Next "Subprime Crisis" Expands As Student Loan Defaults Hit $146 Billion, Highest Default Rate Level Since 1995

Tyler Durden's picture

Almost exactly one year ago we wrote "The Next Subprime Crisis Is Here: Over $120 Billion In Federal Student Loans In Default" in which we took the latest (2009 three year cohort) loan default data on Federal Student Loans released by the Department of Education and applied it to the total amount of student loans outstanding, which back then was $914 billion. Yesterday, provided its annual update - this time to the 2010 three year and 2011 two year cohorts - and to nobody's major surprise, learned that things just got even worse. To wit: "The national two-year cohort default rate rose from 9.1 percent for FY 2010 to 10 percent for FY 2011. The three-year cohort default rate rose from 13.4 percent for FY 2009 to 14.7 percent for FY 2010." Putting this in context, according to Bloomberg defaults have risen to the highest level since 1995. The irony that this is happening in the aftermath of Bernanke's disastrous ZIRP policy is not lost on anyone.

Quantifying this percentage, recall the NY Fed reported in its second quarter household credit update that the amount of total outstanding student loans has now risen to $994 billion, or $80 billion more in just one year:

... one can calculate that the current amount of non-performing loans originated in 2010 is now a whopping $146 billion (the full total amount of student loans owed is $1.2 trillion when including private loans from the likes of Sallie Mae - this sum surpasses all other kinds of consumer borrowing expect for mortgages). Unfortunately, as the economic situation has only deteriorated since then especially for student-age Americans, the real blended amount of student loans in default is almost certainly substantially higher as of this moment.

The Education Department had this commentary:

The growing number of students who have defaulted on their federal student loans is troubling,” U.S. Secretary of Education Arne Duncan said. “The Department will continue to work with institutions and borrowers to ensure that student debt is affordable. We remain committed to building a shared partnership with states, local governments, institutions, and students—as well as the business, labor, and philanthropic leaders—to improve college affordability for millions of students and families.”

In other words, the response to the bursting of the student loan bubble, is to entice even more young people into the low-yield debt trap by "keeping debt affordable", which in turn will lead to college tuitions rising even higher, forcing students to take out, and default on, even more loans, and so on until this latest debt bubble can no longer be swept under the rug.

Things get even worse when broken down by for-profit institutions. "For-profit institutions continue to have the highest average two- and three-year cohort default rates at 13.6 percent and 21.8 percent, respectively. Public institutions followed at 9.6 percent for the two-year rate and 13 percent for the three-year rate. Private non-profit institutions had the lowest rates at 5.2 percent for the two-year rate and 8.2 percent for the three-year rate."

In other words, more than one in five loans used to fund a for-profit education, which would be most of those that lead to actual jobs, will never be repaid to Uncle Sam, and the ultimate payer will be you, dear taxpayer, when the student loan bailout time comes.

In the meantime,, which may or may not be down today, has announced its interim solution - pursuing sanctions against schools that have default rates of 25% or more for three consecutive years.

Certain schools are subject to sanctions for having two-year default rates of 25 percent or more for three consecutive years, or over 40 percent for one year. As a result, these schools will face the loss of eligibility in federal student aid programs unless they bring successful appeals. Please click here for more information about possible sanctions:

In other words, according to the government it is the school's fault that students are levering up en masse, when the real sanctions should be targeting the Federal Reserve and its easy money policy which while working miracles for PE firms, hedge funds and Primary Dealers in their pursuit of the Fed-funded "wealth effect" is backfiring when ordinary American students try to take advantage of zero cost money in their pursuit of the American Dream Nightmare.

Finally, as Bloomberg reports citing Rory O'Sullivan, of the Young Invincibles nonprofit group, "Our generation is behind in the economic recovery and not recovering as fast as we need to," said O’Sullivan, whose group represents the interests of people ages 18 to 34. “It’s financial disaster for borrowers. Defaults can dramatically affect their credit rating and make it harder to borrow in the future."

No need to worry though: remember that as the Fed has shown over the past five years, the only policy the US has in order to "fix" the unprecedented borrowing binge by everyone, is to force everyone into even more debt. And since monetarism is now a religion, all one needs is a little faith that all this will one day end well.

Finally, for those seeking some early humor, here is a chart straight from the St. Louis Fed showing the full history of Federal student loans.

