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 - 16:18 | 3125577 Telemakhos
Telemakhos's picture

The sixth point of Tyler's divination of the Six Point Plan is the scary one.  As college becomes "necessary" and prohibitively expensive, expect to see an increase in the number of citizens signing up for a statutory ten years in a workforce designated by the government as "public service" to obtain debt relief (basically indentured servitude for debtors).

Sat, 01/05/2013 - 17:06 | 3125695 Aurora Ex Machina
Aurora Ex Machina's picture

It's already in effect:

 

It's called the Military.

Sat, 01/05/2013 - 17:25 | 3125768 post turtle saver
post turtle saver's picture

"Service guarantees Citizenship!"

Sun, 01/06/2013 - 10:20 | 3126861 SamAdams1234
SamAdams1234's picture

"Work makes you free" ...
plus qu ca change.

 

Sat, 01/05/2013 - 16:19 | 3125579 Insideher Trading
Insideher Trading's picture

I wonder what the percentage of people who took out a student loan actually graduated.

I'm willing to bet the number is pretty low.

Sat, 01/05/2013 - 16:34 | 3125618 WestVillageIdiot
WestVillageIdiot's picture

And just think of all the students that are paid to go to college that have no business being on a college campus.  Talk about waste.  This is not an investment.  This is a throwaway. 

Sat, 01/05/2013 - 17:09 | 3125711 Landrew
Landrew's picture

I guess that's why the username is so appropriate?

Sat, 01/05/2013 - 17:28 | 3125774 WestVillageIdiot
WestVillageIdiot's picture

Shouldn't you be at your union meeting, praising the greatness of government and making threats against anybody that questions its evil?

I'm sure you make a good little drone for your masters.

Sat, 01/05/2013 - 16:57 | 3125679 Cathartes Aura
Cathartes Aura's picture

lower than you might imagine, here's a tool that lets you choose the state, etc.

those beer enema frat parties, not paying off. . .

 

Sat, 01/05/2013 - 18:58 | 3125946 Ineverslice
Ineverslice's picture

 

Funnels....lol.

Sun, 01/06/2013 - 12:44 | 3127068 MrButtoMcFarty
MrButtoMcFarty's picture

What's the difference between a gay frat boy and a straight frat boy??

 

About a 6 pack of beer.

 

Sun, 01/06/2013 - 16:37 | 3127596 Cathartes Aura
Sat, 01/05/2013 - 17:01 | 3125692 TPTB_r_TBTF
TPTB_r_TBTF's picture

.

 

58% of the 1.8 million borrowers whose student loans were began to be due in 2005 hadn't received a degree. Some 59% of them were delinquent on their loans or had already defaulted, compared with 38% of college graduates. The problem has almost certainly worsened since, as the recession wiped out job opportunities for less-educated workers.

...

 

34 million Americans over 25 years old have some college credits but haven't received a diploma, a rate that grew by roughly 700,000 people over the past three years.

...

 

the six-year graduation rate for full-time students is just 45.2% for low-income students, 39.9% for African Americans and 27% for students 25 or older when they enroll. Across all categories, graduation rates are far lower for part-time students.

 

"I think we had this mistaken belief that if we'd send students off to college then they'd graduate," says Stan Jones, the group's president.

 

The Cost of Dropping Out, November 22, 2012

Sat, 01/05/2013 - 17:56 | 3125840 Dr. No
Dr. No's picture

Personally I think it is better to drop out and be a ditch digger than push through to graduation and no job.

Sun, 01/06/2013 - 00:15 | 3126481 mercenaryomics
mercenaryomics's picture

Personally I think most will party though to graduation, not get a job, pay $0 on their debt for 20 years, and make you pay for it from taxes on your ditch digging income.

(Oh and if you're paid under-the-table they'll demand your imprisonment for cheating them of their entitlements you were supposed to pay for.) 

Sat, 01/05/2013 - 16:19 | 3125581 Taint Boil
Taint Boil's picture

 

 

Water will always find its own level – always has and it always will. The laws of nature really are the same for everything. Once you step waaaaaay back and look at the big picture it all becomes clear and obvious – hind sight is always 20/20.

