"Staggering" Student Loan Defaults On Deck: 27% Of Students Are A Month Behind On Their Payments

Tyler Durden's picture

Calls for a benevolent suspension of both personal responsibility and accounting truisms (which mandate that one person’s liability is everywhere and always someone else’s asset) in the interest of forgiving all student loans at the expense of the US taxpayer aside, America has a student debt problem. Here are some good places to start if you need a refresher:

As we’ve documented exhaustively in the past, the country is laboring under around $1.3 trillion in non-dischargeable loans to students which isn’t a good thing, especially in a country where the jobs driving the economic “recovery” have, until last month, been created in the food service industry and where wage growth is a concept reserved for only 20% of the workforce. It would seem that this could make it increasingly difficult for students to repay their debt, especially considering how quickly tuition costs have risen. In other words, tuition is going up, wages aren’t, and the latter point there is only relevant in the event you find a job that pays you a wage in the first place (i.e. where your compensation isn’t determined by the generosity of the “supervisory” Americans who can still afford to eat out). 

The severity of the problem has been partially masked at times by the tendency to inflate the denominator when one goes to calculate delinquency rates. That is, if you include all student debt outstanding, even that in deferment or forbearance in the denominator, then clearly the delinquency rate will be biased to the downside because the numerator will by necessity only include those students who are currently in repayment. That’s really convenient if you want to make things look less bleak than they actually are. 

Of course you can’t be delinquent when you aren’t yet required to make payments, so the more accurate way to calculate the figure would be to include only those students in repayment in the denominator. This apples-to-apples comparison is likely to paint much more accurate picture and sure enough, a new St. Louis Fed (who recently documented the shrinking American Middle Class) study finds that the delinquency rate for students in repayment is 27.3%, well above the 17% figure for all student borrowers. Here’s more:

To further analyze student loan delinquency, and given that many programs allow borrowers to postpone repayment on their student loans, it seems pertinent to study a measure of the share of loans not in repayment. The second figure shows the percent of student loan borrowers whose loans are not in repayment. 


Borrowers’ loans are defined as “not in repayment” if (i) their student loan balance is larger than or equal to the previous period (i.e., quarter) and (ii) there is not a pastdue student loan balance in the current period. Note that the “not in repayment” status includes the loans of most student loan borrowers who are still in college. It involves more than that, however, since it also incorporates loans in deferment and forbearance, which are mechanisms that allow borrowers to suspend or reduce student loan payments under certain circumstances. 4 For 2010:Q4, we find that about 45 percent of student loans were not in repayment; this implies that only about 55 percent of student loans were in repayment. 


As a consequence, if we adjust the delinquency rate to consider that only a fraction of the borrowers have payments due, this level of delinquency is very concerning: A delinquency rate of 15 percent for all student loan borrowers implies a delinquency rate of 27.3 percent for borrowers with loans in repayment. This level of delinquency is much higher than for any other type of debt (credit cards, auto loans, mortgages, and so on).

Even the fudged denominator figure doesn't look that great with 17% of all student borrowers delinquent...

...and speaking of forbearance and deferment, here's the breakdown by category...

...and here's the trajectory for the size of the bubble under difference economic scenarios...

*  *  *

So we say again, let the "cancel all student debt" petitions begin because the students are going to cancel it anyway, the same way some homeowners in Florida and New Jersey are canceling their mortgages — by refusing to pay. And as a reminder, once the country's colleges and universities realize that the taxpayer is on the hook when former students don't pay, you can expect tuition rates to go parabolic. 

Note that we were the first to warn about the student loan bubble and now, some two and a half years later, even Bill Ackman has come to the same conclusion. Here's what he said about the situation earlier this week: 

“If you think about the trillion dollars of student loans we have outstanding, there’s no way students are going to pay it back.” 

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22winmag's picture

Of course everthing is shitting itself all at once. Credit rejection just hit an ALL TIME HIGH.



y3maxx's picture

...Washington/Wall Street House of Cards will collapse when American Millennials, en masse, simply stop paying Federal taxes.

