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The Treasury's Worst-Case Scenario: Over $3.3 Trillion In Student Loans In A Decade

Tyler Durden's picture




 

One of the recurring topics on Zero Hedge over the past 3 years has been the relentless increase in student loans which, as a result of their cumulative default and loss severity (including those loans which are "merely" in deferment and forbearance) has surpassed the subprime bubble in terms of size.

In fact, as the following table from the TBAC shows, the actual default risk from student loans is several orders of magnitude above the 9% student loans which the Fed has revealed as currently "in default", as one has to add those 12% of loans in deferment and 11% in forbearance to the entire risk pool. In short: a third of all student loans are likely to end up unrepaid!

Why is this number a problem? Because as the TBAC also forecasts, in its worst economic case scenario for the millennial generation (which sadly, based on recent employment and income trends for America's young adults is more like the base case scenario), total student loans, which currently stand a little over $1 trillion (or more than all the credit card debt in America), is set to triple in just the next decade, hitting a whopping $3.3 trillion by 2024.

From the TBAC: Alternative Paths of Loan Balances

Higher Unemployment and Underemployment: Given the relationship between employment conditions and loan growth, a higher unemployment or underemployment (U-6) rate would be likely to cause lending to grow substantially more than the base case.

 

  • Specifically, if the unemployment rate were to edge up after reaching a trough in two years and the gap between U-6 and unemployment remains as wide as it is today – in excess of historical norms – the size of the program would be expected to reach roughly $3.3 trillion in 2024, $1.7 trillion more than in the base case.

 

This is what a tripling in student debt looks like:

And assuming a broad default rate including the tangent categories of 32% as currently, this would mean that over $1 trillion in student loans would ultimately end up in default in just about ten years.

Which, here comes the spin, is great news... if only for the Fed of course: considering that by 2024 Fed Chairman Bullard will have run out of Treasurys, ETFs, single stocks, tractors, and kitchen sinks to monetize, it can just load up the Fed's bad hedge fund balance sheet, which by then will have grown to a few hundred quadrillion, with defaulted student loans... Or any student loans for that matter.

Why? Because the economic recovery will then, like now, be just around the corner.

 

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Wed, 12/10/2014 - 13:00 | 5536820 SandiaMan
SandiaMan's picture

Debt slaves

Wed, 12/10/2014 - 13:01 | 5536825 TruthInSunshine
TruthInSunshine's picture

Taxpayers will bail out all the unemployed/unemployable graduates - follow the money, bitchez.

Wed, 12/10/2014 - 13:05 | 5536837 whotookmyalias
whotookmyalias's picture

But Obama wants everyone to have access to an education so we are all equal and therefore can all make big salaries. This can't be right.

Wed, 12/10/2014 - 13:19 | 5536884 smlbizman
smlbizman's picture

the truly amazing part is...most of the dumbest people i know or have worked with are the elite degree holders.....so that appears to be the only thing missing to complete this puzzle..."a sheepskined"

Wed, 12/10/2014 - 13:23 | 5536893 Haus-Targaryen
Haus-Targaryen's picture

Fuck you shitboomers.  I am never paying it back.  

Loopholes in the code are large enough to drive a bus through.  

Wed, 12/10/2014 - 13:30 | 5536913 Bastiat
Bastiat's picture

1.  Who are the shitboomers?

2.  What are the loopholes?

Wed, 12/10/2014 - 13:35 | 5536933 Haus-Targaryen
Haus-Targaryen's picture

1. Shitboomers = Baby Boomers.  Its a phrase I've coined for the coming generational war.  

2. It deals with the PAYE system and the statutory Foreign Income Deduction and the 20 year forgiveness period.  

Wed, 12/10/2014 - 13:39 | 5536944 Bastiat
Bastiat's picture

Thanks,

Bastiat, Shitboomer

Wed, 12/10/2014 - 13:41 | 5536951 Haus-Targaryen
Haus-Targaryen's picture

Yeah, of course. 