 

I wonder what the next bubble will be ……

Sat, 01/05/2013 - 16:20 | 3125583 hampsterwheel
hampsterwheel's picture

By now I seriuosly hope there is no one let that believes that our Government will ever ever make the right decsions and avoid collape - therfore connect the dots.... Guns...ammo...food....silver....gold...family...community...skills....health...survive the coming darwin event...

 

 

Sat, 01/05/2013 - 16:35 | 3125620 Winston Churchill
Winston Churchill's picture

Most of my clients have shared that opinion in private.

Most of them have the money for their own private island with all required supplys.

I plan  a new career field as a pirate in future.

Long Winston Churchill  has a ring to it.

Sat, 01/05/2013 - 18:27 | 3125890 Poetic injustice
Poetic injustice's picture

Don't forget to open Pirate university, could make big money in future!

Sat, 01/05/2013 - 16:22 | 3125585 FubarNation
FubarNation's picture

I'll be looking in the mirror and laughing 'Fucking Sucker'.

I lived in a shit hole and drove shitty cars eating Kraft dinner after grad school so I could personally 'discharge' my student loans by actually paying them off.

At least I got laid more back then.......Although I feel like I'm getting fucked a lot by the system.  Anyone else feel the same?

Not quite as enjoyable now.

Sat, 01/05/2013 - 16:31 | 3125607 Freddie
Freddie's picture

Dude I went down the same path.   Those were good times too.  We just did not realize it at the time.  I worked like a dog then but at least we had some optimism about the future.  The only optimism now is if we have a reboot which is not gonna be pretty.

The whole thing now is an insane farce that is going to blow up. 

Just another reason why I dropped evil TV and Hollywood's crap years ago because they lie 24x7 and the sheep think everything is fine. They all love Hopey Changey.  You question anything then you are a racist and terrorist.

The public thinsk about when the new iPhone 6 is coming out to take out another student loan, the Super Bowl and the media will have us in a frenzy on why we need gun control.  They may throw in another false flag mass murder to ramp it all back up again.

If you pay for and watch Tv or  Hollywood's shit - you support it all folks.

Sat, 01/05/2013 - 16:41 | 3125635 XitSam
XitSam's picture

Racist. Yeah, I was called a racist today. Because I didn't give a guy a cigarette. Should I buy cigarettes to give away when I don't smoke?

Sat, 01/05/2013 - 17:59 | 3125843 Bad Attitude
Bad Attitude's picture

Absolutely! Get really high tar cigarettes with no filters! Give the guy the entire pack! Those cigarettes push him that much closer to his grave.

Sat, 01/05/2013 - 18:53 | 3125935 laboratorymike
laboratorymike's picture

Sounds like the middle schoolers who got angry when I told them they were only allowed two pieces of candy, not ten. Less than 10% of the students showed appreciation for the fact that I bought it with my own money as a gift for the holidays. I don't think it would suprise anyone that >70% of the school is free or reduced lunch.

Sat, 01/05/2013 - 17:41 | 3125806 fonzannoon
fonzannoon's picture

Is it an oxymoron for us to to believe a painful reboot is coming can be considered optomism bias?

Sat, 01/05/2013 - 19:13 | 3125968 CrockettAlmanac.com
CrockettAlmanac.com's picture

No pain, no gain. I can't believe I just said that but the sentiment rings true.

Sat, 01/05/2013 - 16:37 | 3125625 XitSam
XitSam's picture

I enlisted in the Army for 4 years (peactime and I'm glad of that). Maxed my contribution to my educational fund, got out, 4 years college, no grants, no loans, just VA benefits, worked part time. Now this? Why is this country pissing on me? 

http://truthingold.blogspot.com/2013/01/any-questions-about-why-this-cou...

Sat, 01/05/2013 - 17:18 | 3125747 Landrew
Landrew's picture

Most here would call that a hand out.

Sat, 01/05/2013 - 18:43 | 3125915 Esso
Esso's picture

You might be a "fucking sucker", Fubar, but you did the right thing. The problem with "doing the right thing", more often than not, it stinks, but at least you can sleep at night.

Sat, 01/05/2013 - 16:23 | 3125586 Variance Doc
Variance Doc's picture

"...make a zero-dollar payment..."  That is a payment?  You really can't make this shit up.