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The Juggernaut's picture

Its a good thing that NYC doesn't allow guns otherwise the driver, Lien, would have been able to defend himself and his family.

fonzannoon's picture

how about a 4 mile chase on the west side highway in broad daylight with cameras every 10 feet. Where were those high paid cops that were supposed to serve and protect?

dryam's picture

Completely off topic, but related to unsustainable exponential growth, unsustainable population growth, peak oil, the coming societal breakdown, and the inconvenient political truths with all of this.. Al Barlett passed away earlier this month at the age of 90. His You Tube videos are excellent. He was Zerohedge before ZH was a twinkle in ZH's parents' eyes. Here's one of his last long interviews....

BaBaBouy's picture

NO Worries O BLAMA, Its Only USD Fiats Paper.
No Actual REAL MONEY GOLD Involved.
(Almost No-One Has Any GOLD Left)

EnslavethechildrenforBen's picture

Usury is unpayable. What, do you think you can defy the laws of Physics?

Croesus's picture

Completely On-topic: 

"Now is a great time to go back to school".....

"Now is a great time to buy housing".....

"Now is a great time to buy stocks".....


"Honk if you believe you a word of this crap"....

dryam's picture

Actually my post was on topic. There can be so much that can be learned by watching just one hour of a Prof. Bartlett video on the web after his passing......all for FREE. The government does not want the masses to be educated. They want the masses to FEEL educated and to be in massive debt, but they don't want people to truly be educated.

TORNasunder's picture

I'm so high on Hopium I'll buy anything!

In fact I'm doubling down... on PMs that is.

LawyerScum's picture

The Supreme Court has ruled that police do not have a constitutional duty to protect a person from harm.  From my observations during 10+ years in the criminal law biz, I gleaned that the most important duties of most cops were generating money (taxing the serfs) and seizing assets.  Protect and serve ain't part of the modern LEO vernacular.

MachoMan's picture

It makes sense...  It isn't a violation of your constitutional rights when police departments fail to keep PRIVATE actors from harming you (it's impossible).  However, this does not stop you from suing governmental actors on non-constitutional grounds...  although, state actors are generally immune from suit (for incredibly obvious reasons).  [note: if the state actor harms you, then it's a totally different story, although that actor will be generally immune from suit]. 

NoDebt's picture

I saw that yesterday somewhere.  He had his 5 year old son in the car with him, too.  Ended up being dragged from the car and beaten.  Even without a gun, I guarantee you I would not have allowed that to happen.  It's fairly easy to run over a LOT of motorcycles with a good sized SUV.  In both forward and reverse.  Gun would have been better to have, though.


Headbanger's picture

Oh, poor man..  Yeah right.   What was that asshole doing messing with bikers with his precious 5 year old in the vehicle.

Your post is exactly the arrogant attitude I'm referring to in my post below.

Bet you don't like "those kind of people" either.

fonzannoon's picture

You seem to miss the whole fucking point. I am not sure where you see this dude fucking with these bikers. I did not see it. I saw them cut him off and hit the brakes.

Here is the best part. I have some buddies that are good dudes. They ride those bikes. They know that thanks to these guys the next time they are remotely close to being involved in an incident they will likely get beaten to shit by the cops just because.

Everyone loses. What cracks me up is the lack of police though. That's all I ever meant to point out. 4 mile chase on the west side highway in broad daylight that dumps out onto the sidestreet and the police are nowhere to be found. The city is fucked. It's basically mad max already. 

Headbanger's picture

Did you ever think that a lot of LEOs and fire fighters ride too?  But most of all, YOU and everybody else are responsible for the shit they get into and can't be relying on the police to show up instantly to get them out of it. Unless you believe  the "Nanny State"  should and must always protect you no matter what shit you get yourself into.

fonzannoon's picture

Exactly. The irony is so many people in the city sold their rights away a long time ago for protection that they sure as shit are not getting in return today. So as pods pointed out, it will be funny to see things evolve in there, as (again) pods pointed out, real estate prices for instance, as people realize they have been had.

It's funny how you can make a really good point in one example and yet you seem to just root for a guy in a nice car to get killed in front of his family because he is driving a nice car and that made him arrogant enough to fuck with 50 bikers. 

