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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TruthInSunshine's picture

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

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.

smlbizman's picture

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

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.  

Bastiat's picture

1.  Who are the shitboomers?

2.  What are the loopholes?

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.  

Bastiat's picture


Bastiat, Shitboomer

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.

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.


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.

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.


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.

ncdirtdigger's picture

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

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.

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.

Haus-Targaryen's picture

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

Theosebes Goodfellow's picture

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

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.

Ass Burger's picture

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

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.   

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!

Bear's picture

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

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


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."


TruthInSunshine's picture

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

Bear's picture

What Me Worry? Where's my jubilee?

papaswamp's picture

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

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.


marathonman's picture

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

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.

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! "


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?

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?

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.

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

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.

Gaius Frakkin' Baltar's picture

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

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...

wagthetails's picture

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

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:

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.

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). 

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.

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.

Tsar Pointless's picture

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

"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.

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. 

LawsofPhysics's picture

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

Moral hazard is a bitch like that.