable person. 

Sat, 01/05/2013 - 23:38 | 3126411 Dr. Sandi
Dr. Sandi's picture

This tripe article adds nothing except vitriol. I'm already pissed off anyway. This kind of stuff just gets the engines gunning with no race to run.

Where's the new information that will help me through this debacle?

Sun, 01/06/2013 - 09:23 | 3126806 shovelhead
shovelhead's picture

Underground Bunker.com

Sun, 01/06/2013 - 09:22 | 3126804 DanP1966
DanP1966's picture

Seems to me that one of the first acts of any revolutionary government is to absolve everyone who agrees with them of any debt.

Hmmmm.........Think debt might be a contributor to revolution?

Sat, 01/05/2013 - 16:04 | 3125550 Manthong
Manthong's picture

I owe my soul to the company store.

Sat, 01/05/2013 - 16:05 | 3125551 pauhana
pauhana's picture

Oh, please!  I can't take anymore.  No, I mean that literally . . . I CAN"T TAKE ANYMORE OF THIS!

Sat, 01/05/2013 - 16:09 | 3125560 francis_sawyer
francis_sawyer's picture

Neither can Neidermeyers kid

~~~

http://www.youtube.com/watch?v=V9AbeALNVkk

Sat, 01/05/2013 - 16:05 | 3125552 The Gooch
The Gooch's picture

Procrastinators, UNITE! Tomorrow.

Sat, 01/05/2013 - 18:47 | 3125922 CrockettAlmanac.com
CrockettAlmanac.com's picture

Don't rush me.

Sat, 01/05/2013 - 20:42 | 3126149 willwork4food
willwork4food's picture

Where?

Sat, 01/05/2013 - 22:06 | 3126292 Hopium Dealer
Hopium Dealer's picture

I don't know, maybe...

Sat, 01/05/2013 - 21:16 | 3126210 unrulian
unrulian's picture

When?...i usually don't get up until about 1pm or so

Sat, 01/05/2013 - 16:06 | 3125553 BlueStreet
BlueStreet's picture

Would love to see the 11% 90+ day delinquent loans broken down by major.  Taxpayers bailing out Drama, Film, Philosphy, etc. majors.  Who would have ever guessed that they'd not find jobs. 

Sat, 01/05/2013 - 16:39 | 3125632 JPM Hater001
JPM Hater001's picture

As it turns out International Womens womens studies with an emphasis on vagina's is over represented.

Sat, 01/05/2013 - 16:50 | 3125655 AldousHuxley
AldousHuxley's picture

college has been MRS degree for most of the women.

After a kid or two, no sane female wants to work anymore.

Sat, 01/05/2013 - 17:43 | 3125753 sunaJ
sunaJ's picture

Actually, Liberal Arts degrees are the least of the problem.  When education went private big time in the 1990s, the number of meaningless (and expensive) degrees began to skyrocket as they tried to meet the wants of the masses.  Institutions popped up all over offering two and four year degrees.  There was no competition for content - if more people wanted to go to school, they just leased out more office space and called working professionals "instructors."  Therefore, you get things like "Criminal Justice" degrees, etc. during the last decade.  Hey, people liked CSI and Law & Order so now we have a million people running around with meaningless CJ  or CSI degrees.  The tuition is high and the quality of education is low.  There is no apprenticeship or stewardship.  No money?  No problem.  They have full-time staffers that apply for all possible aid for you, which is part of the reason they often charge above the tuition of traditional universities. The balance you have to pay (which often is still a lot).

 

Just within 30 miles of me I can recall off the top of my head:

 

Broadview University

Eaglegate College

University of Phoenix

Neumont University

 

I'm sure there are others.

 

Sat, 01/05/2013 - 19:30 | 3126008 cynicalskeptic
cynicalskeptic's picture

Hell, Law School is the biggest con... plenty of third tier Law Schools churning out attorneys with no chance of being hired by any established frm or company (they hire top grads from top ranked schools - and their hiring has been cut back dramatically of late).  So... you get a history or poly sci degreee - can't get a job so you go to Law School.  But going to some third tier school you won't even get a puiblic defender spot.  So, unless you can get into politics (astounding how many politicians at all lwevels are atrtoerneys who couldn't make a living practicing law) you're stuck chasing ambulances.

Sat, 01/05/2013 - 20:09 | 3126076 nmewn
nmewn's picture

+1

Don't forget the J-grads who go on to promote the education ponzi at such "revered institutions" as the NYT's...lol.

By the way, has David Gregory been arrested yet for his committing an obvious felony?

Not the standard hypocritical journalistic malpractice he commits everyday, like sending his children to a private school that has armed guards while poo pooing increased security or allowing adult teachers who own guns already to protect themselves and their charges in a public school...no...I was thinking of the 30 round magazine he smuggled into Washington DC ;-)