Headbanger's picture

Oh the bikers just decided to beat the shit out of him for no reason!!??

The SUV driver did something to really piss off the bikers for them to react as they did.

Again, the lesson from this nasty episode is we all must be mindful of such events happening to us in hazardous situations (like driving) and can't expect the police to get us out of it.

So good luck to you in the real world. Or just avoid it completely.

fonzannoon's picture

and good luck with your blind assumptions. Yep, a single dude out with his wife and 2 year old decided to fuck with 50 dudes on crotch rockets....and your proof is.....

dark pools of soros's picture

the guy owed gambling debts to the bikers

the wife owed them for all the meth she gets from them

the kid's real father is one of the bikers

Parrotile's picture

Range Rovers (usually black ones) are popular with Russian / Ukrainian Embassy staff (in London and Australia) for safety and security reasons.

It would be "interesting" to note the outcome of a comparable incident involving the Russkies (and it would not be just one pair of broken legs . . . . .)

FuzzyDunlop21's picture

did you even read it? it takes like 5 minutes...

pods's picture

Shhhh, you can't say that fonz. What would happen to RE prices in big cities if people realized that if EBTs stopped for a week their shining city would be Mogadishu?


CPL's picture

People somehow find stuff to do there everyday though.  Like meeting international friends, planning boat trips and holding them for ransom.

max2205's picture

I'd be worried if tbis were securitized and leveraged and sold to the sheep. ...oh wait


Ben will hold them till your greag grandchildren are dead

LawyerScum's picture

I'm picturing something more like the Walking Dead, pods.

Black Swan 9's picture

Exactly, fonz. I live here part-time and am moving out later this month.

Sooner rather than later.

What I observe here on a daily basis between the haves and the have-nots is frightening as the gap widens.

A friend of mine was attacked by a man in Chelsea, a relatively safe area, a year ago. This man followed my friend into a convenience store on 22nd & 9th. He tried to grab my friend's iPhone. He refused to give it up. A scuffle ensued, they ended up on the ground, the convenience store owners watching, but not getting involved, understandably. My friend had shoved his phone into his pants front pocket. The man started savagely biting my friend's upper arm to release his grip on his phone in his pocket. My friend is stubborn, refused to give it up -- and "won". And lucky the guy was unarmed but for his teeth.

I cannot give here an adequate description of what my friend's arm looked like after the attack, like vicious dog bites, bruised, black, deep purple & red teeth marks, skin broken in several places, full jaw, upper and lower teeth impressions are now scarred in several places on my friend's arm. A great momento from living in NYC in times like these, and those to come. A warning of sorts, for anyone paying attention. I am.

The anger and desperation as evidenced by these stories is growing in the great economic divide, and I believe, it's only going to get worse.

IdiocracyIsAlreadyHere's picture

And since they won't be able to touch the real "haves" it will be the "have a little" people who who will really be the victims here.  Have a good cellphone, nice watch, good shoes, small amount of cash in your wallet?  Good luck not getting robbed.  Be a bankster or a hedge fund crook taking your private limo back to your yacht?  Nothing to worry about.  Not only do you have your own (armed) security, the cops will coming running at just the hint of your distress.  Fun, isn't it?

Black Swan 9's picture

Again, exactly. Though I wouldn't be surprised to read about home invasions at some point in the future. Targeting CEO's, banksters & political "leaders" -- people are getting THAT angry - I see it here and on other sites, more and more extreme anger over the last 5-6 years, references to the French Revolution, and heads hanging from lamp posts..

Moving back full-time to the Philly suburbs - an illusion of good times, but safer, for now. When the bubbles pop, everyone on the grid will be affected, but the cities will have it the worst.

Better 5-10 years early (conservative estimate?), than a week or so too late.

Omen IV's picture

That event is really not that bad - in the 60's, 70's and 80's  - it was very weird - much more violent but the city was much more fun and exciting than today - tompkins park was insane  - dont worry about it !


Black Swan 9's picture

"dont worry about it !"

Living in the city, I worry more about the days to follow when EBT cards stop working.

Parrotile's picture

Your friend probably needed a significant range of antibiotics to treat the resulting infection: Human bite injuries are as bad as, and as difficult to treat effectively, as animal bites - irrespective of the degree of dental hygiene of the "biter" (and I'd assume the assailant might not have been to scrupulous in that area). Bear in mind that the "normal" oral cavity biofilm is home to about 25 thousand species (possibly more)!

