The First Crack: $270 Billion In Student Loans Are At Least 30 Days Delinquent

Tyler Durden's picture

Back in late 2006 and early 2007 a few (soon to be very rich) people were warning anyone who cared to listen, about what cracks in the subprime facade meant for the housing sector and the credit bubble in general. They were largely ignored as none other than the Fed chairman promised that all is fine (see here). A few months later New Century collapsed and the rest is history: tens of trillions later we are still picking up the pieces and housing continues to collapse. Yet one bubble which the Federal Government managed to blow in the meantime to staggering proportions in virtually no time, for no other reason than to give the impression of consumer releveraging, was the student debt bubble, which at last check just surpassed $1 trillion, and is growing at $40-50 billion each month. However, just like subprime, the first cracks have now appeared. In a report set to convince borrowers that Student Loan ABS are still safe - of course they are - they are backed by all taxpayers after all in the form of the Family Federal Education Program - Fitch discloses something rather troubling, namely that of the $1 trillion + in student debt outstanding, "as many as 27% of all student loan borrowers are more than 30 days past due." In other words at least $270 billion in student loans are no longer current (extrapolating the delinquency rate into the total loans outstanding). That this is happening with interest rates at record lows is quite stunning and a loud wake up call that it is not rates that determine affordability and sustainability: it is general economic conditions, deplorable as they may be, which have made the popping of the student loan bubble inevitable. It also means that if the rise in interest rate continues, then the student loan bubble will pop that much faster, and bring another $1 trillion in unintended consequences on the shoulders of the US taxpayer who once again will be left footing the bill.

From Fitch:

Fitch believes most student loan asset-backed securities (ABS) transactions remain well protected due to the government guarantee on Family Federal Education Program (FFELP) loans. The Federal Reserve Bank of New York recently reported that as many as 27% of all student loan borrowers are more than 30 days past due. Recent estimates mark outstanding student loans at $900 billion- $1 trillion. Fitch believes that the recent increase in past-due and defaulted student loans presents a risk to investors in private student loan ABS, but not those in ABS trusts backed by FFELP loans.

Why is the bubble starting to pop now?

Several macroeconomic factors are putting pressure on student loan borrowers. The main ones are unemployment and underemployment. The Bureau of Labor Statistics estimates the current unemployment rate for people 20 to 24 years old at nearly 14% and for those 25 to 34 years old, 8.7%. Underemployment is difficult to measure for these demographics, but it is likely having a negative impact.

Actually, no: the unemployment for 18-24 year olds is 46%. Yup: 46%.

A month ago, Zero Hedge readers were stunned to learn that unemployment among Europe's young adults has exploded as a result of the European financial crisis, and peaking anywhere between 46% in the case of Greece all they way to 51% for Spain. Which makes us wonder what the reaction will be to the discovery that when it comes to young adults 18-24) in the US, the employment rate is just barely above half, or 54%, which just happens to be the lowest in 64 years, and 7% worse than when Obama took office promising a whole lot of change 3 years ago.


And while technically this means 46% are unemployed, or the same percentage as in Greece, the US ratio, which comes from Pew, shows the ratio as a % of the total population: a very sensitive topic now that every month we see another 250,000 drop off mysteriously from the total labor force. However, unlike those on the trailing age end, young adults by definition are the labor force in their age group demographic, so it would be difficult to explain away this horrendous number by claiming that ever more 24 year olds are retiring. Although, yes, we agree that some may be dropping out of the labor force in order to go to college, incidentally the locus of the latest credit bubble, where they meet a fate worse even than secular unemployment: they become debt slaves of the Federal System, with non-dischargable debt at that, which even assuming they can get a job would take ages to pay back!


But wait: there's more - of all age groups, this is the one that has actually seen its wages drop the most under the Obama administration.


So not only are they unemployed, young adults are at least poor.


Net result: double the change, zero the hope.

But fear not dear banks: taxpayers got your back, as usual.

However, we believe that ABS trusts backed by FFELP loans are unlikely to be affected by employment trends, as they are at least 97% backed by the federal government. In addition, recent securitizations have been structured more robustly and many have backup servicing agreements.

