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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Seasmoke's picture


conspicio's picture

Yeah I been high and I been low
And I don't know where to go
I'm living on the never never never
This time it's gonna be forever
I'll live and die don't ask me why
I wanna go to paradise
And I don't need your sympathy
There's nothing in this world for me

Birth, school, work, death
Birth, school, work, death


The Godfathers, circa 1988

Hubbs's picture

One thing came immediately to mind. if this bailout goes through, then the cost of sending my daughter to college will explode!  It's  a  monster!

W74's picture

Have her get a Plumbers/Carpenters/Electircians license instead. 

With fewer and fewer people going this route I stand to make a pretty penny overcharging fools who can't do that type of work themselves.

Welders, Auto Mechanics, and silimar jobs also rake in the bucks, 5-10x as much if you're self employed too.

QQQBall's picture

W74 - with your plans to overcharge your Clients you should go into banking

gbresnahan's picture

If there's ever a bounty program to round up these deadbeats I'll make some good money.

GrinandBearit's picture

Take all your credit cards... rack em up... and don't even think about paying it.

It's ending very soon and no one will care about it anyway, so what the fuck.


Ropingdown's picture

Perhaps you missed the key point of the story.  You are advised therein to take "their" credit card and max it out, not yours.  Only when that strategy fails to sustain an adequate iBudget for you and the iSellers should you turn to a cash-out mortgage refi-and-default and the credit card play. 

TPTB_r_TBTF's picture

It is not "ending"; rather, it is "resetting". 

See you on the other side.

You will care.

GrinandBearit's picture

The strategy works great for sheeple that don't own any major assets TPTB can take away from you.

No such thing as debtor prisons and there never will be... 80% of the people in the US would be in jail.

TPTB_r_TBTF's picture

First, what is this 80% you are refering to?  Please show your math.  Are you saying, "80% are going to follow your 'advice'?"

Call it a debtors prison or call it a FEMA Camp, whatever...

80% can equal 40%, as below:

To jail (a.k.a. FEMA Camp) 80% of the population is fairly easy actually.

Kill off 50% of the population and send 40% (of the original population) to a FEMA Camp and you have now jailed 80% of your [remaining] population.  Never say "never"!

GrinandBearit's picture

I meant 80% of the people in this county have debt coming out of their asses.  They're all going to FEMA camps huh?... keep dreaming.

TPTB_r_TBTF's picture

Keep dreaming!  You are way off with your 80%.  Show your math! Are you a liar or are you just plain stupid?

While about half of us do a pretty good job of keeping our balances down, the other half carries at least a $1000 balance, with 10% of card holders carrying in excess of $10,000 on plastic alone. Even those who carry only a few hundred bucks at a time are technically "in debt" - just an amount of it they can manage reasonably.

US sheeple debt


Getting Old Sucks's picture

Great news guys, I'm going back to School!!!!!

I just did that calculator thing and since no one will hire an old fart, my small pension entitle me to $0.00, read ZERO payment.  I'll enroll in the cheapest school I can find and because of my income, sure to get grants, pass the time away going to class (what else I have to do besides read ZH :-)  Borrow the max and never have to pay it back.  Probably won't be around in 10 years anyway.  Maybe I'll become a doctor and save my life!


What a fucking country!!!!!!!

Freddie's picture

Can we all go back to schoo, take social security disability, get an ObamaPhone, Obamacare and an Obama credit card?   Hope & change.

Getting Old Sucks's picture

AS Obummer would say


strayaway's picture

President Obama's plan to transform higher education:

1. "Normalize the status" of illegal aliens now working at McDonalds, landscaping, shops, and constructions sites that used to be filled by 18-21 year old students.  CHECK
2. Nationalize the student loan industry. CHECK
3. Offer and encourage low interest rate student loans of students who can't find jobs. CHECK 
4. Disrupt supply and demand so the surplus of college students causes college costs to skyrocket. CHECK
5. Encourge states to subsidize illegal immigration with the Dream Act and by catagorizing illegal aliens as in-state students thus creating additional supply to further drive up college prices. CHECK 
6. Discover that not enough young Americans know skilled trades. CHECK
7. Have taxpayers pay off student loans because there are no jobs for anyone majoring in curriculums ending in (blank) "studies". CHECK
8. Borrow from China, the Fed, or wherever to transfer resulting debt to unborn children. CHECK
9. Get reelected by a dependency coalition including students and former students who cant find jobs. CHECK 


W74's picture

And here I had to fight two wars to "earn" my tuition.  Fo' shame America, fo' shame.

