One More Reason Why The Student Debt Bubble Is About To Get A Lot Larger

Tyler Durden's picture

In “The Treasury’s Worst Case Scenario: Over $3.3 Trillion In Student Loans In A Decade,” we presented the following rather disturbing graphic which shows that in the event unemployment “edges up” after 2017 and the gap between unemployment and underemployment doesn’t narrow between now and then, the size of the government’s direct loan program will balloon to $3.3 trillion by 2025.

 

Based on the real delinquency rate for student borrowers — which, as we have shown on dozens of occasions, is around 30% — some $1 trillion in student loans will be on their way to default in the space of 10 years, and that number could be much higher depending on how many former students opting to enroll in IBR payment plans end up with calculated payments of zero due to their financial circumstances. Note also that extrapolating from “delinquent” to “default” isn’t as much of a stretch as it once was and is in fact becoming less of a stretch by the year because we pointed out earlier this month, the percentage of borrowers delinquent by 90 days or less who eventually make a payment is falling steadily

With tuition rates rising by a staggering 24% every five years, just about the last thing the government (and by extension, the taxpayer) needs is another reason to suspect that the student debt bubble is going to start growing even faster than it already is. Unfortunately, new evidence suggest that just might be the case. 

Via WSJ:

Parents are having a harder time saving for college, a report released Wednesday shows.

 

Fewer American parents are saving for college and the average sum that families who are saving have accumulated to pay college costs has fallen, according to a report by the country’s largest private student-loan lender SLM Corp., better known as Sallie Mae, and market-research company Ipsos Public Affairs.

 

Forty-eight percent of parents with children under age 18 are saving for college this year, down from 51% last year and a peak of 62% in 2009, the report says. On average, those families that are saving have $10,040 set aside for college, down 25% from $13,408 in 2014.

 

The findings come as college costs continue to rise. The average annual cost of tuition, fees and room and board at private nonprofit four-year colleges and universities totaled $42,419 for the current 2014-15 academic year, up 3.6% over a year prior and up 21% from 2009-10, according to data from the College Board. At public four-year colleges, that figure was $18,943 for in-state students, up 3% and

24.3%, respectively.

 

Parents feel overwhelmed about how to save for college costs, according to the Sallie Mae-Ipsos report, with 20% of parents saving for college and 38% of those not saving sharing that feeling.

And from the report:

Although parents value college and are willing to stretch financially to obtain the opportunity of college for their children, college savings are decreasing. Even amidst continued signs of economic recovery and rising income levels, the amount of money families saved is lower than it was the prior year?both in total and for college. This year, the aggregate amount of savings that families reported for all purposes is $98,867, a 14 percent decrease compared to last year’s $115,604…

 

Parents are allocating approximately 10 percent of their total savings for their children’s college, a rate that has remained stable over the past three years. However, since savings overall are down, the dollar amounts being saved for college are also lower. On average, parents have saved $10,040 for college, a decrease from the previous year but similar to 2013’s $10,503. The average college savings amount is at the lowest level in three years. 

 

Overall, more than two out of five parents not currently saving for college plan to begin saving in the near future (43%); 21 percent plan to begin within the next year, and 22 percent plan to begin within the next five years. However, another 2 out of 5 parents (41%) are not sure when or if they will begin saving for their child’s future college education. Another 16 percent of parents currently have no plans to begin saving for college.

And of course, ZIRP is a part of the problem, because nearly 40% of parents use general savings accounts — where their money earns no interest — as their vehicle of choice…

Parents are most likely to have started saving for college in a general savings account. Among those who use multiple vehicles to save for college, 24 percent started saving for college that way, and 37 percent named it as their first or second type of account. About 1 in 10 parents started saving for college either through a piggy bank (12%), a 529 plan (12%), or a checking account (11%).

The following graphic sums up the situation nicely: nearly half of those surveyed have neither saved any money for their kids’ college tuition nor are planning to in the future, a figure which doesn’t match up well with the 93% of respondents who believe their children will attend college. We think it goes without saying that the gap will be filled by federal loans.

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Weaponized Innocense's picture
Weaponized Innocense (not verified) Apr 30, 2015 9:53 PM

Who needs a college education if when one graduates into a fascist economy where the government and their crony friends just steal all ur ideas as they pass u around and around and around the endless echoing hole to hell? It really is some commie bullshit crap! Oh and to use warlords to get it all done too! Because the government can't trust one to use their minds for anything but ww3 and that is why the gov invites itself into ur bedsheets..... Not only so they can kill the economy just to spend all the taxpayers money in the good credit if the taxpayers only to leave them with the perfect disaster for more oppressive regimes of greed.

j reuter's picture

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Liberal's picture

No problem. These students can ALL come work for the government and have their debt forgiven thanks to president Obama.

