Student Loans Soar To Record $1.111 Trillion, Up 12% In Past Year

Tyler Durden's picture

When the Fed releases its quarterly household credit report, the one item most focused on is the amount of mortgages outstanding and originated in the prior quarter, since courtesy of its monthly consumer credit updates we know that US households have largely given up charging their credit cards at the expense of non-revolving student and car loans. So here is the summary.

First, the good news: courtesy of ZIRP mortgage defaults and discharges tumbled in Q1, resulting in an increase in total mortgage debt balances of $8.17 billion, or an increase of $116 billion in the quarter. 

Now, the bad news: the increase in total mortgage balances had nothing to do with a surge in mortgage demand. Quite the contrary, as we have been reporting and as bank mortgage origination bankers have felt first hand, for whatever reason mortgage origination as a business has virtually slammed shut. The Fed confirmed as much when it reported just $332 billion in originations in Q1: well below the $452 billion in Q4, and certainly below the $577 billion a year ago.

In other words, the only reason why total mortgage balances did increase is due to a slowdown in either prepayments and/or discharges, which represents as the simple difference between Q1 originations and the change in total mortgage outstanding, tumbled to just $216 billion - the lowest in the past decade! One can be certain that absent a pick up in originations the total mortgage balances are set to tumble in the coming quarter as even this one last final refuge of the "consumers are releveraging" crowd is smashed.

But that is not to say that consumers have no interest in increasing their debt load. Quite the contrary. Because when one excludes those two conventional methods of leveraging up, credit cards and mortgages, US households are on an epic spending spree funded by, what else, student loans.

We have covered the topic of the student loan bubble extensively in the past so we won't waste more digital ink on where it comes from or what it means for the troubled US consumer, suffice to report that according to the Fed, in Q1 total Federal student loans rose by another $31 billion to a record $1.11 trillion, and up a whopping $125 billion, or 12% from this time last year.

For all the talk that the student loan bubble may have popped the demand for cheap, uncle Sam loans certainly is as strong as ever. The one places where the bubble may have popped, however, is the amount of delinquencies: at 11% it means that some $122 billion in student loans will never be repaid. And considering the Fed historically does a woeful job of accurately estimating the true delinquency rate, we would estimate that at this moment some $250-$300 billion in student debt is already 1 or more months delinquent with no intentions of ever being repaid.


Full NY Fed household debt presentation below (pdf)


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libertus's picture

Let the higher education bubble burst! If you have a masters or doctorate degree take charge of your own teaching and work with Faculty own the intellectual property they produce and set the tuition. 12 week classes with three hours of contact time. 25 students max per class. Credits earned are transferable to other institutions if they accept since Oplerno has been approved by the Vermont State Board of Education. Teach in almost any language. Earn anythere from $4000 to $9000 per class. Courses cost students between $500 and $1500 per three credit class. 

Higher education is broken! Why waste time with reform that is impossible. Create a new system with us! Revolution! NO MORE STUDENT LOANS OR DEBT SLAVERY. JUST SHOUT "I"M SICK OF IT! I"M NOT GOING TO TAKE IT ANYMORE!"


Sudden Debt's picture

but what about the prefered dividends?.... those poor shareholders...

libertus's picture

Sorry no quick profits. Only a long term play on education and actually treating students/faculty with respect. The current system is dead man walking. 

NotApplicable's picture

On a long enough timeline...

Besides, student loans are just another bailout to the contruction industry. I'm glad I'll be retired and holed up in the woods before the infrastructure bubble blows here at State U.

libertus's picture

It is a payout to the senior faculty and administration. However, point well taken. 

fonestar's picture

fonestar noticed a massive increase in the people walking around with degrees years ago.  So either pop culture and television has created many, many more brilliant people.. or else educational standards have really gone to shit and degrees are about as valuable as every other paper asset out there.

libertus's picture

Fonestar is correct. The reason being is that there is no way to really show what you have learned. There is an answer for that--the portfolio. Unfortunately TPTB like their transcripts and named schools. What a racket! Just because you drive a BMW 7 series does not mean your a good driver. It just means you could make the lease payments. Just because you went to HARVARD or anyone of the other elite schools does not mean you actually can do something. It just means you have the social capital to get admitted. Oplerno upends that belief and is actually all about individual accomplishent and responsibility. 

