Next Mega-Bailout On Deck: White House Studying "New Bankruptcy Options" For Student-Loan Borrowers

Tyler Durden's picture

A quick reminder of what the biggest debt bubble currently facing America's population is.

 

Why is this a problem? Because as the TBAC revealed a few months back, the default risk from the $1 trillions in 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!

 

And, the punchline: according to the TBAC's worst case scenario of the future of student debt, this gargantuan load will triple over the next decade, to as much as $3.3 trillion by 2024.

This means that up to $1 trillion, and likely more, in household debt will go "bad" over the next decade. The problem: student debt is not dischargeable in a personal bankruptcy.

That is about to change.

It appears that just as the administration is finally figuring out what HFT is, it also decided to take a look at the charts above and has made a decision: the next bailout is about to be unveiled, and it will involve a "streamlined" bankruptcy law allowing students to discharge their student debt.

 Moments ago this hit the wires via Dow Jones:

  • WHITE HOUSE STUDYING NEW BANKRUPTCY OPTIONS FOR STUDENT-LOAN BORROWERS
  • CURRENT U.S. LAW LARGELY PROHIBITS FEDERAL, PRIVATE LOANS FROM BEING DISCHARGED IN BANKRUPTCY

And some more color from Reuters:

President Barack Obama is slated to speak to students at Georgia Tech on Tuesday about how he wants to make the process of repaying student loans easier to understand and manage. Obama will sign a student aid bill of rights  and will speak about an assortment of policy tweaks and projects to try to make it easier to help people with student loans pay back their debt.

 

"It's our responsibility to make sure that the 40 million Americans with student loans are aware of resources to manage their debt, and that we are doing everything we can to be responsive to their needs," said Ted Mitchell, undersecretary of education, on a conference call with reporters.

 

More than 70 percent of U.S. students who graduate with a bachelor's degree leave with debt, which averages $28,400.

 

The White House said it will require clearer disclosures from companies to make sure borrowers understand who is servicing their loan and how to set monthly payments and change repayment plans.

 

"Repayment rates improve when servicers work well and work directly with borrowers, helping them understand the terms of their loans," said Sarah Bloom Raskin, deputy secretary of the Treasury Department, on the conference call.

 

Obama will direct his Education Department to create a system by July 1, 2016 to better oversee and address complaints from borrowers about lenders, servicers and collection agencies, the White House said.

 

His administration will also study whether it needs to propose changes to laws or regulations to create stronger consumer protections, the White House said.

Which can only mean one thing: the appointment of a Student Loan Czar is imminent, as it the "discharge" of tens if not hundreds of billions in debt, which would never be repaid in any case.

And since there is no such thing as a free lunch, it will be the US taxpayer who will as usual end up footing the bill. Expect college fees to go vertical once deans and administrators understand that they can charge anything and the taxpayer will end up footing the bill.

* * *

One can read the Fact Seet on the "Student Aid Bill of Rights: Taking Action to Ensure Strong Consumer Protections for Student Loan Borrowers" below:

Higher education continues to be the single most important investment students can make in their own futures.  Five years ago this month, President Obama signed student loan reform into law, redirecting tens of billions of dollars in bank subsidies into student aid. His historic investments in college affordability include increasing the maximum Pell Grant by $1,000, creating the American Opportunity Tax Credit worth up to $10,000 over four years of college, and letting borrowers cap their student loan payments at 10 percent of income. He has also promoted innovation and competition to help colleges reduce costs and improve quality and completion, including a First in the World fund. While these investments have helped millions of students afford college, student loans continue to grow.

 

That is why, today, President Obama will underscore his vision for an affordable, quality education for all Americans in a Student Aid Bill of Rights.  As part of this vision, the President will sign a Presidential Memorandum directing the Department of Education and other federal agencies to work across the federal government to do more to help borrowers afford their monthly loan payments including: (1) a state-of-the-art complaint system to ensure quality service and accountability for the Department of Education, its contractors, and colleges, (2) a series of steps to help students responsibly repay their loans including help setting affordable monthly payments, and (3) new steps to analyze student debt trends and recommend legislative and regulatory changes. In addition, the Administration is releasing state by state data that shows the outstanding federal student loan balance and total number of federal student loan borrowers who stand to benefit from these actions.