We need to realize that higher education today really only guarantees one outcome: unpayable debt.

Sat, 01/05/2013 - 16:42 | 3125637 donsluck
donsluck's picture

You must actually make out a check for $0.00 gotta keep the banks involved!

Sat, 01/05/2013 - 17:22 | 3125760 Dr. No
Dr. No's picture

I guess its better than a negative payment??

Sat, 01/05/2013 - 16:36 | 3125587 Haole
Haole's picture

$4 trillion deficit in 10 years my ass.  It's already "officially" gone up $600B just a few days after the initial proclaimation hasn't it?  Try $40T, maybe $400T, this thing is just starting to go off the rails...

Sat, 01/05/2013 - 19:15 | 3125973 CrockettAlmanac.com
CrockettAlmanac.com's picture

Why does that make me laugh?

Sat, 01/05/2013 - 20:33 | 3126126 TN Jed
TN Jed's picture

If one truly wants justice, its hard for that to not end with "watching the world burn."  Fraud and corruption are the flammable glue which holds this disco ball together.  Let's dance.  Put on your red shoes and dance the blues.

Sun, 01/06/2013 - 03:04 | 3126668 Terminus C
Sat, 01/05/2013 - 16:24 | 3125590 yakmerchant
yakmerchant's picture

NT

Sat, 01/05/2013 - 16:35 | 3125592 Freddie
Freddie's picture

Hope & Change.

I had to go to my state uni where I graduated years ago for something.  It was not some alumni shit or ball games nonsense.   The retards into alumni crap and the team are idiots.  The whole world is crashing down and idiots think college ball means anything.  I did it back then on a second jobs, no loans, almost no grants or scholarships either.  I worked my ass off by working 30+ hours a week. Lots of stress but you are young.  i learned responsibility very quickly.  Sink or swim.

When I was there years ago, the buildings were fairly spartan.  It could have been an old military base.  The professors made okay money but nothing special. The kids were hard working and were trying to get an education.  Most of us were stressed because we had to go run to a job right after class.  There was very little social bullshit, no expensive hand held wireless device gadgets or facebook pages.   The kids who were clueless dropped out fairly quickly and BS feel good majors were fairly rare.

When I visited the school recently it was a joke.  The new buildings and old buildings were like Class A commercial office building spaces.  They had nice furniture, chairs, lighting, commercial carpet, fixtures, etc.  It could have been the corporate offices of some NWO elite global corporation.   A slightly downscale version of Goldman Sachs HQ.  GS by the way owns one of the shit diploma mill schools.  I would guess that 40% of the kids at the campus there had no clue and were there for all the social bullshit.   I bet everyone of them had a 4G phone.

Sat, 01/05/2013 - 16:40 | 3125633 WestVillageIdiot
WestVillageIdiot's picture

+1,000,000

 

They are majoring in Digital Zombiehood. 

Sat, 01/05/2013 - 17:16 | 3125741 Freddie
Freddie's picture

It is child abuse.  These kids are all being Sanduskied  with debt and sold a lie. The libtard tenured professors and administration benefit.  As lkong as they make $150,000 a year with a 110% pension with COLAs..

There was a high school in Stubenville or some industrial town in Ohio where the school football team raped a girl. This past week.  Idiots saying they do not want to wreck the football program because it brings pride to a depressed area?!!  WTF!?!?  The asst coach said the girl was drunk or asking for it??  I did read the story because it was so sickening.

I was at a realtives house for the holidays and they had a college ball game on.  I wanted to puke.  The fools in the stands cheering this meaningless nonsense.  The kids in the stands going into debt poverty and into a marketplace with almost no jobs.  110,000 screaming idiots who are either kids entering LIFETIME debt slavery or alum/parenst/other people who support the idea 100%?  No one there is smart enough to connect the dots.

Yeah and we can pay the coach $5 million a year so the team can go 8-4 and play in the Ching Shun Dao Auto Parts Bowl sponsored by a defective Chinese auto parts manufacturer.   Maybe we can build a statute of "coach" using some shitty Chinese steel that was bought second hand from Fukashima.  That way "coach' can glow each night down by the stadium entrance for a half life of 250,000 years.

Madness.  ;-)   You cannot make this sh*t up.