Sat, 01/05/2013 - 17:41 | 3125805 Cathartes Aura
Cathartes Aura's picture

what a LOL,

college has been MRS degree for most of the women.

After a kid or two, no sane female wants to work anymore.

given more females graduate into jobs than do males, who tend to drop out and head home to. . . momma?

 

your nonsense hasn't been true for decades - more women in the workforce earning their own way than "housewives" birthing babies.

Sat, 01/05/2013 - 18:50 | 3125930 CrockettAlmanac.com
CrockettAlmanac.com's picture

Civilization doesn't need mothers. Besides, it's a crappy thing to be, anyway.

Sat, 01/05/2013 - 19:08 | 3125957 nmewn
nmewn's picture

lol...Sandra Fluke comes to mind.

What grade is she in now, 26 or 27? ;-)

Sat, 01/05/2013 - 22:49 | 3126356 Cathartes Aura
Cathartes Aura's picture

y'know nmewn, your "mind" comes to Sandra Fluke often, and you love to bark that meme attached to my posts, when in fact I've never once used her, or her arguments, as a point of anything I've posted.

*dog whistle mebbe find a new one. . .

Sun, 01/06/2013 - 00:19 | 3126490 nmewn
nmewn's picture

I do don't I?

And I often ask myself, why is that?

Is it because she personifies the consummate narcissist little rich bitch daughter of a banker/financier who wants someone else to pay for her dalliances of irresponsibility...or is it something else entirely?

Could it be that I think she wants to plow a entirely new road of statism for others to be sucked into the vortex of bureacratic excess while acting completely irresponsibly and have others pay for it just as she has always known herself and is completely comfortable with?

Well, yes, that could very well be ;-)

Sun, 01/06/2013 - 16:19 | 3127546 Cathartes Aura
Cathartes Aura's picture

yes, you hate her, and like to make sure others follow you in that hatred, we all get that.

unless you are accusing me of BEING HER, or acting like her, or whatever - then you're just lowbrow trolling me, trying to paint me with the same brush.

like I said, dog whistle.

get a new person to throw your own shit at dude.

Sat, 01/05/2013 - 16:54 | 3125665 MiltonFriedmans...
MiltonFriedmansNightmare's picture

I can't say that I approve, but it is a bit more acceptable than a bankster bailout, eh?

Besides, the Fed needs something else to monetize. In short order, that 85B/mo. will have to increase in order to keep the plates spinning. Remember, it's all about the flow.

sarc off

Sat, 01/05/2013 - 17:10 | 3125688 Aurora Ex Machina
Aurora Ex Machina's picture

Do some proper research: Philosophy majors are in the top 5 of employable degrees, and in the top 3 of SAT corresponding to success ratios.

If you need to ask why, well... it's obvious you're not a philosopher. I'll give you a guess: learning to think for oneself means you can get paid to think for others.

 

 

Oh, and for the record: MBAs are in the top 5 laziest Masters produce. Anyone employing a fresh MBA is looking for Corporate fodder or knows nothing about real business. Or is engaging in pure nepotism, but that's a different topic.

Sat, 01/05/2013 - 17:18 | 3125748 BlueStreet
BlueStreet's picture

okay, I will.  Okay, done.  Just Googled most employable majors and reviewed the first five lists.  Philosophy wasn't listed on any of them.  Here's a list from from CBS news and it isn't even in the top 25:

 

College majors with lowest unemployment rates

  • 1. Medical technology technician 1.4%
  • 2. Nursing 2.2%
  • 3. Treatment therapy professions 2.6%
  • 4. Medical assisting services 2.9%
  • 5. Agriculture production & management 3.0%
  • 6. Industrial production technologies 3.1%
  • 7. Pharmacy 3.2%
  • 8. Communications & disorders sciences 3.3%
  • 9. Elementary education 3.6%
  • 10. Special needs education 3.6%
  • 11. Miscellaneous education 3.7%
  • 12. Mechanical engineering 3.8%
  • 13. High school teacher 3.8%
  • 14. Theology & religious vocations 4.1%
  • 15. Management info systems & statistics 4.2%
  • 16. General education 4.2%
  • 17. Health & medical administrative services 4.3%
  • 18. Transportation science & technologies 4.4%
  • 19. Finance 4.5%
  • 20. Physics 4.5%
  • 21. PE/health education 4.5%
  • 22. Criminal justice and fire protection 4.7%
  • 23. PE/Park & Recreation 4.8%
  • 24. Civil engineering 4.9%
  • 25. (tie) Electrical engineering; environmental science; math 5%
Sat, 01/05/2013 - 17:29 | 3125769 francis_sawyer
francis_sawyer's picture

 Miscellaneous education 3.7% (#11)