A Student Aid Bill of Rights

  • Every student deserves access to a quality, affordable education at a college that’s cutting costs and increasing learning.  
  • Every student should be able to access the resources needed to pay for college.
  • Every borrower has the right to an affordable repayment plan.
  • And every borrower has the right to quality customer service, reliable information, and fair treatment, even if they struggle to repay their loans.

Today’s Actions to Promote Affordable Loan Payments

 

Americans are increasingly reliant on student loans to help pay for college. Today, more than 70 percent of those earning a bachelor’s degree graduate with debt, which averages $28,400 at public and non-profit colleges. Today’s actions will help borrowers responsibly manage their debt, improve federal student loan servicing, and protect taxpayers’ investments in the student aid program:

 

 Help Borrowers Afford Their Monthly Payments: The President will announce a series of steps to improve customer services and help borrowers repay their direct student loans, which are made with federal capital and administered by the Department of Education through performance-based contracts. High-quality, borrower-focused servicing helps more borrowers successfully repay their federal student loans.  Building on the stronger performance incentives put in place last year, the Department will now raise the bar by:

  • Requiring enhanced disclosures and stronger consumer protections throughout the repayment process, including when federal student loans are transferred from one servicer to another, when borrowers fall behind in their payments, and when borrowers begin but do not complete applications to change repayment plans. These steps will better protect borrowers from falling behind in their payments and ensure consistency across loan servicers.
  • Ensuring that its contractors apply prepayments first to loans with the highest interest rates unless the borrower requests a different allocation.
  • Establishing a centralized point of access for all federal student loan borrowers in repayment to access account and payment processing information for all Federal student loan servicing contractors.
  • Ensuring fair treatment for struggling and distressed borrowers by raising standards for student loan debt collectors to ensure that they charge borrowers reasonable fees and help them return to good standing;  clarifying the rights of Federal student loan borrowers in bankruptcy; working with the Department of Treasury to simplify the process to verify income and keep borrowers enrolled in income-driven repayment plans; and working with the Social Security Administration to ensure that disability insurance recipients who can discharge their student loans are not instead seeing their disability payments garnished to  repay defaulted loans.

In addition, new requirements may be appropriate for private and federally guaranteed student loans so that all of the more than 40 million Americans with student loans have additional basic rights and protections. The President is directing his Cabinet and White House advisers, working with the Consumer Financial Protection Bureau, to study whether consumer protections recently applied to mortgages and credit cards, such as notice and grace periods after loans are transferred among lenders and a requirement that lenders confirm balances to allow borrowers to pay off the loan, should also be afforded to student loan borrowers and improve the quality of servicing for all types of student loans.  The agencies will develop recommendations for regulatory and legislative changes for all student loan borrowers, including possible changes to the treatment of loans in bankruptcy proceedings and when they were borrowed under fraudulent circumstances.

The full fact sheet here.

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NoVa's picture

hmmmm  - time to a short Sallie Mae?

 

Oblamo keeps on producing payback for his supporters.   

PartysOver's picture

Indirect Gov't funded college education.  Only in USSA can the really stupid people get Phd's.  For Free.  Just fill out a form and present to the local Court House.  Ain't life grand.

Antifaschistische's picture

Collateral Damage Layer #1

x-students will also throw in the towel on credit cards and car loan debt

Collateral Damage Layer #2

now bankrupt x-students won't qualify for a shiny new home mortgage.

LET THE PARTY BEGIN

ParkAveFlasher's picture

Layer #3...impact of institutionalizing corporate hiring behaviors via regulatory means, by both educational and affirmative action requirements...i.e. firms getting sued for not specifically hiring unmanageable idiots.

Layer #4...misallocation of capital due to labor pricing distortions, caused by overfinanced/flooded education marketplace

3.7.77's picture

average $28,400 BFD,  price of a new car.