Cant arrest 100 million citizens

Temporalist's picture

With the billions of bullets that they bought I'm pretty sure they will try.


Welcome to FEMA camp #17!  Have a spectacularly democratic day!

centerline's picture

Ah, the coming storm. 

Chances are, the inner city areas get squeezed first.  They are closest to the edge in terms of resources and most likely to react violently.  These areas will be ring-fenced.  And, of course, it will be televised quite heavily. 

Eventually, the pain will spread.  As will violence.  Most people will just be on thier own per se.  There aren't enough cops to really contain what is coming.  Rather, shock and awe will be needed.  "Tanks in the streets" was not a threat, it is a inevitability.  Ironic huh?  But, most of us knew Wall Street was thief going into to the mess in 2008. 

Karl-Hungus's picture

Large cities, sure. They will be locked down. But I don't buy them locking down the entire country like that, at least not successfully. If they could pacify relatively small countries like Iraq, Afghanistan or Vietnam, I wouldn't give them very good odds here. Considering the govt fucks up pretty much everything it tries to do, I doubt this will be any different.

boogerbently's picture

They're making it sound like student loan forgiveness is just around the corner.....would YOU PAY ?

Gen.Ackbar's picture

So let me get this straight, we, ZH commenters, want everyone to default so the banking system collapses? So that way noone else can get a student loan and only the wealthy can go to college after high school. So then they can educate themselves and become management and keep everyone else below them? Seem kinda like aweful logic, but what else is there to expect from them uneducated. It's a trap!

vie's picture

Perhaps you didn't hear, student loan forgiveness is already here:


Icelandicsaga...............................................'s picture

Mental pictures of Kurt Russell as Snake Bliskin come to mind .. Escape from New York .. only it might be escape from any big city with a large population of EBT card holders or even SSI recipients. As for tanks in the street .. they might make points and control areas at first.. but that will deteriorate fast as people figure out they are living in an occupied country .. when the good old boys understand .. this is not a drill . hopefully they will come out fighting .. not en masse but like good guerilla fighters ..if we are lucky they will not fight their own countrymen . but not counting on it . mindset in the military is changing and has been for some time.. when they essentially axed Posse Comitatus . I figured osmething was up . the DoD came out with a white paper bout the glories of getting rid of Posse...  never in my life thought I would think like this .. just impossible to believe how far we have fallen . it has taken decades but the bottom of the pit may be at hand.

centerline's picture

Consider that the MIC has been researching issues such as runaway growth for decades.  It is not as if where we are today is some sort surprise.  That is the biggest lie of all.  The general direction is pretty clear.  Is the details that are a bitch. 

Ghordius's picture

strange. this US Student Debt thing is the damn single most scary thing that comes up regularly on ZH, for me...

and yet it's also one that attracts very few comments, and even fewer good comments

am I missing something, is there reason to be relaxed about it? or is it of less interest because you can't bet for or against it?

centerline's picture

At least 4 years ago it was painfully clear that .GOV was going to push student loans as the next bubble.  All the same hallmarks.

Now, it has the signs of stressing to the breaking point. 

glenlloyd's picture

It's not the only thing they're trying to bubblize. Truth be told they're trying to blow any bubble they can as big as they can. Their only successes so far have been in student loans and auto loans. Doesn't mean they're not trying elsewhere though.

metastar's picture

My son says his generation is better, and faster than us older folks.

I tell him there are still some things I can do better than a recent college graduate, like pay the bills on time!

metastar's picture

My son says, "hey dad I'm taller than you now"

I reply, not when you're on your knees begging me for money.

Karl-Hungus's picture

What do you mean you can't bet against it? I'm going to bet against it this afternoon by going to the local coin shop up the street.

pods's picture

Well Ghordius, I think it falls into the same category as the US government's unfunded liabilities.  That gets little airtime because it is in the future, and there is no solution.

Same thing with this. These loans are secured against nothing.  No house, car, or boat.  Only against a person's ability to repay.  Sure they are not dischargeable, but when push comes to shove, if there is no money, they aren't going to get it.

