Shocking Statistic: Over 40% Of Student Borrowers Don't Make Payments

Tyler Durden's picture

Submitted by Mike "Mish" Shedlock of MishTalk

Department of Education Wonders “Why 40% of Student Borrowers Don’t Make Payments”; Blame Bush (Seriously)!

Over 40 percent of those in student loan programs have stopped making payments. Many borrowers have never made any payments.

The department of education (a useless body that I would eliminate in one second if given the chance), cannot figure out why this is happening.

“We obviously have not cracked that nut but we want to keep working on it,” said Ted Mitchell, the Education Department’s under secretary.

The Wall Street Journal reports More Than 40% of Student Borrowers Aren’t Making Payments.

More than 40% of Americans who borrowed from the government’s main student-loan program aren’t making payments or are behind on more than $200 billion owed, raising worries that millions of them may never repay.


While most have since left school and joined the workforce, 43% of the roughly 22 million Americans with federal student loans weren’t making payments as of Jan. 1, according to a quarterly snapshot of the Education Department’s $1.2 trillion student-loan portfolio.


About 1 in 6 borrowers, or 3.6 million, were in default on $56 billion in student debt, meaning they had gone at least a year without making a payment. Three million more owing roughly $66 billion were at least a month behind.


Meantime, another three million owing almost $110 billion were in “forbearance” or “deferment,” meaning they had received permission to temporarily halt payments due to a financial emergency, such as unemployment. The figures exclude borrowers still in school and those with government-guaranteed private loans.


Navient Corp. , which services student loans and offers payment plans tied to income, says it attempts to reach each borrower on average 230 to 300 times—through letters, emails, calls and text messages—in the year leading up to his or her default. Ninety percent of those borrowers, which include federal borrowers as well as those who hold private loans, never respond and more than half never make a single payment before they default, the company says.

Crisis Easy to Explain

Carlo Salerno, an economist who studies higher education and has consulted for the private student-lending industry, noted that the government imposes virtually no credit checks on borrowers, requires no cosigners and doesn’t screen people for their preparedness for college-level course work. “On what planet does a financing vehicle with those kinds of terms and those kinds of performance metrics make sense,” he said.

I could easily come up with numerous reasons off the top of my head.

  1. Being in the workforce and having a job are two different things.
  2. Having a job and making enough money to pay back hundreds of thousands of dollars is yet another thing.
  3. Some feel cheated by the system, as well they should.
  4. Many have figured out the consequences of default are small. The worst that can happen is wage garnishment. Should that happen, one can always find another low-paying job, buying time until they are discovered again.
  5. Some never intended to pay back the loans in the first place. To those borrowers, it’s all free money for a few years. They will stay in school as long as they can. If by some miracle they actually graduate (or are kicked out), they never make a payment.

Blame Bush!

A large portion of the blame for this mess goes to George W. Bush. Seriously.

The Bankruptcy Abuse Prevention and Consumer Protection Act enacted April 20, 2005 made it much more difficult to discharge debts in bankruptcy.

Among other things, “BAPCPA amended the law to broaden the types of educational (“student”) loans that cannot be discharged in bankruptcy absent proof of “undue hardship.” The nature of the lender became irrelevant. Even loans from “for-profit” or “non-governmental” entities are not dischargeable.

The Deflation Guarantee Act of 2005

I predicted this mess when Bush signed the bill.  As proof, I offer The Deflation Guarantee Act of 2005.

Here are my lead paragraphs as I wrote them at the time.

Today Congress passed the “The Deflation Guarantee Act of 2005” currently known as the “Bankruptcy Abuse Prevention and Consumer Protection Act of 2005”. Twenty years from now economists are going to be studying legislation from this Congress and signed by this administration and be wondering: “What the * were they thinking?”.


Consumer Protection Act? LMAO


Anytime this administration passes a law with the “protection” in it, assume it will do just the opposite.

Student Debt Highly Deflationary

I have wanted to refer back to that post on numerous occasions.

I had not done so previously because I strongly dislike my writing style in those days. I frequently used chat room talk like “LMAO” (laughing my ass off), in those early posts.