Wed, 12/10/2014 - 13:56 | 5537006 Theosebes Goodfellow
Theosebes Goodfellow's picture

~"Its a phrase I've coined for the coming generational war."~

Yes, I live in fear of those millennials with degrees in 16th century French Literature, Art History or Child and Family Studies. Molon labe, junior.

Wed, 12/10/2014 - 14:00 | 5537020 pods
pods's picture

The young are blessed with higher amounts of free testosterone.  

Did you ever see a pack of Boomers attack and dismember a twenty year old?

Neither have I.

pods

Wed, 12/10/2014 - 14:12 | 5537065 Wait What
Wait What's picture

don't forget the 1/4 million or so millenials who went through the wars in iraq and afghanistan. talk about dismembering, there's the demographic you can bet knows how to do it.

Wed, 12/10/2014 - 14:21 | 5537105 Jack Burton
Jack Burton's picture

I love the smell of generational war in the morning. Kids always have trouble with rational thought, he will soon grow up and see the youthful faces coming behind him! Then he can explain to the youth what he did for them.

 

Wed, 12/10/2014 - 23:17 | 5539234 mjcOH1
mjcOH1's picture

"

The Treasury's Worst-Case Scenario: Over $3.3 Trillion In Student Loans In A Decade"

 

But on a positive note, think of the wealth of academic research we can leave on Women's Studies and African American Studies for our little childrens.

Wed, 12/10/2014 - 14:11 | 5537068 ncdirtdigger
ncdirtdigger's picture

Never been to a Golden Corral at 5:30? Stand back or the blue hairs will trample you!

Wed, 12/10/2014 - 14:16 | 5537089 DetectiveStern
DetectiveStern's picture

The boomers are the ones who enjoyed the last 40 years of near endless boom times. It's the young who are going to pick up the pieces all while the media hounds us as work shy freeloaders.

 

I'm not workshy. I'm slaveshy.

Wed, 12/10/2014 - 16:29 | 5537612 americanspirit
americanspirit's picture

Hi Pods - If the Boomers are Student Loan investors and the twenty year-old is in default on a student loan, then yes I have seen a pack of Boomers attack and dismember a twenty year old. Happens every day.

Wed, 12/10/2014 - 14:09 | 5537058 Haus-Targaryen
Haus-Targaryen's picture

Yeah, well good thing all my degrees -- there is a demand for. 

Wed, 12/10/2014 - 14:32 | 5537154 Theosebes Goodfellow
Theosebes Goodfellow's picture

All those degrees, huh? Did you mean for which there is demand?

Wed, 12/10/2014 - 14:42 | 5537182 GubbermintWorker
GubbermintWorker's picture

All of your degrees, eh?

I can do carpentry, plumbing, electrical, hunting, fishing, and gardening. Fuck your degrees that you're gonna default on.

Wed, 12/10/2014 - 15:01 | 5537252 Ass Burger
Ass Burger's picture

Yeah, well, until you learn to code, go watch Andy Rooney.

Wed, 12/10/2014 - 15:03 | 5537260 Haus-Targaryen
Haus-Targaryen's picture

When I was in college I did car audio install at Best Buy for 5 years, so any electrical issues with anything that is DC based I can fix myself.  I bought an 11 year old BMW in cash, which if you don't fix yourself it never goes anywhere -- so I am also a home mechanic.  I enjoy building things, and am currently working on redoing my kitchen.  

So there is that.   

Wed, 12/10/2014 - 13:00 | 5536823 Eireann go Brach
Eireann go Brach's picture

Not to worry, the Fed will print college degrees soon and hand them out to even the homeless! They will just wipe their arse with them as they know they are useless!

Wed, 12/10/2014 - 13:03 | 5536831 Bear
Bear's picture

The new "Masters of Main Street" and "Doctors of Dumpsters"

Wed, 12/10/2014 - 13:50 | 5536989 upWising
upWising's picture

I believe the current SpokesWhore for the White House (Josh Unearnest) has the following credential:

BBS -> Bachelor Degree in Bull Shit
RPP -> Registered Prevarication Professional

 

Wed, 12/10/2014 - 13:06 | 5536839 pods
pods's picture

Many jobs are just pretend now anyways, and are paid out in pretend money to boot. Why not pretend credentials?

