Nearly 40% Of Student Loan Borrowers To Default By 2023

Over three years ago, when the full extent of the student debt crisis was becoming apparent, the Treasury Borrowing Advisory Committee released a startling analysis  and long-term forecast which showed two things: i) up to a third of all student loans are likely to end up unrepaid...

... and ii) the total amount total student loans, which currently amount to $1.48 trillion  (nearly 50% more than all the credit card debt in America), is set to hit a whopping $3.3 trillion by 2024.

Fast forward to this week, when a Brookings Institution report  offered a new set of dire observations suggesting that "the looming student default crisis is worse than we thought."

The analysis "suggests that nearly 40% of borrowers may default on their student loans by 2023," a staggering number if one assumes the TBAC's forecast that there will be roughly $2.5 trillion in student loans outstanding by 2020 (see chart above). It would mean that no less than $1 trillion in student loans will be in some form of default in two years, an outcome which will necessitate another indirect, if ultimately taxpayer funded bailout from the US treasury: recall that the vast majority of student debt is currently issued by the US government.

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But while the overall rise in student loan defaults in coming years is hardly a surprise, a more troubling observation made by author Judith Scott-Clayton is that debt and default among black college students "is at crisis levels, and even a bachelor’s degree is no guarantee of security: black BA graduates default at five times the rate of white BA graduates (21 versus 4 percent), and are more likely to default than white dropouts."

 

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The Brookings study also found that the worsening default pattern is most acute at for-profit colleges: out of 100 students who ever attended one, 23 defaulted within 12 years of starting college in 1996 compared to 43 of those who started in 2004. This contrasts with an increase from just 8 to 11 students of 100 among entrants who never attended a for-profit, the report said.

But the most notable finding from the report is the stunning racial divergence in default rates, with black students a clear outlier, and expected to default at nearly double the rate as all other students, and 5 times as much as white college graduates.

The new data underscore that default rates depend more on student and institutional factors than on average levels of debt. For example, only 4 percent of white graduates who never attended a for-profit defaulted within 12 years of entry, compared to 67 percent of black dropouts who ever attended a for-profit. And while average debt per student has risen over time, defaults are highest among those who borrow relatively small amounts.

According to the author's conclusion, "the results suggest that diffuse concern with rising levels of average debt is misplaced. Rather, the results provide support for robust efforts to regulate the for-profit sector, to improve degree attainment and promote income-contingent loan repayment options for all students, and to more fully address the particular challenges faced by college students of color."

Whether that happens is debatable, however what is clear is that the coming default avalanche concentrated among former black students, one which will necessitate another broad taxpayer-funded bailout, the debt-busting taste of which we got this past July, will soon emerge as the root cause for the next racial crisis to sweep America, a nation which already finds itself on the edge of extreme polarization when it comes to race, ethnicity, political ideology and, of course, income.

Comments

???ö? TeethVillage88s Sun, 01/14/2018 - 18:55 Permalink

They paid for what they could have learned in a competent high school.  

100 years ago most people didn't go past the 8th grade.  They didn't need to. They were better educated than high school graduates today.

The Teachers Unions have dumbed down the schools, made billions, and covered it up with sports mania aimed at objectively stupid parents who read their local newspaper high school sports section and plaster idiotic "my child" bumper stickers on their cars.

In reply to by TeethVillage88s

HRH of Aquitaine 2.0 JRobby Sun, 01/14/2018 - 16:15 Permalink

Banks and the IRS. They will go right in to your account and take the money. And no, they can't file bankruptcy for those loans. I feel sorry for parents and grandparents that got hustled into cosigning for these loans. They will be hounded too. And there is no way to hide money from the IRS. If they want it, they will take it.

In reply to by JRobby

TeethVillage88s HRH of Aquitaine 2.0 Sun, 01/14/2018 - 16:38 Permalink

Capitalism allows banks and financiers to discount the debt and sell it off... like mortgages right?