There are other aspects of my 2005 post that I dislike as well. However, I nailed the idea correctly. Student debt is a hugely deflationary force.

In the wake of that act (albeit with a bit of a delay), we saw massive amounts of seemingly reckless lending to students. Because of government guarantees, lenders did not give a damn who they lent to.

For profit universities flourished. Abuses at the University of Phoenix became rampant. And because of various lending programs that followed, education costs soared as well.

Those debts cannot be paid back, and household formation has gone into reverse. Students moved back home after graduation, and attitudes on debt have changed.

These are all debt deflation forces.

Modest Fee Request

The Department of Education will no doubt waste millions of taxpayer dollars studying this issue, only to come up with the wrong answers because students will lie.

Will anyone realistically admit “I never intended to pay back these loans”?

My modest fee for this analysis is a mere $250,000. Of that amount, I pledge $249,999.99 to the Khan Academy.

All I ask is a penny for my thoughts, saving taxpayers countless millions in useless department of education studies.

For more on the Khan Academy please see Teaching Revolution: Online, Accredited, Free; Start Learning Now!

Obama’s Role

President Obama does not escape criticism for his efforts to fuel the problem.

Here’s my blast at Obama: For Profit Schools Turn Students Into Debt Zombies; It’s Time To Kill The Entire Pell Grant Program.

There is plenty of blame to go around, but I have not seen a single person take this crisis back to the logical origin, the “Bankruptcy Abuse Prevention and Consumer Protection Act of 2005” making student debt non-dischargeable in bankruptcy.

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Cognitive Dissonance's picture

Let's see. You tell the kids for 18 years they need to go to college to get a good job, then give them essentially no doc loans with no payments for 4-6 years, then expect them to pay the loan off on a McDonalds income. And that assumes they actually graduate. Sure, makes sense to me.

jcaz's picture

Yeah, good plan- spend money on a study.....

Haus-Targaryen's picture

I'm part of the 40%.  Thank you structuring.  

Junk away.  

MillionDollarBonus_'s picture

One of the reasons students can't make the payments is because the private sector refuses to provide jobs for college graduates. The private sector is disgustingly anti-education, and dismisses many high quality college degrees simply because they aren't 100% focused towards the company's specific job opening, forgetting that it's the principle of education that matters, not what you studied. We need to build the public sector so that it can fill the void in unemployment left by the private sector, if we are going to tackle this problem once and for all.

Read more about the advantages of the public sector over the private sector in today's article over at the Accredited Times:

jbvtme's picture

and i think we can look to the soviet union for the blue print.  my money's on bernie.

VinceFostersGhost's picture



Making a loan payment is pretty tough with a 29.5 hr/wk bartending job.

Shocker's picture

This should be the boost to the economy we been waiting for............

Layoff List:


J S Bach's picture

The "blame" goes everywhere but where it's duly deserved.

The Department of Education has failed utterly in its liberal-paradise-goal of cramming those square-pegged kids into round holes.  Once all of the third-world immigrants started streaming into this country, their cumulative 80 IQ averages would eventually meet up with the indigenous' 100 IQ averages.  This little uncomfortable fact was (and is) intolerable to egalitarian-minded intellectuals - and in time, in order to make those square pegs fit, the standards had to be dumbed-down.  Therefore, all of these budding scholars require an additional 4-years of college education just to achieve what used to be a high-school level of basic knowledge.  (Even here, the "knowledge" accrued with this debt is sorely lacking in the fundamentals.)

The lunacy of "higher-education for everyone" is finally starting to unravel - as the usurers' debt schemes reach their untenable Ponzi limits with this gullible sector.

Some day, when the painful jubilee comes, sanity will reclaim this deluded generation and real education will be given according to natural potentials.  A smaller and more manageable number of (truly deserving) students will occupy the halls of academe.  Such is my fantasy.

LowerSlowerDelaware_LSD's picture
LowerSlowerDelaware_LSD (not verified) J S Bach Apr 7, 2016 8:39 AM

Get the government out of the student loan business.  FIXED.