Haus-Targaryen's picture

If I can file bankruptcy and discharge my student loans I'll do it tomorrow. 

ratso's picture

Taking away the bankruptcy option was predartory capitalism at its worst.

3.7.77's picture

Think I'll be a brain surgeon, maybe 6 years in school, go the whole schmole. Live on campus charge it all.

When I get out, bummer can't find a job. Declare bankruptcy, heh heh, what a country. Leave some other sap paying the bills.

Then maybe I'll be a gynecologist......

ParkAveFlasher's picture

Anyone who has done the end around to a labor recruiter to sweeten the pot for the hiring firm (lower the cost) knows that a black market already exists for high-end labor.  More laws = more evasion. 

Georgia_Boy's picture

I have little love for the sanctimonious leeches (oops) administrators that run a lot of academe, if some tatted blue-haired SJW welches on her 100,000 dollars of loans for her grievance studies degree then I say they had it coming.  Hopefully it will make everyone take a better look on what we are spending all that fiat for.  (Hey I can dream, can't I?)

Greenskeeper_Carl's picture

this isnt out of kindness by the obama admin. They don't feel sorry for the students they have saddled with debt. Keeping them in school as long as possible was neccessary to keep them from being counted among the unemployed. Now obama is just trying to score cheap political points, since, as we all know, that which can't be repaid, wont be. Since everyone knows these things will never be repaid anyway and obama knows it, might as well make yourself look magnanimous to the little people by forgiving their debt. If the govt will never get that money back anyway, you can either forgive them and look like the party that cares, or bring back debtors prisons for them all. Its not like threatening a 25 year old with social security garnishment in their old age will work, even the braindead among them know that SS will be long gone before they are old enough to collect

pods's picture

The debt needed to be increased. Can't have a cascading default that ruins the dollar. So student loans were given to anyone.

That kicked the can down the road a bit, but now that problem is coming to fruit.

So we need another way to increase the debt to kick the can down the road further.

Same as it ever was. After the tech crash, it was housing, then QE (gov debt), now student loans, next who knows.

It is always about expanding the debt supply so interest can still be paid. 

That is why banks will go to great lengths to let you refine the terms, as long as they still have an asset and can make the interest skim.

pods

EmmittFitzhume's picture

Fuck scholarships! Everyone gets a full-ride from Obama now!  I want my money back goddammit!

smlbizman's picture

ok, i am so smart i am going to be a college grad with a degree.....so i want to borrow (x) and it is going to cost me (x) per month for (x) amount of months.....could u please simplify that for me...cause im smart, but i aint dat smart...

NoDebt's picture

I just applied at University of Pennsylvania Warton School 10 minutes ago where I will hopefully, finally get my doctorate degree in Economics.  Just because I'm almost 50 doesn't mean you're allowed to discriminate against me.  I might also pick up a new car, some appliances for the house, maybe an in-ground swimming pool while I'm at it.

I just wanted to say thanks to everyone.

QQQBall's picture

i am well over $300k for my kids educations and daughter is finishing masters and headed to law skool. SO as always - WHERE IS MY FUCKING BAILOUT?

Beam Me Up Scotty's picture

Instead of asking the colleges in this country why tuition is going up at many multiples the rate of inflation, Obama's idea is to create more loans, and then more loan forgiveness.  How about we just make all the liberal fucks at the colleges teach for FREE!!

BuddyEffed's picture

To put this student loan bailout into perspective, isn't it very likely that it will be a backdoor way of buying up the bad paper that the banks are holding for these loans that for all intents and purposes won't get paid off in any other way but a bailout?  The  banks need to mark the bad paper to model soon or there will be issues.

Son of Loki's picture

The Big Winners are the school administrators who usually have mega-pensions and very generous health insurance benefits.

Some get over $11 million:

http://dailybail.com/home/make-this-story-go-viral-you-thought-californi...

Citxmech's picture

This is about keeping the lenders afloat.  Essentially what a "student loan bankruptcy option backed by the taxpayers" means is that payments on otherwise bad debts will continue to be made.  The students who are going to be allowed to take advantage of this aren't ones who have been making payments.