Even so, Fich is covering its bases nonetheless:

While FFELP loans are largely protected from these trends, private student loan ABS trusts, especially those that were structured aggressively and with less stringent credit standards before the recession, are expected to continue experiencing high defaults and ratings pressure. Fitch will continue to monitor these political and macroeconomic factors as they evolve and will determine any impact they may have on ABS trusts.

And as a courtesy reminder to our young up and coming "thinkers", this is $270 billion in debt that can not be discharged. Go ahead - file for bankruptcy - see what happens.

The question then is - what is the student loan version of the ABX trade. After all if Bernanke is willing to blow another bubble, someone has to be able to profit when this latest soon to be failed attempt at central planning.

Finally, here are some more perspectives on the student loan bubble direct from the New York Fed's blog.



    The average outstanding student loan balance per borrower is $23,300. Again, there is substantial heterogeneity in balances of individual borrowers. The median balance of $12,800 is roughly half the average level, which indicates that a small fraction of people have balances significantly higher than the median. About one-quarter of borrowers owe more than $28,000; about 10 percent of borrowers owe more than $54,000. The proportion of borrowers who owe more than $100,000 is 3.1 percent, and 0.45 percent of borrowers, or 167,000 people, owe more than $200,000. The distribution also varies by age group: for example, borrowers between the ages of thirty and thirty-nine have the highest average outstanding student loan balance, at $28,500, followed by borrowers between the ages of forty and forty-nine, whose average outstanding balance is $26,000 (see chart below).


    How much difficulty are borrowers having paying back their debts? Of the 37 million borrowers who have outstanding student loan balances as of third-quarter 2011, 14.4 percent, or about 5.4 million borrowers, have at least one past due student loan account. Together, these past due balances sum to $85 billion, or roughly 10 percent of the total outstanding student loan balance. To put this in perspective, the same 10 percent rate applies on average to other types of household delinquent debt, including mortgages, credit cards, and auto loans. Does this mean that the prospects for student loan delinquencies are similar to those for the household debt in general, and thus no special attention is warranted? (See chart below.)


    Unfortunately, this is not the case—some special accounting used for student loans, not applicable to other types of consumer debt, makes it likely that the delinquency rates for student loans are understated. In the case of federally backed loans, which represent a majority of total lending, repayment is deferred until the student graduates from school and can then be pushed back by another six-month grace period. How do these student loans in deferment or grace periods show up on credit reports and contribute to the delinquency statistics? Given that no payment is necessary until graduation, these deferred student loans are not included in the past due balance but they are included in the total balance from which the delinquency rate is derived. This may help explain the low proportion (12.6 percent) of borrowers with past due student loans among those under thirty years old, compared with 16.9 percent among those between the ages of thirty and thirty-nine, since many of the younger borrowers are still in school and don’t yet have to make any payments.

    To address this potential bias in calculating delinquency statistics, we exclude individuals who appear to be temporarily exempt from making payments because they are in school or newly graduated from school. These are students who, as of third-quarter 2011, owed as much as or more than they did in the previous quarter while maintaining a zero past due balance. We will be able to make our inference more precise when loan-level panel data are available, but this is our first-cut analysis given the available data. We warn that there is room for misclassification in this analysis. For example, there could be borrowers who are subject to the income-based repayment plan whose payment fell short of the accrued interest, resulting in a balance that increased. Recall that this exercise looks at the student loan borrowers who have a balance as of third-quarter 2011; therefore, those who had taken out a loan at one point but paid it off before third-quarter 2011 are not accounted for.

    From this exercise, we find that as many as 47 percent of student loan borrowers appear to be in deferral or forbearance periods, and thus did not have to make payments as of third-quarter 2011. Specifically, 17.6 percent of borrowers had exactly the same balance in the third quarter as in the second quarter of this year, and 29.1 percent increased their overall student loan balance by taking on new originations or accruing interest to the balance.

    We then recalculate the proportion of borrowers with a past due balance excluding this group of borrowers. We find that 27 percent of the borrowers have past due balances, while the adjusted proportion of outstanding student loan balances that is delinquent is 21 percent—much higher than the unadjusted rates of 14.4 percent and 10 percent, respectively (see charts below).