Grande Tetons's picture

Take your SUV to Sturgis this summer and test your strategy in the real world. 

Tucson Tom's picture

I just put a third clip in my car.Better to be judged by twelve,than buried by six.

Headbanger's picture

My bet is he was messing with the bikers cause he's an asshole driving an expensive SUV and doesn't like "those kind of people".

He's lucky to be alive. I bet he won't pull that shit again.

That's called "welcome to the real world" asshole!

fonzannoon's picture

Yeah a small dude rolling in a Range Rover with his wife and 2 year old decided to fuck with 50 bikers on crotch rockets.....yup let me risk my family's lives takng on 50 dudes.

That may be the dumbest fucking idea I have ever heard of. By the way, the asian dude did fuck up. If that dude tried to rip my car door open I would have backed up and ran half of them over, then slammed the gas and ran the other half of them over. I would not have left until they were littered all over the west side highway.


shovelhead's picture

Damn straight Fonz.

These punks on riceburners pulled a drop and squat on that guy. This is coming from a long time biker.

I would have left behind lots of goo if that were me.

Dr. Engali's picture

This may be the dumbest ass comment I've read in a while. I'm sure that a guy driving with his family is going to mess with a group of bikers. 

fonzannoon's picture

and it started out with a bunch of greenies. This country is fucked Doc. All the people on here who claim to not fall for the red team blue team bullshit are too busy falling for all the other traps. Some guy drives a nice car. String him up and beat him to death....because....


Dr. Engali's picture

I agree. It amazes me that anybody can read that story and then blame the guy in the SUV. The logic of the situation never registers with them. The thought never crosses their mind that maybe the bikers were just a group of assholes.

Headbanger's picture

You should talk!  Do you think the bikers just decided to beat this idiot for no reason at all!!??

Get a clue you mook.

fonzannoon's picture

Watch the video you dumb fucking putz.

They cut him off and braked. He bumped one of them from the back. They stop.  One dude sprints up and tries to rip his door open and the guy tears ass outta there. So I bet 40 of those guys only saw the guy tearing ass outta there and wreaking havoc and they chased him down and beat him. 

It's a crazy scenario and the guy was on his own, as you so eloquently point out, to defend himself. Can you blame him? 

Where do you see him fucking with them? 

shovelhead's picture

Forget it Fonz.

You can't fix stupid.

Headbanger's picture

Oh he just bumped one of them in the back!?  As if that's an OK thing to do when you're driving a 4000 pound SUV and hit a motorcycle in heavy traffic. That's called "vehicular assault" and the bikers had every right to defend themselves from this menacing SUV driver.   Again, he's lucky to be alive.  If he did that in a rural area, he would have been shot dead.

Dr. Engali's picture

Hey dumb ass. The biker zipped in front of him then slammed on his brakes. 

Hulk's picture

and there ain't no way a SUV out stops a bike...

jerry_theking_lawler's picture

This shit would never happen in a legal carry state.....

4 wheel drift's picture

get a clue ?


these fuckers were blocking him and others, indeed, they came to a stop...  they act as though they own the road....    i have been in a similar situation and these losers (*the bikers*) are the arseholes relying on their numbers, namely, mob courage.

so the real question is... why these shitheads were blocking the road and disturbing the peace?  A = because they have mob courage and they fell they can get away with it....   until they cannot.

so fuck them....   i'd like to see ONE of these losers attempt to do this shit act as an indivdual .....  without their mobsupport.   fat chance of that.

Headbanger's picture

Oh so the SUV driver had the right to hit the bikers cause they were "blocking the road" !!??

Large groups of bikers "block the road" for everybody's safety including idiots in SUV's.


4 wheel drift's picture

no, but he hit them because one of the bikers STOPPED.....   WHY ?   clearly to provoke the SUV driver...

as i said.....   i would like to see ONE of these losers try it as a single individual....

i.e. STOP on an open road for no reason.....    he will get crushed....  obviously, he would not do it...

so WHY did he do so in this instance ??  again...  A = mobcourage....

as i said.....  FUCK THE BIKERS, bunchalosers