But it is a huge problem, as these loans are assets being held by someone, and they are big.

I think Janet earmarking some storage space on some hard drives for them at the FED.  Why not, the FED has bought lots of other crap it is not allowed to buy (MBSs for one).

After this blows, next will be the trillions in corporate debt that is allowing stock buybacks.

But it all leads to the same place. There is too much debt in the USA, and the need to ever increase that debt to keep from collapsing leads to some seriously fucked up decisions.


Ghordius's picture

but pods, isn't it terribly dangerous to expose a big chunk of the younger generation to such a corrosive thing like that?

I mean, you know I do not know much about the US. but I can guarantee you, if we would do something like that in Europe, we'd have a whole series of revolutions

the youth would be on the barricades, and damn, I'd be joining them. imho there is a huge difference between a shared, abstract liability and such a personal, individual thing like that

unless I get again completely confused on how Americans see such extreme individual fates, which is probably the cultural bridge I don't seem able to cross

centerline's picture

G, it is not just the youth here.  I know people in thier 40's who are taking out massive "Obama" loans for college - and living on the money more than anything else.  I also know that they will never pay that money back.

Most of the youth, on the other hand, is winding up on this path because they (and thier parents) see the world now as binary.  Professional something or burger flipper.  College degrees have become more of a credential in the process.  Likewise, educators are pushing kids all down the same pipeline.  It is very robotic in nature.  No thought.  Just ram - ram - ram.  A massive educational sausage grinder (sort of like Pink Floyd video for Another Brick in the Wall - very apro po) with the goal being yield extraction to keep the perpetual growth money machine that is our modern financialized economy ticking a little longer.  It is economic cannabalism... none different than the housing bubble except that it is even more evil.

Icelandicsaga...............................................'s picture

Americans have been too stupified by their gadgets and TV .. most do not want to believe their country has been hijacked by a select oligarchy plutocracy .. they want to believe the American dream is possible .. have no clue .. its over .. the corporate media in this country does not help .. honestly I wonder if they put something in the drinking water to neuter people and make them passive .. in the US rioting is associated with lower class or hippies of the 60s .. protests . usually a left phenom . .the right . good luck getting them to drag their sorry butts out for much of anything . a lot of keyboard warriors but little else.. still if this ever really blows. there are people who will fight back .. cities will riot . but rural areas will hunker down and fight if they have to. The media portrays our impoverished condition as OUR fault .. since media is corporate they tow the corporate establishment line . .if you think things are out of kilter and unfair  you must be involved in classwarfear . shame on you . that is . against the rules for us to point out the disparity and insanity of making debt serfs of a majority of the people. Most are conditioned to this sorry state of passivity by media and by bread and circuses.. it wil have to get really bad for Vietnam or civil rights era protests to become standard .. America . I do not know it anymore. Not to mention we have a sorry history of govt. crack down on protest . from Bonus march wher troops were used against encamped World War I veterans protesting the fact they had been promised a bonus and never received it .. to the Ludlow Massacre . where Rockefeller used hired thugs and govt. agents to massacre a number of workers on strike. We have or HAD a rule called Posse Comitatus where military can not be used on civilians .. its gone out the window .. when will people fight back . when they have no other choice. either that or they will go willingly to some FEMA camp or govt. gulag in order to be fed and given a bed.. I await the revolt but not holding my breath.

Blano's picture

I'm no expert on student loans Ghordius, but it seems to me that if the overwhelming majority of student loans are backstopped by the US gov't./i.e. taxpayer, then these loans WILL eventually be repaid.  It's just a matter of who pays them off and when.

That's why to me even though it's another bubble, it "bursting" won't have the same impact as, say, a housing or stock market bubble.  Not saying it's right, it is what it is.

If I'm wrong people, please explain why.  Thanks.