Monty Burns's picture

I'd look for a Harvard grad who's white, working-class and male.  Given the almost insuperable obstacles he'd have had to overcome he'd be worth big money.

libertus's picture

Fonestar is correct. The reason being is that there is no way to really show what you have learned. There is an answer for that--the portfolio. Unfortunately TPTB like their transcripts and named schools. What a racket! Just because you drive a BMW 7 series does not mean your a good driver. It just means you could make the lease payments. Just because you went to HARVARD or anyone of the other elite schools does not mean you actually can do something. It just means you have the social capital to get admitted. Oplerno upends that belief and is actually all about individual accomplishent and responsibility. 

aVileRat's picture

So if one were to cross plot employment wage growth to hours spent in education, I think we would see a strong trend to the declining value add of "junk" education which makes sense because most human capital is being forced into subsidized/bubble industries where that labour is a pure commodity vs. Indian/Chinese/LatAM sweatshops.

WSJ did a great piece on how many schools (such as stanford) are shutting their highest wage undergrad programs such as petrochemical engineering for more "progressive" programs to take advantage of tenured professor tax breaks, at the expense of their student job placement rate.

The big question I had with a colleague last night at an industry gala: what the fuck are all these non-job's no-skill's going to do ? How do you respond when you are told the 6-year state university degree has zero applied skills to a industrial level entry job ? Many are 140% tapped out (including family loans). That guy agreed: it's going to be nigh impossible to employ this lost generation without a huge retooling or systemic event that mass-trains them. Gen-Y (with the exception of the Gen-E entrepenuers amongst them struggling amid the wasteland) and Gen-Z may be writeoffs at this stage if another collapse leads to a 21% layoff push to the payroll.





Vampyroteuthis infernalis's picture

What I always find interesting is how students these days want better facilities at lower prices. If they were serious, they would ask for a better education which seems something they are not interested in. The delusion of getting a sheepskin will lead to a job with their pointless degrees is lost on them. As someone who suffered through Eng school and finished with no debt, let them default for their poor choices. It is a free country.

FredFlintstone's picture

I studied engineering at a Big 10 school and our building was kinda dumpy, but we didn't know it. They have torn down all the old engineering buildings and have constructed tall, glass monuments that are energy hogs. I have walked through a couple and cannot believe how under utilized they were. High schools these days are so high end, it is unbelievable, but that is another story.

superflex's picture


The engineering and physics quad buildings didnt have AC when I started at UC in 1986.  We were happy to have a bar on campus.  I remember during the cicada outbreak of that year, having hundreds of critters in the classroom since we had to have the windows open to keep the rooms below 90°. 

Now days, there is a student gym on campus that would put 10 Planet Fitness's to shame.  I guess you cant get a degree without being able to scale the climbing wall.

Fucking spoiled brats.

Miffed Microbiologist's picture

I toured recently 2 colleges I had attended and was absolutely shocked at the massive amount of money spent on student " comfort". Fancy gyms. Yoga/Pilates studios. Spas. Palatial eateries. Olympic pools. Dear Lord what a crock. I guess students insist on an "experience" with their worthless degree. There was no student fitness center when I attended. We just jogged in the local area or went to the Y. Funny, I never felt I deserved more.


moonshadow's picture

i dont think the student mindset is the biggest problem. it's the parents. they still think that if their kid goes to college- for just about anything- that they will be assured of a good job. the reality hasnt dawned on parents yet. and they are not being told the reality by faculty or counselors in high school. so the problem will be solved only After their indebtedness mounts and the lightbulbs go off in parent's heads all over america. i think it's happening Now...

Citxmech's picture

After I finished my BA, I immediately went back to trade school.  With that combo - I was hired before I was even done with school.    Personally, I think the combo of a liberal arts education and a solid trade was the best choice I could've made at the time (my math skills were not really strong enough for science/engineering).  After 10 years in industry, I went back for an advanced degree and, again, was hired before being finished with school.  

The Catch-22 for most folks is how to obtain both a broad-based education that sets you apart from all of the OTJ folks and also have enough actual experience to set you apart from all the book-schooled folks.  If you can nogotiate this conundrum, you should do fine.

Son of Loki's picture

No need to read anymore when all you need to do is watch Thug Notes ... all in the local dialect:

James_Cole's picture

After I finished my BA, I immediately went back to trade school. 

Can't beat real hands-on experience either, guy I know keeps having these young guns try and take his job. Pushing mid 70s and these double Msc Mba come in fresh outta <insert fancy school here> thinking they're going to kick him out, not happened yet probably ain't gunna happen. 

That said, I've pointed this out lots but it bears repeating..

I would actually think that graphic is highly optimistic as it doesn't consider enough software implications in various applications that may not replace people but will certainly lower the entry level. 

corporatewhore's picture

Currently non dischargable except under extremely financially stressed circumstances.