"Waiter, I would like another steak please, this last one tasted delicious."

-Cipher

Wed, 12/10/2014 - 13:32 | 5536919 TruthInSunshine
TruthInSunshine's picture

"Oh, and a refill of my 84 ounce Goose Island Boomba, too,please!"

Wed, 12/10/2014 - 13:03 | 5536826 Bear
Bear's picture

What Me Worry? Where's my jubilee?

Wed, 12/10/2014 - 13:03 | 5536832 papaswamp
papaswamp's picture

This and the other shoe to drop...autoloans.

Wed, 12/10/2014 - 13:05 | 5536833 pods
pods's picture

I actually like these articles that forecast problems 10 or 20 years out.  Makes me think we will still be knocking around on this rock.

In reality, we might be all running around in assless chaps begging some midget on top of a giant to turn Bartertown back on.

Or dodging cannibals.

I do think that the bonus of this debt being so large is that it will force the government to allow discharge.  Many people will simply not pay and work fully off books. Probably collection EBT and free O care to boot.

But again, that assumes that 10 years from now there will still be a FED, USA government, or pork that doesn't walk on two legs.

pods

Wed, 12/10/2014 - 13:12 | 5536858 marathonman
marathonman's picture

pods - that comment about Bartertown was just brilliant.  Well played sir.  Well played.

Wed, 12/10/2014 - 14:15 | 5537083 Paveway IV
Paveway IV's picture

No it's not. Now I have to try to keep lunch down and refrain from imagining all the cattle waddling around me in assless chaps. It's quite disturbing imagery for the most part.

If I had a cordless nail gun handy, I would put it upside down on the table in front of me and start head-slamming it - screaming "master blaster" each time at the top of my lungs just for effect.

I think it would help make the bad pictures go away.

Wed, 12/10/2014 - 14:19 | 5537097 pods
pods's picture

It could be worse, you could be a one arm bowler who is short on rent money?

"What is it about good sex that makes me have to crap? You really jarred something loose, Tiger! "

-Kingpin

Wed, 12/10/2014 - 13:04 | 5536834 Bryan
Bryan's picture

What's the thinking here?  That society owes them a job once they graduate?  And if society doesn't provide it, then to hell with the education debt? 

Or possibly they are getting over their heads in debt to finish college when college may not have been the best choice for their skills/aspirations/pay grade?

Or maybe the government wants a new generation of debt slaves, so made college loans too easy to get knowing that many would not be able to pay it back?

Wed, 12/10/2014 - 13:29 | 5536911 Alberich
Alberich's picture

It's a win-win-win. Colleges get free money, passed to them by present-oriented students who are quite happy to play around for a few eternal years while assuming away all future problems, and the government gets a steady stream of debt slaves incapable of much more than begging for handouts.

Who are we to stand in the way of such a mutually acceptable arrangement?

Wed, 12/10/2014 - 14:36 | 5537164 Bryan
Bryan's picture

So the assumption is that college students never intend to pay back their debt at all?  Wouldn't that be *gasp* disingenuous??  Or maybe the process to get a student loan makes it look like it's 'free money'?   I dunno... I paid my own way through college by working full time.

Wed, 12/10/2014 - 13:06 | 5536836 JustObserving
JustObserving's picture

You can learn virtually everything on the internet at almost no cost.  You can have the best teachers in the world educating you.  Do we really want to keep the expensive, debt-inducing universities alive?  Do we want to destroy the futures of millions of young students with unpayable debt?

Apparently, our current corrupt, cruel system needs slaves to ensure its future

Wed, 12/10/2014 - 13:24 | 5536898 Catullus
Catullus's picture

And if you're male, any sex you have on campus could risk everything with just a simple accusation. Even years later. They just need a "preponderance of evidence" to throw you before a kangaroo leftie hearing of man-hating feminists hellbent on making an example of you without any regard for corroborating anything the other person claims.