When "free money" to party for four years is given out by the government with fine print that you might have to pay it back, young skulls full of mush will, of course, take it.  The "free money" drives tuition through the roof as well.

Student loans should be purely through the private sector.  If you want a loan to get your liberal arts degree - NO, you won't pay it back.  If you want a loan to get an engineering/accounting/medical/etc degree.  OK.  The market works.  The government doesn't.

Pairadimes's picture

Witness the awesome corrupting power of big government. The student loan debacle has succeeded only in creating hundreds of thousands of young law breakers.

Surviver22's picture
Surviver22 (not verified) Pairadimes Apr 7, 2016 8:52 AM

I don't know what to tell you people. Economic collapse is coming!

Stackers's picture

Just wait until those millions of people try to collect social security at 65 and the government says .... "uhm, you still owe us $120,000 plus 40 years of interest before we are going to pay you any of your SSC benefits"

cheka's picture

loans are used to live the college party life -- not to pursue training for jobs

if it were job training the loans would have reasonable qualifications -- no money for african studies, no money for journalism, etc

Beam Me Up Scotty's picture

"Making a loan payment is pretty tough with a 29.5 hr/wk bartending job"

Maybe if you were working AS a bartender during school, instead of sitting at the bar, you could have cut your debt load to managable levels after graduation.  Kids today don't believe in working----and earning some of their tuition before hand----by working summer jobs in high school, and summer jobs while they are in college.  They think that they will just "get loans" to pay for it all, and they fuck around during their high school and college summers.  And then they cry when their debt load is too high.  When I went to college in the late 80's I and most of my friends all had summer jobs since we were 14 or 15 years old.

Funny thing is, all the crybaby students of today, want MORE government.......even though it was government that caused their problems in the first place.

TexasAggie's picture

Back in 1961, the only loans available were National Defense Student Loans and you had to be studying engineering, or hard sciences to qualify. When I joined the Army at President Johnson's urging, my load was held and 30% eliminated for my military time. I finished paying it back in four more years. I studied engineering, and only had to borrow for the first two years, then made enough working in the summer and part time at school to make the rest of the time without borrowing.  Today, many student's don't know what the average salary is for the degree they are seeking and the job prosprects. For History, etc, you need a PhD unless you go into teaching.

CheapBastard's picture

'Just walk away...."


Why not? Everyone else is doing it. It's the fad these days second only to online spamming and scamming.

techpriest's picture

Long jails and debt collection agencies.

JRobby's picture




End of Times

explosivo's picture

What is Farage saying in your avatar?

Infinite QE's picture

Mr Bach: What is on your reading list these daze?

Life of Illusion's picture



Indirect QE handout to consumers with no intention on education completion.



JRobby's picture

OH NO! What about Fair Issac, Equifax, Trans Union etc. etc. etc.

Wonder if this isn't just a scam to create a generation of higher interest (sub prime) borrowers in a NIRP/ZIRP bank borrowing environment?

True Blue's picture

Maybe they should have thought about that before blowing 4 years and god knows how much money partying whilst 'earning' a 'degree' in 'Mesopotamian Dance Studies and their influence on how racist white people won't give me an entry level job paying six figures.'

NoDebt's picture

"it's the principle of education that matters, not what you studied"

Oh, so THAT'S how it works?  Shit, I've been doing it wrong my whole life.  No wonder I'm so unsuccessful.

TBT or not TBT's picture

The student loans went to support the Research Education Complex that Ike warned of in the same breath he warned of the MIC.    The REC is a fifth column at this point, pushing nonsense, funding cryptocommunists, running witchhunts, and instilling pathetic victim fantasies in every student they can get hold of. Also, they are unionized and give big politically.  They loved, loved the federalization of the student loan business and look forward to MOAR.   

DeepFriedLizards's picture

Thanks NoDebt.  I needed a good shot of sarcasm to kick start my ass this morning.  And now for the totally off topic comment of the day.

I left my high rise hole in the wall this morning to descend down to the basement where I park my truck (paid an extra $50 a month for that to avoid having the drunken bums (mostly native Alaskans) puking on it out in the front parking lot).  