W74's picture

I was glad to do it at the time giving back to the land of my birth that blessed me so much and yada yada, but fuck, what has my country turned into?

I'm 26 and it is NOT the same country that I grew up in, quite far from it.  I truly believed the notions of getting by on one's merit, liberty, fairness, property rights, and the rule of law.  But do we have any of that anymore?

Getting Old Sucks's picture

It was a lot easier for me as when I came home, the law was that my employer had to hire me back with retroactive raises and seniority.  I wish you well friend.

Cathartes Aura's picture

if you're 26 then this was never the country you believed you grew up in.  all your learned beliefs were part of a huge myth to get you to "serve" the "nation" that believes it owns you.

does it own you?  who/what do you serve?  and what do you believe you're entitled to?

TPTB_r_TBTF's picture

Anyone aged 26 who fought any wars didnT do it for their country, they did it for TPTB.  Either you were securing oil fields or poppy fields. You said you fought in "two wars".  Seems you fought for both oil and poppy fields.

Getting Old Sucks's picture

Back in my day, although I enlisted, there was a draft.  Draft dodgers left the country to avoid prosecution.  Yes there was an amnesty many years later. 

My point is that those who volunteer today take the places of those who would be forced via the Selective Service system to serve and fight the wars started by TPTB.

I suffered the same mockery when I came home that a few here dish out to those who served voluntarally.

Just keep in mind that he very may well had taken your place.  He, like I thought we were doing it for our country.  Maybe we were wrong but our intentions were genuine.

I believe that the Selective Service will be instituted again in the not so far off time.  Little known was that they had a directive during the 2010 census to locate all men of draft age (that info has since been purged off the net).

Criticizing a war veteran for serving in war for his country, is not nice.

Cathartes Aura's picture

@ Getting Old Sucks,

Criticizing a war veteran for serving in war for his country, is not nice.

pointing out that volunteering to fight on behalf of the corporations that run this nationstate, in the hopes that fewer will volunteer to perpetuate the system that holds many by the short 'n' curlies

is a way to sanity.  it's telling the truth, in the hope that fewer swallow the lies.

and "saluting" those who feel entitled to disparage the list of "others" in some peoples posts is "not nice" either. . .

Getting Old Sucks's picture

I understand your point.  However, I assure you that perhaps in the very near future as patriotism deminishes, TPTB will force young men to fight.  Yes, there will be those who will resist.  Some will flee.  Not sure if Canada will harbor them like they did in the 60's though.  War is not going to end.  TPTB have waged war for profit since the American Revolution.  Which BTW our "Founders" were part of.  They will conscript and the majority of men will comply.  LOL, the bulk of resistanc in today's society will come from the mothers of those drafted.  Can't wait to see that debacle.

My point is that any man who served their country, especially in combat, you have to be there to understand how it really is or was, shouldn't be chastised for going when he thought he was doing the right thing for his country. 

"perhaps fewer swallow the lies".  Who's reading this?  We, the members of ZH.  Not the soldier aged population of the U.S.  I've been though it all and to be perfectly honest, I said I lost my patriotism in Viet Nam.  But I will thank and stand up for any man who served and was jeopardizing his life for his country.  Even if we now know it was for TPTB.

Getting Old Sucks's picture

OK, I filled the thread, LOL, enough from me.  Night guys.