Lever up for the "college experience" and risk your entire life for the same $15/hr job! Do yourself a favor and stay away, young lads.

Wed, 12/10/2014 - 13:28 | 5536903 Gaius Frakkin' ...
Gaius Frakkin' Baltar's picture

Entire institutions have become obsolete, but you wouldn't know it thanks to central planning.

Wed, 12/10/2014 - 13:11 | 5536841 Disc Jockey
Disc Jockey's picture

As somebody that actually worked through my college days I rarely went to a party, never joined a club, only dated a couple gals, and walked away with no debt and a degree in History.

Looking back? What a fucking waste! I should have partied hardy ran up the bills and defaulted while giving the finger to .gov  I'd still be making the poverty level non-benefited salary i get now...only i wouldve gotten laid more often.

Ah well. Hindsight is 20/20...

Wed, 12/10/2014 - 13:14 | 5536865 wagthetails
wagthetails's picture

you baffoon.  i'm sure you also purchased a home you could afford as well. 

Wed, 12/10/2014 - 13:28 | 5536906 Disc Jockey
Disc Jockey's picture

you baffoon.  i'm sure you also purchased a home you could afford as well. 

Yep. You can see it here:

http://www.alpsmountaineering.com/alps/products/tents/lightweight-tents/...

Wed, 12/10/2014 - 13:08 | 5536842 FrankieGoesToHo...
FrankieGoesToHollywood's picture

Worst nightmare?  It's their wet dream!  These are not forgivable in bankruptsy.  The gov now has legal claim on $3T of slave labor.

Wed, 12/10/2014 - 15:05 | 5537264 Farmer Joe in B...
Farmer Joe in Brooklyn's picture

Excellent point...!!

It's hard to predict exactly how this will all play out.  But the legal groundwork, through non-forgivement of student loans, is in place for an entire generation to be held at gunpoint by the government into slavery. 

I have have equal parts excitement and fear to watch how the next 5-10 years go for this country.  The real question is when to pull the ripcord and just get the fuck out.  I'm content to watch from the sidelines (someplace secluded and tropical...all I need is my WiFi connection). 

Wed, 12/10/2014 - 16:37 | 5537651 FrankieGoesToHo...
FrankieGoesToHollywood's picture

Its already starting.  O's proposal to cap the payment in excahgne for public service.  Need to start small.  Get a toe in the door or a foot ini the water so to speak.

Wed, 12/10/2014 - 18:32 | 5538260 Nick Jihad
Nick Jihad's picture

Well, is this really new?  The federal government already has legal claim on every dollar you earn, since 100 years ago.

Wed, 12/10/2014 - 20:18 | 5538715 TweedleDeeDooDah
TweedleDeeDooDah's picture

...as long as you stay in the US.

Wed, 12/10/2014 - 13:08 | 5536844 Tsar Pointless
Tsar Pointless's picture

Don't worry. Congress is (in) ON IT!

http://www.huffingtonpost.com/2014/12/10/pell-cuts-cromnibus_n_6299092.html

"House and Senate leaders have agreed to cut funding for the nation’s largest source of grants for college students to pay student loan contractors, according to legislation that would fund the federal government through next year and avert a shutdown."

Tax breaks for billionaires, helping companies donate to politcal parties, and this. This funding bill has a something for everybody - everybody rich, that is.

Wed, 12/10/2014 - 13:11 | 5536856 wagthetails
wagthetails's picture

The Fed/GOV will be smarter this time, rather than simply buying the loans (which is an obvious bank bailout), they'll Issue forgiveness check to borrowers.  these check can only be redeemd to repay student loans.  Borrower's feel like the gov bailed them out, the reality is that the Banks are bailout.  In the same plan they will raise taxes and/or reduce benefits for younger people in order to pay for the older people.  Essentially, this is how they'll buy the young vote.  either way, they mortgage their future.  And the peasents rejoice. 