So I take the elevator down to the basement level and start out towards the garage.  The way out is like a concrete tunnel which twist and turns around a few corners, past the laundry room and out through a security door to the garage.

I turn the last corner and there, in the middle of the fucking floor is some drunken bum passed out, spread eagle on the floor snoring heavily.  He must have followed in some idiot that didn't bother to close the door behind them.

For the love of God man, it's not even cold outside.   It’s 50 degrees here in Anchorage and this guy is wearing a zuit suit that should be good to 30 below.  And I think to myself, once they finish that new nuthouse/drug rehab joint they're building behind the tower it's going to be twice as bad.  Honestly, is downtown in every fucking major city of the US this fucked up?  Filled with homeless, migrant, drunken pathetic souls without so much as a hole in the wall to crawl into at night?

This country is so fucked, so third world backassward fucked.

Okay, rant off.  I’m moving back to the homestead at the end of this month anyway.  That means a 4 hour round trip drive every day but so fucking be it.


Maybe the poor SOB on the floor has a degree in Art or something.  There, got back on topic. 

MrButtoMcFarty's picture

Here in NYC that's called "street culture".

It's not your neighborhood until you sleep on the sidewalk.

LowerSlowerDelaware_LSD's picture
LowerSlowerDelaware_LSD (not verified) MillionDollarBonus_ Apr 7, 2016 8:49 AM

MDB said: "... the private sector refuses to provide jobs for college graduates."

MDB, You, as an individual, supposed human being, are private sector (you are not a government entity).  So I'm curious... How many people do you employ and pay whom you do not need?  Do you pay someone to paint your residence every three months even though it only needs it every five years?  Do you hire and pay people to do your shopping for you even though you can do it yourself?  If you don't, you are the same as the ***evil*** businesses not hiring people whom they don't need.

Leftists are the biggest hypocrites.

JRobby's picture

He pays plenty to his therapists and pharmacist so why don't you butt out?

LowerSlowerDelaware_LSD's picture
LowerSlowerDelaware_LSD (not verified) JRobby Apr 7, 2016 9:07 AM

Ah, but those are required positions that it (must be gender neutral with MDB) must pay for.  It (MDB) won't survive without them.  I want it (MDB) to hire people whom it (MDB) doesn't need, just as it (MDB) expects groups of people (companies) to do.

crazzziecanuck's picture

I wouldn't go so far as to say that the private sector is "anti-education."  It's just that in the current environment, it's much better to raid and loot someone else's trained employees than to spend on new hires, and when you do need new hires, there is always the H1B program.  "Get someone else to pay for it" mentality is pernicious and fills our society from the very top right on down.

Ruger556's picture

@MDB.. with all respect you either have never dealt with a govt employee regarding a serious situation or you are an idiot.

from the fantasyland article

Unlike the private sector, the public sector is not singularly concerned with making money. Instead, its primary goal is serving the American people. Private companies will only offer a product or service in order to get paid for it, not because they actually care about their customers, or believe in a higher moral cause. The public sector however, does things out of a duty to the American people and the country as a whole.


Real world experience

This past January I watched a friend DIE at the hands of the VA. He had Leukemia and had no immune system. He lived at the VA for 5 months while they delayed and shuffled papers until he caught an infection and could not fight it off. They sent him home to hospice.  He was diagnosed 2 year ago, and they lost his papers a few times, he had to deal with some ENTITLED black female governemnt worker who argued with him over every little thing, failed to tell him about appointments setting his treatment back and having to redo tests because of time lapse.  They did not care about him, they care about themselves, and looking good regardless of who gets killed along the way.  It this the kind of service you are talking about?   TO top it off he was denied SS disability, a veteran who served, then worked in the IT industry paying lots of taxes and he couldn't get SS disability while he was living at the VA?  No one cared. not the SS workers, or the VA workers.  And yet obummer wants to give illegals SS payments.

I am at the point where I wish it could all come crashing down so this entitlement/welfare system can end. And let them RIOT and destroy the cesspools we call citiies.. I am far removed from that crap.