Squid-puppets a-go-go's picture

assome jerks in the thread above dont seem to appreciate or acknowledge that the price of college has far outstripped inflation. If it shouldnt cost $100k for a degree, its not unreasonable that some of it be waived

Calmyourself's picture

"Waived" does that mean a magic wand alleviates all pain, I got a mortgage that needs to be waived..  I predicted this shit last week..  Before he leaves office the magic exec order waives over student loan debt, have them students voting Demonrat for 200 years..

nufio's picture

just like loan oriiginating banks should be forced to own a piece of the loan (like 50%) colleges should be forced to own part of the student debt that should be dischargable by bankruptcy after 5-8 years after graduation. 

That way only job   majors will remain and a majority of departments like psychology , politicial science and gender studies will die a quick death. 

Banker Buster's picture

LOL

Pick up a new phone while you are out.  Maybe a gold iphone, I hear they are nice and you can finance that thing out 5 years.

Creepy A. Cracker's picture

"FREE" gubmint shit for EVERYONE!!!  This is ALWAYS a workable plan. </s> Just look at Cuba and Russia where everyone but government connected people are dirt poor.  The union college teachers get wealthy by having the government take money form hard working tax payers in order to pay for "degrees" in lesbian studies.

The free market needs to rule when it comes to college.  Don't loan for degrees that will not earn enough to pay the loans back.

Anyone who didn't see this coming when Dear Leader Obama socialized the student loan system is a complete moron.

BurningFuld's picture

Fuck, where do I sign up to study Lesbians?

Never One Roach's picture

The FSA is growing exponentially now. Moar and moar people i know simply feel unaccountable for anything they do now, not to mention the soaring number with a chip on thier shoulder.

 

This, "who gives a sh*t" attitude has trickled down from the top in DC and Wall Street to the average joe. Grab as much as you can grab or borrow with no intent to ever pay back is now so common it's incredible.

Victorio's picture

Unaccountable? What obligation does an individual have to a system that is inherently fraudulent other than to do what they can to make the system go away? The .1% is the true FSA.

tarsubil's picture

Has anyone ever put any thought into burning all the banks down?

mkkby's picture

I sure have.  If everyone goes out and torches the nearest branch office, they are gone in 1 hour.

Ghordius's picture

has anyone ever put any thought of rolling back the laws that permit banks to do such things? a hint: they are less then twenty years old

Escrava Isaura's picture

 

 

pods

You are precisely right.

 

Now, about answering your “next who knows”

 

War!

 

Wondering why?

 

We will soon be out of can to kick. Shale oil is the canary. Watch out when it starts declining.

 

cnmcdee's picture

Looking forward if students are able to default on their loans - the future market for student loans will simply evaporate, and so will the students - now unable to quailify for a debt driving education.

The elite will still send their kids to university, the common folks won't.  

StychoKiller's picture

Hmm, so could I major in ballistics and weapon delivery systems, then declare bankruptcy?

jbvtme's picture

these brainwashed government subsidized collectivists are your next master. surly, self assured, soy fed, politically correct and ready to process your paperwork for permission to do ANYTHING.

Clashfan's picture

And what happens to those of us who were responsible enough to pay back our big loans? Um, nothing? That's not fair. Oh well.

daveO's picture

i had to look up SJW, social justice warrior. Same as anti-white male, imo.

Cadavre's picture

From the art ...

And since there is no such thing as a free lunch, it will be the US taxpayer who will as usual end up footing the bill. Expect college fees to go vertical once deans and administrators understand that they can charge anything and the taxpayer will end up footing the bill.

If ya think about it, tuition and fees were affordable, unless one had the slowness of mind and was also suitably graced with Daddy's money, to attend a private diploma mill, before the "student" loan ponzi went mach 2 frenetic. Medial services were affordable before health insurers became high risk, exchange listed, investment houses.

But, if one has difficulty in understanding how a pass on the balance due for a diploma mill certificate is gonna fuck everything up, think again ... 