 

Sun, 01/06/2013 - 10:20 | 3126860 francis_sawyer
francis_sawyer's picture

Be True To Your School

~~~

http://www.youtube.com/watch?v=-ijkYkJfg0s

*only 6 more weeks until March Madness (lol)

Sat, 01/05/2013 - 17:09 | 3125714 Pareto
Pareto's picture

freddie,

when you say we had to work after class and such.....i remember too.  but i remember that it wasn't that bad.  i didn't have much.  i lived with 4 other guys.  Everybody was busy with their education and work, but shit, we had fun too.  i could have worked harder!  All said, we graduated with about $30K or so in debt, and at 11% took the better part of 10 years to pay it back.  No regrets and i didn't think anybody owed me anything.  i resented only those that defaulted which as it turns out that stat went something like this:  "over 50% of outstanding student loans are in default and of those, over 60% occurred from high income debtors."  In other words, loans were benefiting mostly the wealthy as they chose not to repay as opposed to "not being able" to repay.  Another unintended consequence.  Incentives matter, and I often wonder whether government will ever EVER fucking figure this out.  After reading this post, me thinks not likely.

Sat, 01/05/2013 - 17:24 | 3125764 Freddie
Freddie's picture

+1

I hear you.  Those were good times.  I remember being stressed out. There was never any money for anything. I resented dudes who had money and the time to chase lots of tail. At least you were in circulation back then so there were women around.  The stess back then was almost adreneline but you knew that if you worked hard that things should get better.

Today it is almost Hope(less).  I was in a Chipolte type semi upscale place the other day. The asst manager kid was talking to his friend. This is in a smaller university town.  He said he was going abck to school for criminal justice.   The only Hope for many kids is beoming part of the police state system.  :-(

Sat, 01/05/2013 - 17:37 | 3125793 Pareto
Pareto's picture

the "next big thing"?  wonder if its possible to get long to this.

Sun, 01/06/2013 - 10:22 | 3126867 francis_sawyer
francis_sawyer's picture

If he was going for criminal justice, what the hell was he doing in a Chipolte?... He should have been working in a donut shop if he wanted real life experience...

Sat, 01/05/2013 - 18:14 | 3125871 Oleander
Oleander's picture

I was in Dunkin and ordered coffee and three of each kind of Muuchkin, they had 3 types. I got a bag with 3 Munchkins. I repeated my order to the stupid girl, 3 of each. I recieve the next bag and sure enough 3 Munchkins, 1 of each again. I did not have time to try again. Where do they find these people and why do they hire them?

Sun, 01/06/2013 - 10:42 | 3126881 mjcOH1
mjcOH1's picture

Try handing over an extra 3 cents sometime because you want a nickle back...

Sat, 01/05/2013 - 17:25 | 3125766 Matt
Matt's picture

A detailed,well thought out, well structured post by Freddie with no overt rascism or derogatory insults. Now I know I'm in the twilight zone. +1, keep up the useful contributions.

Sat, 01/05/2013 - 18:00 | 3125849 Laddie
Laddie's picture

Bill Gates Millenium Scholarships
"Students are eligible to be considered for a GMS scholarship if they: • Are African American, American Indian/Alaska Native, Asian and Pacific Islander American, or Hispanic American;"

"The goal of GMS is to promote academic excellence and to provide an opportunity for outstanding minority students with significant financial need to reach their highest potential by:

Reducing financial barriers for African American, American Indian/Alaska Native, Asian Pacific Islander American and Hispanic American students with high academic and leadership promise who have significant financial need;"

http://www.gmsp.org/

http://college.lovetoknow.com/Bill_Gates_Scholarship

Sun, 01/06/2013 - 00:17 | 3126479 Freddie
Freddie's picture

I saw crap like that when I was in grad school over 20 years ago.   I was working full time like a dog for 2.5 years carrying a full load with a 47 to 50 hour a week job.

The bulletin boards had a sign for - Engineers - full boat everything paid for grad degrees if you were black, hispanic and other minorities.  Everything paid for at many many colleges.  My state university then instituted a plan for free everything if you were African American.  I think they needed a 2.4 GPA from their high school.  

I will be tagged as a racist by a few nit wits here for complaining about institutional/govt racism.

Do NOT follow this link or you will be banned from the site!