Gone Full Retard's picture

Let's face it. The only way to deal with this in a head-on, 'fuck-you motherfucker' kinda way is to have our elderly population start taking accredited online classes and using student loans for tuition and living expenses.

PhD's for everyone!

No do not go to http://uopeople.edu .

Stuck on Zero's picture

The government decided to help with medicine, college, and housing and now no-one can afford any of it.  The government also decided to go to war against terrorists, drugs, and racism and now they are everywhere.  Is there an irony here?

crisrose's picture

Statistics say those parents are dreaming.  Most of those children are borderline retarded with an average IQ of 98 and are not college material.  

 

NoDebt's picture

Everyone is college material.  Debt slavery is a basic human right.

Karl-Hungus's picture

thats what is boils down to right there. The big ponzi must go on

TheFourthStooge-ing's picture

.

93% of respondents who believe their children will attend college. We think it goes without saying that the gap will be filled by federal loans.

The gap is between the ears of a significant number of parents who believe that their subliterate special snowflakes are college bound.

This gap will not be filled.

Your guess is as good as mine's picture
Your guess is as good as mine (not verified) crisrose May 1, 2015 12:55 AM

Most ZHers' IQs are way above 100 - reading and learning will do that for free, unlike a college which will cost your paycheck for years and your ability to think freely.

ThanksChump's picture

Our kids knew out of the gate that we wouldn't pay for college. We didn't buy them cars, either, and they had fixed chores and a salary while living at home (complete with semi-annual performance/salary evaluations). Solid Austrian economists, one and all.

 

If they wanted to attend college, we'd provide a stipend $2k/sem if their average is 3.0+, but they have to pay tuition and books. This automatic college BS only raises the bar on starting salaries, engenders an entitlement attitude, and puts unnecessary pressure on them at a point in their development where pressure only causes problems.

 

They're all happy and responsible, and they enjoy watching the "snowflakes" (daughter's term) whine whenever they're expected to work for their pay. Two are successful entrepreneurs, one an elementary teacher, and the other has a year to go for her targeted degree. We didn't totally screw up. That's much better than average.

wisefool's picture

It is very sad when a system of government can not produce tax LLMs and Econ PhDs. The Poli-Sci girls will lay down if you can show a spark.

buzzsaw99's picture

okay which is it, families have $100K of savings or they are living paycheck to paycheck? jesus the story changes with each new article. the last article i read said they couldn't even come up with $600 if they had to. i call bullshit on all these articles.

RaceToTheBottom's picture

Data is great.  It is what you want to make of it....

ThanksChump's picture

Five people in four would say that data never contains any answers, only clues. Expecting someone else to interpret clues correctly v interpreting them yourself is called "religious faith".

q99x2's picture

Yellen's gonna go up my FAFSA (and yours to suckers). Quit working now. Live off of the govenment and buy weapons and ammo for when they come to kill us.

The banksters are coming. The banksters are coming. Putin and MS13 aren't going to save us. Be prepared.

kchrisc's picture

If you have a student loan, know this, they stole the money that they loaned you, from you.

Stop paying, as they NEED you to keep paying, you don't need them.

Liberty is a demand. Tyranny is submission.

 

Bankster's Paradox: If you Stop paying, they Stop existing.

CH1's picture

Bankster's Paradox: If you Stop paying, they Stop existing.

Or just stop borrowing.

I Write Code's picture

I don't doubt there is some problem, but 2/3 of the delinquencies are associated with the for-profits, and on closer inspection I'll bet 2/3 of the 2/3 is out and out fraud, the loans were going to "default" from before they were granted, and 2/3 of the 1/3 left over are from dropouts, which even "legitimately" are traditionally much higher in the for-profits.

The average indebtedness from non-profits is more like $24k, which adjusted for inflation is probably about what I owed mumble years ago.  Of course back then most new grads got decent-paying jobs, and I had it all paid off within three years. 

So what has changed are not the colleges but the economy and especially the prospects for new grads.  Are there more people getting silly degrees today?  Maybe a little.  Probably more more getting STEM degrees that "should" be good, but then TPTB import cheap little foreigners to get the jobs preferentially and to depress the wages in case you decide to hire an American as well.

cynicalskeptic's picture

ANY gov program ends up getting abused - most of the for profit colleges wouldn't even EXIST without federal  student loan programs.  These schools are marketed to the least qualified and least informed who believe they 'need' college.   For most of those people it's too late - they never got the education they needed through high school and would be better off learning a trade insead of getting more in debt for no reason.   The graduates of most for profits are less qualified than a typical high school grad 50 years ago.   They've been conned - with taxpayers footing the bill.