~~~

Ooh boy that's it!... Now you've convinced me to go into debt a cool $50K joobux [printed out of thin air] so I can get a job in that emerging field... Jamie Dimon will be happy with my choice... Maybe he'll celebrate by buying a bigger yacht for himself...

 

Sat, 01/05/2013 - 17:35 | 3125787 BlueStreet
BlueStreet's picture

According to the Daily Beast, Philosophy & Religious Studies is the 6th most useless degree with an unemployment rate for recent grads of 10.8%.  Educating those miscellaneous children is looking better and better.  

 

http://www.thedailybeast.com/galleries/2012/04/23/the-13-most-useless-ma...

 

 

Sat, 01/05/2013 - 18:52 | 3125933 CrockettAlmanac.com
CrockettAlmanac.com's picture

I'm in the market for a good philosopher.

Sat, 01/05/2013 - 23:42 | 3126415 Dr. Sandi
Dr. Sandi's picture

I'm in the market for a good philosopher stone.

Or at least a decent philosopher buzz.

Sat, 01/05/2013 - 21:24 | 3126114 Aurora Ex Machina
Aurora Ex Machina's picture

"Here's a list from from CBS news"

"According to the Daily Beast"

Put shit in, get shit out. I asked you to do some serious research, and you come back with that pap?

Well, again, I know why your initial comment was so ignorant. Daily Beast and CBS? Well, damn, huckleberry, you've about sold that deal.

One last chance: want to do some serious research? Hint: the magician doesn't play unless she has an Ace up her sleeve, so try harder, pumpkin. One last chance before you get all embarrassed and covered in blood.

 

Oh, and little huckleberry - the list you've provided is a purely functional list. Try reading it again. It ain't about "jobs per degree", it's about "jobs per training". Given that the criteria for that list is "Completing the role that you've been trained for" then DERP DERP DERP, of course someone doing a "nursing degree" is going to be employed as nurse. #2 on your list. Twat.

Look over that list again, you idiot: the top 15 are all VOCATIONAL TRAINING DEGREES.

Nothing to do with what I stated about Philosophers. There's not a "Philosopher Academy" that employs Philosophy degree holders direct from University, is there?

No. And that's the only way your shitty data list would be relevant.

 

THE ENTIRE POINT OF MY COMMENT IS THAT THEY USE THEIR DEGREES TO BRANCH OUT INTO OTHER ECONOMIC SPHERES, SOMETHING YOUR SHITTY MSM LIST DOESN'T TRACK.

 

Your small brain needs to get that. I've not noticed a position in GS called "Arch-philosopher king", but hey. Muppet.

 

Oh, and if your source is mixing "Religious Studies" [hint: it's called something else] with Philosophy, then you're looking at bullshit. What's even worse about your ignorance and stupidity is that #14 is "Theology & religious vocations 4.1%". So by your own stupidity, it's in the top #15.

No, you muppet, those are Priests! But, sure yeah!! A trained Priest has more employment chances than a philosopher, right? And will make more money, right? Now, I know that the entire chart you're quoting is shit, so I won't use that - but, please, get a brain. Muppet.

 

All in all: I love the smell of a tiny brain using sources he doesn't understand in the morning, it smells like bacon.

 

[Edit: there does remain the possibility that the USA is so backwards that its data ignores Philosophy, but naaaah. My sources from the USA are quite clearly labelling it. Hint - % of hires in top end finance.]