Cathartes Aura's picture

and I understand your point as well, but,

My point is that any man who served their country, especially in combat, you have to be there to understand how it really is or was, shouldn't be chastised for going when he thought he was doing the right thing for his country.

we all need to stop endlessly parroting the words "served their country" when this in fact is not truth, and continues to snag young people, men AND women, into volunteering to serve the corporate entities that own this "space" - if we here at ZH can't even get that notion right, why expect anyone else will?

it's not enough to parrot "End the FED!!" as if the financial system is the only thing sucking people dry - there are other avenues to explore in "waking up" to where you are, incremental realisations are important, else it just becomes bitterness and anger all round.

and again, no disrespect intended, I'd just like to see fewer people volunteering, more critical thinking applied.

laboratorymike's picture

Thanks for your service.


I'm 27. I feel you. I still remember getting off the plane from a missions trip to Venezuela in 1998 and saying "I am so glad I live in a free country!" Going there was the first and only time I was thrown in a room and interrogated, and it was the first time I saw a country run roughshod by corrupt governments. But now, we're not as free as we used to be. I hope our generation can get it back.

Everybodys All American's picture

From my perspective the country has gone off the rails ever since 911. The out of control federal spending can be brought under control but we have to do without a lot of these handouts, TSA, etc. and people these days are simply not willing. Politicians like Obama play off of this non stop.

I'm also quite a bit older but none the less feel the same way you do, but I'm shocked at the number of people who actually think otherwise. They will be ill prepared for the oncoming economic collapse.

acidradio's picture

As a younger man I got duped into getting "a degree" by my parents, by the educational establishment, by everyone surrounding me, it was the "right thing to do to get ahead". Everyone else did it and it seemed to work for them (supposedly). It wasn't like I was a grown adult when I was duped into this - I was a kid!

I got into school and instead of learning anything I can use to perform a meaningful job I listened to overly-liberal job-for-life tenured state-paid professors use their classrooms as pulpits of the liberal left. I mean these people sound like what I picture an imam in the back hills of Afghanistan sounding like but different political philosophies. The college squandered all of my tuition money on unnecessary liberal programs ("Social research laboratory" in the ghetto? Endless "administrators" who don't do anything useful but make six-figure salaries? A new stadium for a bunch of mongoloids on scholarships who play football... and never seem to win a fucking game?  Student organizations that I don't care about or even agree with and I have to pay for them to exist?) I played their game of bullshit and got a piece of paper to hang on the wall. Yay! Everything will be great now and I won't have to work at some gross or greasy job anymore, right? Wrong.

Every job I've had since college has gotten progressively worse and pays less than where I started. Ironically if I would have stayed in the stupid menial job I had during college and which doesn't require a college degree I would make more money than I am now, have benefits and some sort of job security. All of these wonderful careers - where are they?

I wish I could just mail the thing back and say "leave me alone, tear up my bill, I never want to see you people again". What a waste. Ironically I keep getting calls asking for alumni money.

W74's picture

I'm in my last semester and I stand a reasonable chance of being employed once I'm done (50/50 on Private vs Public sector though).  However, I'm considering using what's left of my GI Bill to go get licences in Carpentry, Plumbing and Electrical. 


With all three I can basically do contract work on every part of the house and make some bucks.  Unfortunately I'm sure by the time I'm a decade into my career taxes will be so high to pay for the Shoniquas and Henrietta Rosa-Maria Gonzallez'es of the world popping out endless kids that my standard of living will be about the same as their anyway.


Where can I move to with my job skills though?  Iran?  Argentina? Kazakhstan?  All sound like far more reasonable places than America in it's nottoodistant socialist future.

Cathartes Aura's picture

and none of anyone's "taxes" are paying for your life right now?  they don't fund the MIC that promised you benefits?  and all who serve it?

finger pointing at the obvious is popular here, critical thinking rather less so. . .

I don't begrudge you your decisions or benefits, but you might want to wake up to who lives in your mind, creating and perpetuating hate, because it works in their favour.

nmewn's picture

Fear not comrade W74...learn those three trades and you can use them in service of the Fadderland! Your brothers & sisters wasting away in government housing projects need your labor & assistance!


laboratorymike's picture

If you want a list fo places to go to, check out . There are nine countries ranked as more free than ours.

