A quick reminder of what the biggest debt bubble [11]currently facing America's population is.
[12]
Why is this a problem? Because as the TBAC revealed a few months back [13], the default risk from the $1 trillions in student loans is several orders of magnitude above the 9% student loans which the Fed has revealed as currently "in default", as one has to add those 12% of loans in deferment and 11% in forbearance to the entire risk pool. In short: a third of all student loans are likely to end up unrepaid!
[14]
And, the punchline: according to the TBAC's worst case scenario of the future of student debt, this gargantuan load will triple over the next decade, to as much as $3.3 trillion by 2024.
[15]
This means that up to $1 trillion, and likely more, in household debt will go "bad" over the next decade. The problem: student debt is not dischargeable in a personal bankruptcy.
That is about to change.
It appears that just as the administration is finally figuring out what HFT is, it also decided to take a look at the charts above and has made a decision: the next bailout is about to be unveiled, and it will involve a "streamlined" bankruptcy law allowing students to discharge their student debt.
Moments ago this hit the wires via Dow Jones:
- WHITE HOUSE STUDYING NEW BANKRUPTCY OPTIONS FOR STUDENT-LOAN BORROWERS
- CURRENT U.S. LAW LARGELY PROHIBITS FEDERAL, PRIVATE LOANS FROM BEING DISCHARGED IN BANKRUPTCY
And some more color from Reuters: [16]
President Barack Obama is slated to speak to students at Georgia Tech on Tuesday about how he wants to make the process of repaying student loans easier to understand and manage. Obama will sign a student aid bill of rights and will speak about an assortment of policy tweaks and projects to try to make it easier to help people with student loans pay back their debt.
"It's our responsibility to make sure that the 40 million Americans with student loans are aware of resources to manage their debt, and that we are doing everything we can to be responsive to their needs," said Ted Mitchell, undersecretary of education, on a conference call with reporters.
More than 70 percent of U.S. students who graduate with a bachelor's degree leave with debt, which averages $28,400.
The White House said it will require clearer disclosures from companies to make sure borrowers understand who is servicing their loan and how to set monthly payments and change repayment plans.
"Repayment rates improve when servicers work well and work directly with borrowers, helping them understand the terms of their loans," said Sarah Bloom Raskin, deputy secretary of the Treasury Department, on the conference call.
Obama will direct his Education Department to create a system by July 1, 2016 to better oversee and address complaints from borrowers about lenders, servicers and collection agencies, the White House said.
His administration will also study whether it needs to propose changes to laws or regulations to create stronger consumer protections, the White House said.
Which can only mean one thing: the appointment of a Student Loan Czar is imminent, as it the "discharge" of tens if not hundreds of billions in debt, which would never be repaid in any case.
And since there is no such thing as a free lunch, it will be the US taxpayer who will as usual end up footing the bill. Expect college fees to go vertical once deans and administrators understand that they can charge anything and the taxpayer will end up footing the bill.
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One can read the Fact Seet on the "Student Aid Bill of Rights: Taking Action to Ensure Strong Consumer Protections for Student Loan Borrowers [17]" below:
Higher education continues to be the single most important investment students can make in their own futures. Five years ago this month, President Obama signed student loan reform into law, redirecting tens of billions of dollars in bank subsidies into student aid. His historic investments in college affordability include increasing the maximum Pell Grant by $1,000, creating the American Opportunity Tax Credit worth up to $10,000 over four years of college, and letting borrowers cap their student loan payments at 10 percent of income. He has also promoted innovation and competition to help colleges reduce costs and improve quality and completion, including a First in the World fund. While these investments have helped millions of students afford college, student loans continue to grow.
That is why, today, President Obama will underscore his vision for an affordable, quality education for all Americans in a Student Aid Bill of Rights. As part of this vision, the President will sign a Presidential Memorandum directing the Department of Education and other federal agencies to work across the federal government to do more to help borrowers afford their monthly loan payments including: (1) a state-of-the-art complaint system to ensure quality service and accountability for the Department of Education, its contractors, and colleges, (2) a series of steps to help students responsibly repay their loans including help setting affordable monthly payments, and (3) new steps to analyze student debt trends and recommend legislative and regulatory changes. In addition, the Administration is releasing state by state data that shows the outstanding federal student loan balance and total number of federal student loan borrowers who stand to benefit from these actions.
A Student Aid Bill of Rights
- Every student deserves access to a quality, affordable education at a college that’s cutting costs and increasing learning.
- Every student should be able to access the resources needed to pay for college.
- Every borrower has the right to an affordable repayment plan.
- And every borrower has the right to quality customer service, reliable information, and fair treatment, even if they struggle to repay their loans.
Today’s Actions to Promote Affordable Loan Payments
Americans are increasingly reliant on student loans to help pay for college. Today, more than 70 percent of those earning a bachelor’s degree graduate with debt, which averages $28,400 at public and non-profit colleges. Today’s actions will help borrowers responsibly manage their debt, improve federal student loan servicing, and protect taxpayers’ investments in the student aid program:
Help Borrowers Afford Their Monthly Payments: The President will announce a series of steps to improve customer services and help borrowers repay their direct student loans, which are made with federal capital and administered by the Department of Education through performance-based contracts. High-quality, borrower-focused servicing helps more borrowers successfully repay their federal student loans. Building on the stronger performance incentives put in place last year, the Department will now raise the bar by:
- Requiring enhanced disclosures and stronger consumer protections throughout the repayment process, including when federal student loans are transferred from one servicer to another, when borrowers fall behind in their payments, and when borrowers begin but do not complete applications to change repayment plans. These steps will better protect borrowers from falling behind in their payments and ensure consistency across loan servicers.
- Ensuring that its contractors apply prepayments first to loans with the highest interest rates unless the borrower requests a different allocation.
- Establishing a centralized point of access for all federal student loan borrowers in repayment to access account and payment processing information for all Federal student loan servicing contractors.
- Ensuring fair treatment for struggling and distressed borrowers by raising standards for student loan debt collectors to ensure that they charge borrowers reasonable fees and help them return to good standing; clarifying the rights of Federal student loan borrowers in bankruptcy; working with the Department of Treasury to simplify the process to verify income and keep borrowers enrolled in income-driven repayment plans; and working with the Social Security Administration to ensure that disability insurance recipients who can discharge their student loans are not instead seeing their disability payments garnished to repay defaulted loans.
In addition, new requirements may be appropriate for private and federally guaranteed student loans so that all of the more than 40 million Americans with student loans have additional basic rights and protections. The President is directing his Cabinet and White House advisers, working with the Consumer Financial Protection Bureau, to study whether consumer protections recently applied to mortgages and credit cards, such as notice and grace periods after loans are transferred among lenders and a requirement that lenders confirm balances to allow borrowers to pay off the loan, should also be afforded to student loan borrowers and improve the quality of servicing for all types of student loans. The agencies will develop recommendations for regulatory and legislative changes for all student loan borrowers, including possible changes to the treatment of loans in bankruptcy proceedings and when they were borrowed under fraudulent circumstances.
The full fact sheet here [17].