Take as example, the so called private "college" known as the "Art Institute". Total outlay in loans to get "princess" or "prince" coddled through this for profit private claimed institution of higher learning can bust out above a 100K easily. Hard to pay back when we consider that AI graduates may harvest a bounty at least 3 points above minimum wage.

In 2012, the DoJ sued and won an 11 Billion Smacker Settlement against the institute. Did any relief make it back to the debtors that fell for that sham? NO.

States and municipalities have sued the shit out of the Art Institute over the last decade, and not one cent of the harvest of settlements has been used to reduced the liability of the suckers who fell for allure of gold at the end of kinder-college.

What does this little dried chunk of snot in an ocean of buggers tell us about SALLY MAE collars financing for profit (cough) college student loans that eventually get sued by something claiming to be the peoples government, and yet, not reduce the liability of the victims falling for this fraud?

It tells us that municipal, state and federal courts are be used as a conduit for bribes - that's all it says.

With all the bucks in "shopped research" grant's are busting the deposit accounts of so called preeminent institutions of higher learning. The research is used to justify sales of chemo therapies that don't do anything except cause more tumors to develop.

Before big-box-pharma auctioned off grant funding to institutional research teams that promised to deliver results and conclusions more beneficial to big pharma marketing divisions, despite the harm caused to patients, medical services were cheaper, and outcomes were better, back in the daze when foundations funded pure research.

It's no wonder our world view has been reduced to a 2.5" x 4" 4GL iBling Queen device. It's no wonder we are hypnotically drawn to Ghost Stories and House Wives of BoobJob Ville. Those are the benefits of an over priced low return for profit diploma mill degree!

Like everything seems to be these daze, private private health care and private diploma mills are just like private prisons - they cost substantially more and deliver substantially less, by orders of magnitude! 

... and that's all the fat lady has to say `bout this.

Stoploss's picture

Contract labor directly for hire.  It's the only way.  And employers like it. Deal directly with them, no headhunter or middle man, plus employers don't have to suffer through hiring available and untrainable fucktards.

If your skilled, you can write your own ticket. 

Arthor Bearing's picture

Debt jubilee for everyone, don't waste the bankrupcty court's time. Sue the schools for unjust enrichment to make up the difference. Sieze homes of professors and admins of the universities, sell off assets, use the proceeds to pay permanently unemployed people to get sterilized. I got alot of ideas folks.

angel_of_joy's picture

US has already become Greece; it just happens to have a reserve currency (for now)...

richiebaby's picture

"Sue the schools for unjust enrichment to make up the difference."

I wish I'd thought of that

spooz's picture

Hey peabrain, IF you were smart enough and hardworking and ambitious enough to get into med school, and then get accepted into a neurosurgery residency (brain surgeon to dolts like you), you would have no problem "getting a job" that makes repaying student loans pretty painless.  Simpletons like you, however, would probably have a hard time getting an undergraduate degree, let alone having a high enough GPA to get into med school.

Deathrips's picture

But then I would have to work at the DMV forced for life...whoops i mean state run medical facility.

Maybe I could have acheived an engineering degree so I could work for the government making weapons....oh...JOY!!!!

Long Govt employment!

Its_the_economy_stupid's picture

Sooz, Thats what they used to say about Law School.

Coming to a profession near you.....

spooz's picture

The legal profession doesn't have anything like the AMA to limit the number of doctors that can be educated, keeping the supply low and unemployment virtually nonexistant.

Son of Loki's picture

Used to be true. However, with the open border policy we now have take a look at your local hospital roster of doctors.

 

My own medical doc is Indian, my ortho guy also Indian (but different tribe), my dentist is from Chengdu, my allergist is from Israel (he's a very nice Jewish doctor) and my palm reader/faith healer is from Hungry.

 

 

Thirst Mutilator's picture

sounds like your palm reader/faith healer needs a sammich

Thisson's picture

WTF?  You never heard of the Bar Association?  Can you say "barrier to entry"?  I knew you could!