Blano's picture

I always green arrow you MDB but you need a little more obvious snark and humor in your posts lately.

silver sword's picture

I cannot remember the last time I saw so many absolutely retarded statements in a single paragraph - you must work overtime to come up with this much concentrated stupidity; that, or you are simply a mind-numbed commie looking for more handouts . . . 

MalteseFalcon's picture

Haus-Targaryen, aren't you one of the dudes bad mouthing social security?

That's one debt you're paying. 

15% of every $ you earn, startng with $ one.

Osmium's picture

No limit for medicare, Social security cap at $118,500 for 2016.  So if you earn over that, your amount drops.


The 7.65% tax rate is the combined rate for Social Security and Medicare.  The Social Security portion (OASDI) is 6.20% on earnings up to the applicable taxable maximum amount (see below).  The Medicare portion (HI) is 1.45% on all earnings. 

pods's picture

And you can double that rate because employers dont pay that out of the kindness of their hearts.

True Blue's picture

And the self-employed, sole-proprietorship, small business person has to match their own Soc Sec payments =%15.

Ghordius's picture

I have to defend Haus-Targaryien, here. That US Student Debt Trap Idiocy gives plenty of reasons to revolt and find a way to avoid the consequences, regardless of SS

it should never been set up in the first place. for a simple reason. it's credit, bank credit to be more precise... that uses young people's lives as collateral

when you use people as collateral, you are engaging in serfdom, if not outright "free range" slavery

a "homeowner" that is "underwater" can walk away... and leave the house to the bank. a US Student Debt Serf can only leave the country, and he did that

Trump was allowed to put four companies into default, didn't he? is that the trend? "legal persons" can default, but natural persons cannot?

either default is a right of both companies and people, or you risk having a polity of corporations for corporations


there is a simple concept in play, here: the immoral contract. to be declared null and void

Solon the lawgiver was called for this exact reason. Because people were selling their sons, daughters, wifes... because of undefaultable debt

what did he do? set himself up as a dictator, as he could have and many actually expected from him?

no. one of the first thing he did was to buy back the citizens sold as slaves to foreign lands. on state's expenses (i.e. "the rich", at that time)

then he gave Athens the Solonian_Constitution, which forbade immoral contracts. and then... he banned himself from the city so that people could not pressure him to change his Law

Solon gave us the Rule of Law instead of the Rule of Men. Solon gave us the moderation of the contract... by morality. Solon put his city above himself and his needs

Solon the Lawgiver showed us what a Citizen can be, and ought to be. And what a Polity can be, and ought to be

TBT or not TBT's picture

Germany has wisely made education "free"    Thing is, under the weight of all the free stuff and free services, Germans have been so moped and  miserable for so many decades that their birth rate hasn't kept up with the need...for people.  You know, some Volk.    So you had to import them.   They don't care much for Germany beyond the free stuff though, just like Germans themselves.   Forgive us for not following you enthusiastically, Ghordius.  

MalteseFalcon's picture

So this 'Solon' dude, her running for president?


People went into these contracts with eyes wide open.

I worked my way through college.  It took 5 years and was insanely painful.

As soon as these former students actually start earning, they'll be paying their loans.

philipat's picture

So the US Government's largest "Asset" is starting to look more like a liability?

NoDebt's picture

It's starting to look like sudent loan forgiveness isn't far from being a very popular vote-attracting election year give-away for the Ds.  Of course, they're giving away your money but at this point..... seriously, who gives a shit when you're already 19 trillion in the hole?  Add it to the heap.

Cognitive Dissonance's picture

Add another zero on the end.....on me. Bartender, another round for the house. And put it on my tab. (Who said it was hard to win friends and influence people?)

Max Cynical's picture

If that's the road we're on...government needs to be OUT of the student loan business.

LowerSlowerDelaware_LSD's picture
LowerSlowerDelaware_LSD (not verified) Max Cynical Apr 7, 2016 10:11 AM

Even if not, the government needs to be out of the student loan business.

Max Cynical's picture

Let's assume .gov forgives $1.2T...that will mean these students get 1099's for the debt forgivness and still owe the IRS in excess of $400B.