FidTheRED's picture

It won't but I think instead of corporations filing for chapter 9 or 11 Americans who are delinquent on their student loans will have a big stamp going across their social security government whatever the f profiles
"Eligible for conscription"

This is the only way I see citizens being liable and forced to pay back their student debt since .gov can't really force a penny or a nickel out of someone when they got none and imprisonment or detainment is less profitable compared to slave labor. Then they can justify our MIC budget and people will have no choice but to go with MSM conventional "crap headlines" since liability will literally reduce anyone to feeling like a absolutely worthless POS especially when it becomes impossible for the said person to pay it back...

I'm just as worried as everyone else

Is it just me or is there way too many 84-96 month loan new cars driving down the road recently?!

How do people afford to drive new cars? Maybe they can reference me and others on ZH to where they work :D

pods's picture

Ghordius, I think the problem is that you do not see this as nefarious in design, where I do.

What better way to get people needing to work than paying off debt that they cannot discharge? (good for government)

In my eyes, this is another way to increase the debt load (the supply of money) in the system.  (good for bankers and government)

Education has been financialized.  It is done. By making these loans non-dischargeable, the ball was put into motion. Now, the supply of money that is chasing a limited thing has been increased to infinity for the most part.  So the people selling the product can increase prices and still fill the rooms.  Market has been shut down.

The government and bankers get their debt creation, and those selling the product get bigger houses and fancier sabbaticals.

Americans have also been subject to the American educational system for 100 years, so 90 out of 100 do not see the bigger picture.  They are fed the "college is a necessity" meme for generations.

So, the system rolls on towards cataclysm.


americanreality's picture

I gave up.  Quit working after being laid off.  Moved in with my mother.  It's less embarrassing than participating in this system.  $40,000 in student loans 17 years after graduating.  Payments barely covered interest and left me poor as fuck.  Ruined a relationship.  I quit.  I'll find a way outside of the matrix.  Any government rep/thug better stay the fuck away from me.   Especially game wardens.

Earl Slaughter-- Truck Driver.'s picture

I gave up too.

No choice: child-support or student loans... which will land you in jail faster?

I'd love to surrender my degree in lieu of repayment. Why can't I?



CrimsonAvenger's picture

I find it terrifying, both as a taxpayer and as a parent. (Particularly on that last front, since even though I'm well-versed in the issue and aware of the alternatives, my wife is a dedicated blue-pill type who insists our boys follow in our four-year-college footsteps. I expect continued fireworks on that front.)

But here's the thing. EVERYTHING is broken. EVERYTHING is fucked up. Student loans are broken. Pensions are broken. The safety net (SSDI/SS/Medicare/Medicaid) is broken. The regulatory system is broken. The financial system is broken. Employment is broken. The wealth gap is broken. Healthcare is broken. The legal system is broken. EVERYTHING IS BROKEN.

In that light, this is just one of countless inoperable tumors in the body of our society. And maybe it doesn't get as much response at ZH, since not everyone is exposed to it, but everyone (at least here) probably has some direct connection to the markets. But the fact remains that it's a huge issue. 

Karl-Hungus's picture

It's a big issue for my wife. She has a good bit of it, I have none. Not in a big hurry to pay it off either. That which can't be repaid, won't be. It's all fraudulent, IMO and is going to be written off anyway. Hate to say it, but anyone paying it all back is going to get fucked even worse.

de3de8's picture

Well said, no way to know what the right thing to do as the system so utterly corrupt to the core.

jerry_theking_lawler's picture

Everything you have mentioned that is broken has somethign common that is right in the middle of it...



Seek_Truth's picture

Those who've put themselves through college figure it's not their problem.

Those who've put, or are putting their children through college figure it's not their problem.

Those who have current unpaid student loans figure it's not their problem, assuming they'll get bailed out by the progressives.

My bet is on the latter occurring, with the two former classes becoming even more righteously indignant.

Anything to further foment class warfare.

Divide and conquer, it's the American Way!

FidTheRED's picture

Divide and conquer is what we have to beat. Somehow...

I also agree with another post up there on everything pretty much in system is BROKEN.