This will have to be changed in order to make debt slaves of another generation in order to move the housing market.  Most won't declare chapter 7 or 13.

Payments will be reduced to much less than required currently.


insanelysane's picture

Like your thinking!  The IRS is probably working on a new rule where if you are underwater with your student loan, you can buy a house. and then apply the mortgage interest deduction to the outstanding student loan.

Bindar Dundat's picture

An entire society as debt slaves -- just the same way they control the banks.  You own the debt, you own the bank, the people and society.   These are the  bonds that truly shackel us.

corporatewhore's picture

Great idea!  Call Senator Warren and get this on her presidential platform!

insanelysane's picture

According to granny, no one deserves to be paid over 80k per year except college professors.

FredFlintstone's picture

When Hillary becomes President, Bill can be in charge of the Department of Student Debt Discharge. There would be a mattress in the back room.

thamnosma's picture

I wonder how many taking on this student loan debt are aware that it is non-dischargable?   It may qualify under full disability, so expect more of those claims.

corporatewhore's picture

As I stated before that is under the current law and laws can and will be changed.

In order to get the economy moving for the student loan debt burdened nation you either have to forgive the debt, discharge the debt, or reduce the payment burden.  The most politically palatable solution is to lower the payments.  Right now the federal loans are capped at 10% of income.  It will need to go much lower.

If you are a bought off senator or representative (name me one who isn't) the law won't be changed until parents and students vote them out or get them to change their vote.  It will happen because the economy needs a jump start and this is one way to do it.

twh99's picture

How do they collect if it is given to a foreign student who goes home or a US student who decides to live abroad?

Son of Loki's picture

Paying back a loan ... how 1990's.

Groundhog Day's picture

Thank God my first will not go to college for another 8 years.  Hopefully a new system will be put in place by then

NEOSERF's picture

Expect the government to allow millenials to transfer student loans into a mortgage.   Our descent into banana-republicanism is almost complete.  Loans are the first thing taken but those without from those with.  Expect wallets and purse, storefronts next.

Stuck on Zero's picture

You are 18 and decide you want to move to Singapore.  You borrow $300K to get a great education at a great University in the U.S.  The day you graduate you move to Singapore. 

Question:  Does the U.S. government come after you to pay back your loan?




nope-1004's picture

"If you can't afford it, finance it."


Canadian Dirtlump's picture

You just have to sit back and marvel at what the hell the world has become. Everything is a runaway mirage wrapped ina shell game, deep fried in a ponzi scheme gently nestled in a steaming pile of corruption.


The more this goes on as a whole, the worse it's gonna be and good lord, it's goona be breathtaking.

NoDebt's picture

You, sir, are in desperate need of an immediate purchase of a large block of S&P500 index shares.

Canadian Dirtlump's picture

I'll sell my magic beans and get the proceeds to my brokerage account STAT.

NoDebt's picture

Good man.  You'll be very grateful you made this decision someday.  Trust me.  I'm an investment advisor.

fonzannoon's picture

If this debt is non dischargable then why can't we package it and sell it? I mean these kids are paying like 7% on it now so we should be able to get the public like 4% after the hedge funds or whoever skimmed their piece. instead of a market ticker for the etf we can just have a live camera on an 18yr old running in a hamster wheel.

NoDebt's picture

The government already did.  It's call US Treasury Bonds.

fonzannoon's picture

until i see an 18yr old running full speed on a hamster wheel it's not official.

NoDebt's picture

Ever been to McDonalds?  WalMart?

Sorry, bad examples.  Those are still mostly septuagenarians running around on those.  But when they finally drop dead from spinning the wheel, they'll load up the "Millennial Generation" and hang the debt forgiveness carrot just out of reach in front of the wheel.

Dr. Engali's picture

I go to Walmart all the time just so I can see this:

Sudden Debt's picture

but the cycle bites you in the ass anyway.
try finding a job without e papers and you screwed!
and than there's the background checks.... reason enough to start your own bizz!

NotApplicable's picture

7%??? Fuck, I'm paying 10%.

Unless they toss me a bone, I'll retire before I pay the damn thing off.

Peak Finance's picture

SLABS - Student Loan Asset Backed Securtities

Don't know how the hell they are making payments on those securtities as the real-world non-payment / deliquency / differment rate is 30% 

Relentless101's picture

Haha. Let me just make a few interest calculations here. A very conservative 5% average rate on 1.111 Trillion is equal to... fuck me.