Of course, if you can play your cards right there are other places too. One thing I learned visiting my in-laws in China was that shopping malls and iGadgets can be found anywhere, and the real questions are whether or not you can get along with the people, and how much of a hassle the local government and taxes are. I've known a few guys online who have had pretty good luck in Mexico, the Philippines, and Namibia. There are men who have figured out how to carve out a life outside of the USA, maybe it's time for more John Galts to found a new gulch.

geekgrrl's picture

It sounds like you're way ahead of your peers, congrats.

If I was starting out today, I would definitely get into the trades and skip college. I'm surprised more young folks don't take this path. Plumbing and electrical especially. There's still opportunity to have an independent biz, and be able to make a decent living. (I may not be completely objective here as my father is a Jack of all Trades, and I picked up a lot of stuff growing up. Someone without this background might have a harder time and not see it as a viable path to economic independence)

If James Kunstler and James Michael Greer are correct about the not-too-distant-future, college degrees may very well approach the value of the diploma paper. But regardless of what happens economically, people will still want their toilets to work and their lights to come on. When the toilets stop working and the lights go out, making a living will be the least of our worries.

Freddie's picture

This really makes me sick and sad.  This sh*t is child abuse.  Yeah and it is largely on the left. 

I saw this all coming down when I was playing golf by myself one day on a cheap muni course which I have since cut out.  I saw that O and his NWO gang were taking down all the banks in 2008.  Shorting the s*it out of one bank after another to take em all down.  I knew it was the beginning of the end.

The leftist university with unionized marxist teachers was all the Pivard Clowen whatever stuff.  Take the whole system down.  Well they are almost there in destroying the system.  The last step is to disarm us.  It "ain't" gonna happen.

donsluck's picture

Didn't the banks take themselves down, with Bush and O to the rescue? Are you saying O and the NWO shorted the banks?

Freddie's picture

The timing was a bit suspicious. McCain was a RINO setup lackey.   If you go back and look - the banks et al were hammered in the credit default swap market.  They lined em up like fish in a barrel to shoot.

Bush and McCain had no clue what was going on or they just played dumb.   McCain's campaign manager was a Democrat and he said the Republicans complaints of voter fraud were nonsense. 

You cannot tell me the banks are in any better shape today.


knukles's picture

Hell yeah!
Who the fuck shorted all the airline stocks about 2 or 3 days before 911?
Wasn't the shoe shine boy, fer fucks sake.
And where did all the gold go that was vaulted under the towers?
Wasn't the shoe shine boy who waltzed off with it.

Of course it was TPTBMWO or whatever the fuck you wanna call 'em.

Jesus people!!!!!!!!!!!!!!!!!!!!!!

Open your fucking eyes!

There is nothing "kinda suspicious" about the timing of all this shit over and over again.

Esso's picture

I'll raise you another +1000.

Even a dog is smart enough to make the determination between being stumbled over or being kicked.

francis_sawyer's picture

Well ~ Everytime I even jokingly mention that there could be heebs that have their fingerprints on anything I get junked... So it COULDN'T POSSIBLY have anything to do with them... & thus, now that we've narrowed down the search (by eliminating that faction), I feel we're finally getting somewhere... A debt of gratitude should be given to all those junkers who help us all to arrive at the truth...

Dr. Sandi's picture

Zippy, you're disbelieving the wrong part of the lie.

The missing gold was never there to start with. That made it much easier to steal later. Or steal earlier, if you get my drift.

Freddie's picture

Wasn't the CIA running some database or the options and futures skyrocketed?  I think they were overseas accounts - maybe London.  That all went silent very quickly.  Picked up by Eschelon or something?

Then not long after that, (Dr.) John Pointdexter who ran the CIA under Bush 1 (?? bad memory).  He said we should have a futures marekt to try to predict terorist events in advance.  This all came up because of the market activity pre 9-11.  He was attacked for the idea and it quickly went away.

There was supposedly a shit load of gold under the towers.  Some said more than the NY Federal Reserve aka The House of Bernank.

dmger14's picture

Fuck this country!  We deserve to collapse!