    In sum, student loan debt is not just a concern for the young. Parents and the federal government shoulder a substantial part of the postsecondary education bill. Moreover, the student loan delinquency picture is not fully captured in the broad statistics since a significant proportion of borrowers and balances are not yet in the repayment cycle. The implications of this last fact for future changes in the student loan delinquency rate are a very important area of research.

    Given that student loans are an indispensable tool for educational advancement, this form of debt will remain a critical policy focus for generations to come. Going forward, we will continue to monitor the student loan market with new data each quarter, and we will try to provide useful information on the landscape of student debt.

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praxis's picture

Also makes you wonder about the price of Weed...Christ you could get a quarter of decent Pot for $40 back in the 90's.  Today a gram of killer runs $ about hyperinflation...

Crash N. Burn's picture

 Back in the '70s:

1/4 ounce "nickel" $5

!/2 ounce "dime" $10

ounce $20 (28 grams)


Fuck Nixon

gorillaonyourback's picture

yep 5 finger bag of good columbian 20-30 bucks

WonderDawg's picture

Yeah, the good ol' days. I will say, however, that even good Columbo back then doesn't touch the high grade sensi you get today.

knukles's picture






            -             huh *    ^        ..     '


Chartist's picture

Yeah, you can't compare the pot produced today with the stuff you bought for $40 an oz in 1980....That hemp they sold back then was only good for making rope....

dogbreath's picture

back then \i could smoke a nice thick joint to myself.   today i take two hits and I am fucked up.    the quality of the high was better back then because i wasn't smoking plutonium.    gave it up copletely though

PrintPressPimpin's picture

California is experiencing huge deflation in cannabis..  Because I would estimate over 3/4 of transactions are black market with the rest being prop 215 related.  Since the black market is the only part of the free market economy we have left in our country it reasons that the huge increase in supply is resulting in the low prices.  As an example 15 years ago marijuana cost more fiatscos then an oz of gold.  It was around 350 to 400 an oz.  Fast forward to today and if you are a 215 patient and use craigslist or you buy on the black market top shelf high quality buds are max 240 a oz.  If i ever paid over 240 an oz i was either hard up for smoke or decided to blow my cash at the club.  In fact an oz of the kind bud is really only about 200 or 180 fiatscos in the bay area just look in sf bay area craigslist under 215 meds.  Its a shame i did not buy gold instead of cannabis 15 years ago but i was naive and did not have anyone in my life explaining to me about the ponziconomy.  In fact when i reflect back to 1999 and 2000 i think that was an era of good times and cheap prices that will never be repeated.  Working as a lifeguard at 12 bucks an hour living at home I was better off then my current pathetic income of 40k

johnnynaps's picture

Haha, get yourself a light, pots, seeds and some soil and turn it into an investment!

dogbreath's picture

i don't know where you are and don't care but its called weed for a reason.  prefer scotch and red wine myself

TheFourthStooge-ing's picture

NuYawkFrankie wondered:

Wonder how that $270B compares to the amount student bar-tabs are at least 30 days delinquent...

The bar tabs are pretty much paid up. That's what student loans are for.


Vendetta's picture

money spent at the bar is money well spent.  Might as well drink heavily with all the hope and change out there ...

GeneMarchbanks's picture

'It also means that if the rise in interest rate continues, then the student loan bubble will pop that much faster, and bring another $1 trillion in unintended consequences on the shoulders of the US taxpayer who once again will be left footing the bill'

Interest rate rise or no, this has to happen. For too long have unemployed people been exploited under the guise of 're-training' to be more 'competitive'. A perfect way to hide the last layer of Ponzi debt is now clearly past peak.

bonderøven-farm ass's picture

A small step from 're-training' to 're-educating' methinks........

The Paucity of Hope's picture

It looks to me like they're being re-educated already. Just ask them what they think of the government now.

Tom Green Swedish's picture

Squatters rights.  The young generation is entitled to nothing the Baby Boomers need to work to save for their retirement.

gorillaonyourback's picture

sadly your statement implies an unsettling irony,  YOU BYE THE WAY, clearly dont see, but i will enlighten.  

squatters RIGHTS implies some entitlement, like say your entitled to being treated as human and respecting that which you have built,amassed or whatever for youself. 

