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

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.