Sat, 01/05/2013 - 22:35 | 3126308 BlueStreet
BlueStreet's picture

huckleberry

Twat

Your small brain

you muppet

 tiny brain

-----

Wow, your philosophy degree turned you into into one classy person, didn't it?  Or maybe you are just an angry, unemployed 20 something Wanker living in Mums cellar.  You're commenting on the value of U.S. degrees in the workplace and you aren't even living in the country, that's hilarious.  Show me one list Mr. Serious Researcher that shows philosophy as a top 5 employable degree and then maybe you will have something relevant to say. You won't be able to find it because it doesn't exist.  

Sun, 01/13/2013 - 21:27 | 3149690 Aurora Ex Machina
Aurora Ex Machina's picture

Oh, right. Got to this party a little late, because I was amused.

 

Average LSAT scores for 29 majors with over 400 students taking the exam.

 

Philosophy is #2. And that's why, if we ignore your silly little MSM tables, philosophers do get interviews. And no, none of your points are valid, and yes, I just used American data.

 

 

The best revenge is that which is served cold, but I was so bored with your ignorance I forgot to finalise the deal. Consider it done now.

Sat, 01/05/2013 - 17:52 | 3125832 Cathartes Aura
Cathartes Aura's picture

dunno, but a PhD seemed to open the "right" doors for Michael Cross, as per ZH post yesterday,

we present to you Michael Cross, Head of Foreign Exchange, and Executive Director for Markets, at the Bank of England

After graduating from Cambridge University with a PhD in History, Michael Cross joined the Bank of England in 1990. His first job was in clearing and settlement policy in the equity and futures market, followed by two years working in the supervision of discount houses.

In the mid-1990s, Cross returned to Cambridge to complete an MPhil in Economics before returning to the Bank of England to work in the sterling markets division

of course, it WAS in History, an obviously important subject to know thoroughly so as to repeat faithfully.

Sat, 01/05/2013 - 19:39 | 3126020 cynicalskeptic
cynicalskeptic's picture

Lots of philosophy majors -all going to 'good' schools (like Cambridge, Oxford and the Ivies in the US) would get a job NO MATTER WHAT because their families are 'connected' (not in the Mafia sense - though in a similar sense) and part of the established order.   Think of it as being a member of the Capitalist Nomenklatura.  Doesn't matter what you know but WHO you know.

Sat, 01/05/2013 - 20:08 | 3126075 Cathartes Aura
Cathartes Aura's picture

is that not the case for any "major"?  that who you know, particularly through your "alma matters" (sic), is being socially connected throughout your life?

all one need do is look up the history of the ruling class(es), in any nationstate - perpetuates itself, and very few of the riff raff get invited, despite the "anyone can be prezzydent" and "trickle down" fairy tales the kultur thrives on.

Sat, 01/05/2013 - 20:34 | 3126129 Aurora Ex Machina
Aurora Ex Machina's picture

Oxford and Cambridge don't offer pure philosophy. You can meld it into PPE or Math or whatever, but neither offer pure Philosophy (it's a historical wanky thing, due to Logic and Russell etc discounting the Continental philosophers).

 

Top tip: Been there, got the degree.

Sat, 01/05/2013 - 21:19 | 3126218 Cathartes Aura
Cathartes Aura's picture

scrub team playing today Aurora, don't expect much.

fond memories of pub discussions many years ago with a fellow who carried around a book on "the philosophy of science" - he was/is a musician, by the way.

investigating the how/why of thought is well worth the effort, whether it "pays" or not.

Sat, 01/05/2013 - 22:41 | 3126345 RobD
RobD's picture

That list = we are fucked

Sat, 01/05/2013 - 17:44 | 3125822 unrulian
unrulian's picture

Econ, finance and marketing majors are probably no where near as delinquent, they add so much more to society /sarc

Sat, 01/05/2013 - 17:44 | 3125823 unrulian
unrulian's picture

Econ, finance and marketing majors are probably no where near as delinquent, they add so much more to society /sarc

Sat, 01/05/2013 - 16:06 | 3125555 bank guy in Brussels
bank guy in Brussels's picture

FEMA camp guards will get special credit toward student loan forgiveness

Sat, 01/05/2013 - 16:16 | 3125575 AldousHuxley
AldousHuxley's picture

only after they get their Masters in Public Imprisonment degrees from Southeastern Podunk State U.

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