Would it be ironic if a baby boomer comes and puts a lead slug in your head and say this is now MINE lolololololololol

chew on that asshole

oddjob's picture

The ironic thing is they are too busy playing golf or yachting to give a shit.

Monedas's picture

That's more than the entire North Korean humans services budget......and I'll bet those Obama students couldn't put a satellite in space !  They aren't even very good at filling out student loan docs and welfare applications or reading the Constitution !   Monedas  2012   Send 'em all to Norko for some discipline !  Trayvon like "Hoodies" go to Pyongyang for advanced potty training !  Life is too funny !  I don't know what I'd do with out the Socialists to give me comedy material !

Gully Foyle's picture


But give them a Fat Woman at Walmart and they are all atwitter.

Monedas's picture

Did you see BO being Presidential in Seoul ?  What Faux Gravitas !  I kind of admire the Norkos when they flip off Carter, Allbright, Hillary, Clinton and BO juice !  Monedas  2012   North Korea.....the last, best hope for the Communist way !

Gully Foyle's picture


You know both China and Cuba are still Communist countries?

Oh yeah found this on Wikipedia

List of current communist states

The following countries are one-party states in which the institutions of the ruling communist party and the state have become intertwined; hence they fall under the definition of Socialist states seeking to build a communist society. They are listed here together with the year of their founding and their respective ruling parties:[24]

Democratic states with communist governments

There are multi-party states that currently have communist parties in government. Such states are not considered to be communist states as the countries themselves allow for multiple parties, and do not provide a constitutional role for their communist parties.

Communist parties as part of other ruling coalition

There are also some parties that participate as junior partners in ruling coalitions, as listed below.

Monedas's picture

You forgot Venoilzuela !  How about Niggeragua and Daniel Ortega ?  Washington D.C. ?

Gully Foyle's picture



How does one become a racist fuck? Is it your Daddy that assrapes it into you? Kind of like a racist AIDS.

Piranhanoia's picture

You have to embrace it.  Most would rather puke.

Monedas's picture

I'm not a racist.....I'm just trying to push back against Political Correctness and retake our language !  If that offends the PC crowd.....too bad.....they offended me more first ! I demand my poetic license to use all the Beneton colors on my linguistic pallete !   Monedas   2012   Wop, Nigger, Gook, Chink, Nazi, Towel Head, Kike, Polack.....!

imapopulistnow's picture

I'd suggest civlity trumps PC protestation.

bag holder's picture

"Civility" is another word for PC.

francis_sawyer's picture


ummm... This blog is the fucking FIGHT CLUB...

DosZap's picture

You know both China and Cuba are still Communist countries?

Oh yeah found this on Wikipedia


They left off one.........................doncha think?

Vlad Tepid's picture

Japan also has one of the largest and most active Communist parties in the world.  Almost their entire platform is now dedicated to not paying a dime for US mercenaries on their soil.

StychoKiller's picture

Wait, so Japan is PAYING for those troops?  And here I am paying my taxes like a sucker!

Vlad Tepid's picture

Not only does Japan pay for them, they pay for them to leave, bribing the US to be rid of their Marine "guests" to the tune of billions to build up the bases in the US where the troops will move.  And I thought Blackwater knew how to run a mercenary outfit.

malikai's picture

With unemploymnt numbers like that all over, it is a real testament to our propaganda masters the fact that we have not seen pitchforks and heads rolling.

lolmao500's picture

Change the fucking law already!!! STUDENT LOANS CAN BE FORGIVEN WITH BANKRUPTCY.


Gully Foyle's picture


Not Even Bankruptcy Will Make Your Student Loans Go Away

We’ve mentioned repeatedly in these pages that it is practically impossible to discharge student loan debt through the bankruptcy process. In fact, it’s estimated that “at best,” only 50% of student loan debtors are successful in their undue hardship claims. With that kind of a forecast, it looks like these people will either have to find a way to pay up, or default.

Back in June 2011, our own Elie Mystal wrote a series of posts about how he defaulted on his student loans (which, for the record, is different from bankruptcy). He called it a “survivable” situation. He had a wedding to pay for, and for him, defaulting on his loans was the preferable route because he didn’t want to be an “indentured servant” for the rest of his life.

lolmao500's picture


We’ve mentioned repeatedly in these pages that it is practically impossible to discharge student loan debt through the bankruptcy process.