Even those going to 'real' colleges are wasting their time if attending a third tier school and gettign a degree that does nothing to prepare them for a real job.  Education for education's sake is a nice concept but not if you have to get into debt to do it.   Used to be you did what you could do  - often what your parents did - to earn a living.  College was a relative rarity.   Too often today college is simply a prolonged adolesence - an excuse to party and socialize for 4 years instead of preparation for a career. 

The scam is even worse for mediocre law and business schools that charge a fortune and do little to prepare their grads for employment.   

RaceToTheBottom's picture

The part I worry about is the hidden, insidious changes re STEM.  

People will start to believe that Americans are not smart enough to graduate in Engineering, and that all things technical must have a guy named Sanjay doing it.  

From there, it is a quick step from "doing it" to "managing it" and the belief that the whole Engineering side of the house will be allocated to the Sanjay crew.

We cannot afford to become a country of Salesman and Marketers.

 

Joe Mama 3's picture

Wur my ObamaLoan ????????????

WTFUD's picture

Joe you missed 'dog' on the end of that sentence, bro.

teslaberry's picture

fuck student debt. take the fucking money and enjoy college because this whole shit is going to get fucked anyways.

OR take the money and just make sure you keep it and the college doesn't .

when the shelves are about to go empty, you make sure to get what you can.

Dog Will Hunt's picture

The findings come as college costs continue to rise.

Yep.  And the college costs continue to rise as the bastards scour society's collective asscrack in search of a new hole to invade.  

It's too late for this nosediving shitshow to level out to a soft-landing.  They'll pick our poison.  Either the debt is absorbed by the taxpayer, or we see some CFR-sanctioned jubilee "eliminate" it through one means or another (though I shudder to conceive of what those means might look like)...  

laomei's picture

Student Loan solution:

Move overseas.  Sure, in theory, assuming you can find a decent job in the US still, your base pay might seem higher.  But once you are done paying for everything you are basically just a slave.  Go somewhere nice with real medical care, where you are allowed to take vacations, where you cannot just be fired on a whim.

 

Private loans: You can just ignore them, there is statute of limitations and if you have no cosigner, you are in the clear.  If you DO have a cosigner, you do need to pay long enough to remove the cosigner before defaulting.  In the end they will just go away.

Government loans: IBR, plain and simple.  Sure, you're earning 6-fig overseas, but your taxable income is $0, and that's the number that they look at.  You pay NOTHING.

 

Getting out of it even faster:

Find a non-profit and a rich buddy.  Give the rich buddy cash to donate to the charity.  The donation is used to pay a salary to you for some random "work", but you are working remote and not taxable.  Rich guy gets a healthy tax writeoff which is split with you to cover FICA and some of the charity's cut.  Your loans are gone in 10 years, you paid nothing.

RaceToTheBottom's picture

They are cracking down on inter country workers.  

Even to do a small job in Canada, new rules are trying to force companies to do huge paperwork to prove that some Inuit native cannot do the same work and companies are trying to push that paperwork onto the external companies.  They don't realize that their company is the one that their government is aiming at.

It will never be the big guys that get the pain, it will be the little guys, trying to put food on their tables

WTFUD's picture

Listen ( where's the Bangalore Guy ? )

Any parent worth their salt should ( and before they throw any hard-earned savings at the edumakation system ) insist their kid(s) spend 12 months minimum on Z/H reading/responding to a minimum of 70% of the posts submitted.

Fight club will give a thumbs up or down as to whether that money is best invested elsewhere.

Bunga Bunga's picture

Without the student loan bubble the pension systems will collapse.

Surging Chaos's picture

Have fun saving when your money is getting ZIRPed.

WTFUD's picture

I'll never forget my old headmaster, what'shisname?

Jonesy's picture

Good for the Jews in so many ways.

hibou-Owl's picture

my first year engineering we had 73 students, 9 graduated. 2 of the 9 graduates we're direct entry third years because of prior qualifications.

So the that's 90% drop out rate!

The student loan Scheme is badly designed, the only way it works is to lower learning standards so more can pass, in an effort to recoupe the funds.

Employers will pay for cream.

The only way to successfully fund these students is to base payment on results. The outcome is lower cost base for the college, more useful graduates, and employment. Going for volume is mad.

WTFUD's picture

3 ( Free ) Degrees and everyone get a job in Chili CON Carne Valley.

Yodelayhee Yodelayhee

Let's get this party started in here.

Last of the Middle Class's picture

Just wait till all the immigrants start applying for student loans, just another form of medicaid, has nothing to do with education just like ACA has nothing to do with healthcare.

JoJoJo's picture

The Dems will have to transfer the student debt bubble to the Federal Budged All Inclusive bubble to get the votes. Look for it - student loan amnesty.