Wed, 12/10/2014 - 14:01 | 5537027 LawsofPhysics
LawsofPhysics's picture

Unless you issue the same check to everyone you will make matters worse.

Moral hazard is a bitch like that.

Wed, 12/10/2014 - 13:13 | 5536864 williambanzai7
williambanzai7's picture

The first moron thinks a degree is the big equalizer.

"What a maroon"--Bugs Bunny

Wed, 12/10/2014 - 20:15 | 5538708 TweedleDeeDooDah
TweedleDeeDooDah's picture

Exactly... the degree and what you learn are only TOOLS... just like a "smartphone", it's the user, not the phone itself that makes it "smart".

You have "educated" people thinking that art and philosophy are treasures of our "civilization", while most don't know STROKE ONE about calculus, which is probably the greatest treasure of the western world.

Wed, 12/10/2014 - 13:14 | 5536869 Bill of Rights
Bill of Rights's picture

We moved some folks down  to Mom's basement.

Wed, 12/10/2014 - 13:14 | 5536873 pankowboy
pankowboy's picture

Sign or apocalypse...recent drive BOS to DC and back. One billboard after another plastered with smiling, diverse faces advertising for some unknown diploma-mill, doubtless stuffed to the roof with future student loan defaulters.

Wed, 12/10/2014 - 13:16 | 5536875 buzzsaw99
buzzsaw99's picture

by then $3T won't seem like much money

Wed, 12/10/2014 - 13:21 | 5536882 PresidentCamacho
PresidentCamacho's picture

Sorry this isn't the 60's where you could work the summer and pay for school, buy a brand new barricud, finish in 4 years dept free and buy a house for your wife after working 3 months at your manufactoring managment position.

 

Here is your alternatives,

A- Go work at mcdonalds selling burgers or sell your pussy on craigslist because you have no skills (high school = daycare) and mommy and daddy (if your lucky, if not obama will be daddy)  don't know anyone in the local union or turnpike commission to hire you. You have no assets, no buisness acumen, no transportation (suburban living), and no opportunity. Enjoy Enslavement, This  in my opinion is the best financial choice for 90% of people.

B- Go to college or tech school/apprentice with the hope that you may learn something. have a chance to maybe acquire usefull skills if your diligent and have a chance to make 12$ an hr to start. or maybe get your masters if that doesn't work and make 12$ to start after 6 years of school. When your finally done, settle into your new career as Barista manager or sell your pussy on craigslist. Best choice for your hardest working and most intelligent 10%

C- Go to college with the intent to never pay the counterfeit back because the last 2 generations in America failed to act  to save the country and it's virutally impossible to work your way though school unless you had very helpful parents with great buisness connections.  Having lost hope,  you just wanna watch it all burn. Smoke weed and fuck bitches Homies.  100% The best choice for the people who have lost all hope for a decent future and want to watch all the smug boomers and everyone else go broke and suffer when our society soon falls apart.

Wed, 12/10/2014 - 13:22 | 5536895 himaroid
himaroid's picture

D - Scrape up enough money for a good weapon and ammo and get ready to fight for your life.

Wed, 12/10/2014 - 13:27 | 5536901 PresidentCamacho
PresidentCamacho's picture

This isn't really optional in my opinion, if your an american you should be armed to the teeth to kill everyone in the instance that freedom is threatened

Wed, 12/10/2014 - 13:31 | 5536912 himaroid
himaroid's picture

Not an option, but is an "alternative".

or E. Roll over and die.

Wed, 12/10/2014 - 17:23 | 5537963 Agstacker
Agstacker's picture

F.  Go pan for gold.

Wed, 12/10/2014 - 13:47 | 5536969 22winmag
22winmag's picture

Less than 3% will do that, but it will be enough. The other 97% will be spectators, informants, and allies.

Wed, 12/10/2014 - 13:32 | 5536922 insanelysane
insanelysane's picture

5 years of college makes me think that C is always the correct answer with multiple choice questions.