Gully Foyle's picture


Gotcha, last time there was some asshole claiming student loans and medical debt could be discharged via bankruptcy.

Christophe2's picture


=> I think the reason you are getting junked is that letting students not only borrow but be gifted outrageous amounts of money (tens to hundreds of G's) to get useless degrees at worthless and vastly overpriced institutions IS NOT A GOOD SOLUTION.


The solution is far more complex, especially since 'higher learning' in Amerikkka is mostly just more brainwashing with bad info - even physics, with its BS Einstein dogma instead of reasonable alternatives like the Plasma Universe, and medical school, which basically trains people to become drug pushers for big pharma.


More than anything, people would be best off learning how to become self-taught and self-learning, especially now that the internet makes so much excellent info available, practically for free.

=> there is very little need for university, except for people with low self-esteem or with a desire to have the appearance of intellect ("ohhh! A shiny degree!")...  Good grades typically reflects an ability to memorize, when in fact valuable intelligence is the ability to create of new thoughts.

Pope Clement's picture

++++++ Chrisrophe - Einstein way overated and an icon created by the NY Times. His wife was the author of much of the dreck attributed to him and made him turn over the Nobel Prize money to her when they divorced. Yes the Plasma / Electric Universe theorists have blown away Special relativity, gravity driven astrophysics, black holes, dark matter, the big bang and much of the hallucinatory physics of the 20th century which the slacker douches in Academe still teach.

StychoKiller's picture

How about using the language of Truth (mathematics) to support yer position(s)?  Publish the "proofs" or be gone.

Christophe2's picture

LOL.  Math independent of factual observation is nothing more than MENTAL MASTURBATION.


Follow the poster's link (or google the subject) and you'll get ample proofs based on well documented and reproducible physical phenomena.  More to the point: proofs take more than a couple of paragraphs to present and this is not the right place to put them.

Cathartes Aura's picture

thanks for a well-thought out post, with points that are rarely, if ever, mentioned here,

'higher learning' in Amerikkka is mostly just more brainwashing with bad info - even physics, with its BS Einstein dogma instead of reasonable alternatives like the Plasma Universe, and medical school, which basically trains people to become drug pushers for big pharma.

once upon a time a University education was considered "well rounded" and encouraged the full range of thinking. . . but that's History, which is supposedly yet another worthless "degree" along with anything that assists in folk's awareness of how the world really works.

and we all know that "thinking" isn't necessary in this race to the bottom feeders ponzi.

Good grades typically reflects an ability to memorize, when in fact valuable intelligence is the ability to create of new thoughts.

memorise and turn up to class at appointed times - just like the "job" you hope to snag. . .

ExpendableOne's picture

Pay your loan or enter into servitude with the government.  We'll even give you a free house, we have quite a few in our inventory these days.

lolmao500's picture


 Net result: double the change, zero the hope.

Don't worry, a draft will fix all the youth unemployment problems.

Larry Dallas's picture

Too convenient that we happen to be aligning for a war with Iran and we have so many uneducated, lost youth roaming around in hoodies (black and white). Packs of them like feral dogs in Greece.

IMHO, some form of a "soft draft" will be instituted in - what I think to be a tiered structure in order of first called:

1. "At-risk" youth convicted of crimes under 25 years old.
2. Those less than 30 years old with college degree/debt will be called in to be an officer of some sort.
3. Older folks will work domestically in back office ops in various agencies; such as domestic counterterrorism (aka "rat on your neighbor") duties.

That's my 2 cents. Perhaps not even worth that much.

GeneMarchbanks's picture

lolmao500 <--- Clearly balls deep in student loans.

lolmao500's picture

Not really. I'm 8k in student loans. I could pay it off right now if I wanted.

PC Load Letter's picture

The planners saw this shit storm coming a long time ago. That's why they passed BAPCPA in the first place

DosZap's picture



Uh, unless O changed this edict, no they cannot be discharged under any circumstance.Bankruptcy included, just like IRS debt.