- Money Created out of thin air is discounted, even your House Mortgage is sold often within 30 days at discount
- Bailouts, QE infinity, NIRP,LIRP,ZIRP, State Capitalism... not capitalism at all
- End Personal Bankruptcies, Student Loan Write Offs by citizens... not capitalism at all

1944 - End of US Protectionism
1994 - Most Favored Nation Status for China Reinstated after Tianamen Square
1996 - Most Favored Nation Status for China Reinstated after Test
2000 - Permanent Normal Trade Relations with China and WTO Membership for China
1994 - NAFTA, Deregulation of Trade, 3 Nations (W. Clinton)
1995 - Boskin Commission on CPI
1995 - Community Reinvestment Act, the Clinton Admin urged flexibility,
1995 - HUD advocated greater involvement of state and local organizations
1996 - CPI Price Reforms (From Boskin Commission Recommendations)
1996 - Energy Deregulation (W. Clinton, followed by ENRON Scandal)

1978 - Bankruptcy Reform Act of 1978,
2005 - BAPCPA 2005

Not Capitalism

In reply to by HRH of Aquitaine 2.0

TeethVillage88s Pausebreak Sun, 01/14/2018 - 17:35 Permalink

$1.1 Trillion?  These asshats can't manage the MSM & Progressives who have Unicorn Belief that money can always be re-freshed... and empires like Portugal, Netherlands, France, Spain, & Great Britain go on "forever" and USA/USD will too!

 

Total Consumer Loans Owned by Federal Government, Outstanding (TOTALGOV)
Sep 2017: 1,136.5321 Billions of Dollars, Not Seasonally Adjusted, (Huge Upward Trend)
https://fred.stlouisfed.org/series/TOTALGOV

In reply to by Pausebreak

Moe-Monay stizazz Sun, 01/14/2018 - 16:11 Permalink

Geebus another big panhandle for more black payoffs. 

Forget about it.  You signed up for a loan that can not be dispensed in bankruptcy. Tough luck.  You signed up for "Social Justice" degrees and now can't get a job.

Now you have to work at 7-11 and still pay your loan down.  Them's the breaks. 

When do we stop coddling these idiots?

In reply to by stizazz

TeethVillage88s Moe-Monay Sun, 01/14/2018 - 16:51 Permalink

But Planned Inflation in Federal Budget, in the Economy, with Devaluing US Dollar, with WRC, in Health Care, Divorce Attorneys, Court Costs, Morticians, Education that is $60,000 a year with Quotas for minorities who get free tuition from special foundation or trust...

I got 4 year degree for like $700 a semester in a State College... so I planned.

- Downsize, yes, future generations need online K-12 & College... Tech School only partly obviously... Medical Tourism to get Dental work done and other stuff... live cheap, good living in grubby times... stay away from marriage, govt, lawyers, Universities
- New Economics ships our financing and capital to foreign lands, we leak capital like a siv, and they plan to suck your wealth, Extract your Wealth, by Inflation, Taxes 98 kinds, Health Care, Utilities & Energy
- Old Economics in a non-empire, non USA WRC, is a closed system where Trade Balance matters, Money Velocity Matters, Inflation is bad, Fake National Economic Statistics is bad

http://www.economist.com/node/21604509

Trade balance Current-account balance
United States -780.1Dec

Total Current Account Balance for the United States (BPBLTT01USA637S) 2006 = - $800 Billion?
https://fred.stlouisfed.org/series/BPBLTT01USA637S

In reply to by Moe-Monay

TeethVillage88s Moe-Monay Sun, 01/14/2018 - 16:57 Permalink

How is that Money Velocity from Quantitative Theory of Money?

Money
http://research.stlouisfed.org/fred2/series/mult (High was 1987, Up to Date, but looks like Crap, .769 is all)
http://research.stlouisfed.org/fred2/series/M1V (High 2007, M1 seems to increase with Mortgages)
http://research.stlouisfed.org/fred2/series/M2V (High 1997, M2 seems to show different bubble perhaps)
http://research.stlouisfed.org/fred2/series/MZMV (MZM seems to show peak in Economy 1981)

https://fred.stlouisfed.org/series/M1
https://fred.stlouisfed.org/series/M2 ($13.8 Billion)
https://fred.stlouisfed.org/series/MZM ($15.2 Billion)
https://fred.stlouisfed.org/series/MZMNS

In reply to by Moe-Monay

Manipuflation Sun, 01/14/2018 - 16:15 Permalink

I was college edumacated(Faber College) but I paid those loans off.  That was all fine and dandy but learning theory is one thing.  Does anyone, besides many ZHers, actually know how to do anything?  Like fixing a car?  Growing a garden?  Read a financial ledger?

Not many can.