I would try my best to stay away from the system, but for those who feel they can game the system and let the taxpayers be on the hook will slowly corrupt from the inside out

We need SME reforms and incentives, return of the mom&pop, only way to save America along with people who give a fuck

*fingers crossed*

GoldenGeezer's picture

I have to agree with you that the sevarity of this issues doesn't seem to get the respect from the readers that it should.

Who would of thought that after graduation you need a decent paying job to pay off student loans. Not to mention that this doesn't bode well for the future housing market either.

NoDebt's picture

It's a giant circle-jerk between universities (where they indoctrinate a fresh batch of think-skinned, know-nothing, entitlement-minded liberal progressives every year), the students who are being told they must have a college degree or perish (and, of course all college loans are GOVERNMENT loans to pay for this), and the government itself who loves loaning money to indoctrinate those kids into the the "big government is your only salavation" mentality.

When this all goes bad and the government is looking at MASSIVE losses on their student loan portfolio, they'll write it all off, stick the taxpayers with part of the bill and print the rest of the money they need to fill the hole out of thin air (issue more Treasury Bonds).

So, no, it's not like this is going to take down the banking system like 2008.  It's mostly GOVERNMENT paper- the private sector was booted out of the student loan business in 2009 and they weren't the biggest players even before that.

And, of course, more Treasuries being issued is just what the doctor (Krugman) ordered.  Because the banks can buy them, sell them to the Fed and we can do all sorts of new monetary stimulus all over again.

In short, don't sweat it.  We got this.


Blano's picture

I basically said the same thing above.  Every dollar of student loans that is govvie-backed WILL be repaid.  It's just a matter of when, and who. 

Of course, who will be you and me.  So there will be less impact, which maybe morphs into less concern.  Not saying it's right, it is what it is.

DipshitMiddleClassWhiteKid's picture

not man millenials on here

as a millenial, most of them are STUPID!!

combatsnoopy's picture

Win. You can't take away an education (hint* it costs NOTHING to learn). 
Also, what can you take away from people with "intangibles"?  

The boomer utopia is making sure it's worth as little as possible.  They're THAT threatened of "New" Money.   

SethDealer's picture

you're right but there are only about 50 million americans paying taxes

This is it's picture

Big deal? Does that move a single pip in the gold price?

Hohum's picture

What cannot be paid, won't.

lordbyroniv's picture

Why dont these kids go on IBR??????


I dont understand why anyone would default????



q99x2's picture

Nobody is ever going to pay that crap back. Hell they even give it out to people that are totally disabled and the loans even say that the totally disabled never have to pay them back. Those banksters don't care they are only buying time as they continue to make preparations to kill everyone.

101 years and counting's picture

cancel student debt petitions begin.  fuck them.  they borrowed, pay it back you fucking deadbeats.  is there any wonder why this country is such a waste land now.  

New Kid's picture

A lot of the students cant pay back the banks and the government because the banks and the government screwed up the economy. So is deadbeat the right word?

plane jain's picture

What can't be paid won't be paid.

If debtor's prison was actually a money maker I suspect we would have them.

The problem is it costs too much to house/feed/clothe/supervise the prisoners to turn a real profit without a big fat government paycheck (i.e. private prisons).

Much cheaper to just let them default.

NihilistZero's picture

Why can't we have lenders prisons???

valley chick's picture

And who forced these self consumed, think they are entitled people to sign for the loans? Screw them. 

plane jain's picture

Who forced these short sighted creditors to extend loans for over priced crap degree programs?

It takes two.

Why don't we bail out the debtors instead of the creditors this time, just for variety?

valley chick's picture

Two wrongs do not make it right. What message is being sent to those that signed for the money? For that matter forgive ALL debt for everybody. Trophies for all !!

Temporalist's picture

The message being sent, and I do agree with you, is that the people that run the system fucked up and lured young willing dupes into debt slavery.  Now that system is failing and they admit it so everyone wins but the .01%.


If you raise your child to be a racist the likelihood is they will be a racist.  If you raise your child to not know what debt slavery is and the whole society approves of it they will likely be a debt slave. 


The young people, if nothing else, were cajoled into this system that seems "ok" until it isn't.