Wed, 12/10/2014 - 13:41 | 5536946 Catullus
Catullus's picture

Here's how it's not a problem for .gov: they're giving these loans out at an interest rate + the treasury yield. $3 trillion in student loans will offset $3trillion in treasury debt on a cash flow basis. Those little shits pay the gov 7% now. Treasury is loaning money at 3%. They net 4%.

Defaulting doesn't meaning anything, they just garnish your wages and charge you an even higher interest rate.

This is the new government revenue stream.

Wed, 12/10/2014 - 13:55 | 5537000 PresidentCamacho
PresidentCamacho's picture

Yes, you've nailed the why.
They get you in their pocket.

Wed, 12/10/2014 - 13:43 | 5536952 22winmag
22winmag's picture

We skooled some chumps.

Wed, 12/10/2014 - 13:59 | 5537023 LawsofPhysics
LawsofPhysics's picture

If you forgive one, you had better forgive them all.  Tick tock motherfuckers.

Wed, 12/10/2014 - 16:50 | 5537745 Georgia_Boy
Georgia_Boy's picture

Oh, is that how you think this works.  Let me tell you all about your white cis het male privilege

Wed, 12/10/2014 - 14:03 | 5537046 Ewtman
Ewtman's picture

Student loans are part of the decade long debt bubble that is bursting as we speak...

 

http://www.globaldeflationnews.com/anatomy-of-a-bubble-how-the-federal-r...

 

 

Wed, 12/10/2014 - 14:09 | 5537059 libertus
libertus's picture

Modern day debt slavery brought to you by the government. People need to revolt and take charge of their education by joining oplerno.com

Wed, 12/10/2014 - 14:20 | 5537100 Squiddly Diddly
Squiddly Diddly's picture

 

 

   3 Trillion in Student debt

+ "You didn't build that" Obama

Don’t let anybody tell you it’s corporations

     and businesses create jobs,” Clinton said.

=   I have no clue, but it can't be good.

Wed, 12/10/2014 - 14:21 | 5537112 will ling
will ling's picture

all part of the barry's red brigades syndrome.

Wed, 12/10/2014 - 14:37 | 5537168 SirTaxedAlot
SirTaxedAlot's picture

Will we that have paid ours off be offered a refund?

Wed, 12/10/2014 - 14:47 | 5537192 vegas
vegas's picture

The vast majority of BS or BA degrees aren't worth any amount of a student loan. Go to a Jr. College and work for the rest; oh, don't want to do that? OK, take the loan and learn first-hand what "indentured slave" means. Fucking idiots.

 

www.traderzoo.mobi

Wed, 12/10/2014 - 14:48 | 5537197 youngman
youngman's picture

What I see is that say that 1.7 trillion we just spent buys you a 4.0 GPA...but in our actual case..all that money is not going to education...its cars..Iphones...rent.....food..entertainment..whatever they want..so we are only getting a 2,0 average..not a good investment...that is high school grades

Wed, 12/10/2014 - 15:03 | 5537251 kchrisc
kchrisc's picture

2024?

I am always amused by long-term forecasts involving the DC US.

The petrodollar, and by extension, the Empire, only has 1 to 3 years left, tops.

Sort of like falling from a plane, and using the free-fall time to ponder who you'll marry one day.

An American, not US subject.

Wed, 12/10/2014 - 15:30 | 5537363 Tom Green Swedish
Tom Green Swedish's picture

There should be no generational war between boomers and generation xyz.  The ones with all the money are the silent / greatest generation.

Wed, 12/10/2014 - 15:37 | 5537380 JohnGaltsChild
JohnGaltsChild's picture

What's to worry. By then the value of the dollar will be worth about as much as the education received.

Wed, 12/10/2014 - 22:03 | 5539006 IronForge
IronForge's picture

I'm glad I didn't have any...

Thu, 12/11/2014 - 01:31 | 5539354 malek
malek's picture

What do you mean end up unrepaid?

They will simply cut the debtors' Social Security payouts (after retirement) to zero!
Or so it's planned.

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