Student-Loan Crisis Worsens; Looming Defaults Strain Govt Bailout Program

As the student loan bubble continues to burst, record numbers of Americans enrolling in government subsidized student loan debt-forgiveness plans, known as income-driven repayment, are on track to send the US student-loan program into negative territory, according to a report by the Department of Education's inspector general.

Debt-laden graduates search for the six-figure jobs they were promised

The plans, known as income-driven repayment, set monthly payments as a percentage of a borrower’s earnings and typically forgive balances after 10 or 25 years, depending on the borrower’s career field and debt amounts.

Overall, borrowers in income-driven repayment will repay less than what they originally borrowed, the report said, draining the program of billions of dollars in expected revenue. -WSJ

As we reported last month, nearly 40% of student loans taken out in 2004 may default by 2023 according to a report by the Brookings Institute - blowing past all previous projections.

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Of note, approximately 5% of undergraduates took out private student loans in 2004, which swelled to 14% of undergraduates by 2008 - 2,901,000 students according to ticas.org. Private student loans, as opposed to federal student loans, are unable to participate in income-driven government repayment programs

The federal student loan system had originally been projected to turn a profit of $25 billion on all loans made up to Sept. 30, 2015 - however that number has been revised down to $5 billion, according to the IG report. The income-driven repayment program alone will cost the government $11.5 billion in revenue. 

“The data show the total costs for all loans...approaching an overall positive subsidy,” which translates to a net cost to taxpayers, i.e. the program going into the red - according Patrick Howard, the department’s assistant inspector general for audit.

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The IG report was highly critical of the Department of Education for a glaring lack of transparency over the student loan program - which has grown to one of America's largest consumer loan portfolios. A cumulative $1.4 trillion in federal student debt is owed by 43 million Americans - which is unable to be discharged in bankruptcy. As such, the debt forgiveness program is the only hope if the six-figure job borrowers were promised before taking out a six-figure loan didn't materialize. 

Republicans in Congress have criticized the debt forgiveness plan created by the Obama administration, as they say the plans are being taken advantage of on a large scale. 

“What was designed as a temporary safety net has become the standard where students expect their debt to be forgiven after a certain amount of time,” Sen. Lamar Alexander (R., Tenn.), head of the committee overseeing education, told the Senate during a hearing last week. “We will not know the impact of so many borrowers being in this program for another decade, when the first set of borrowers begin to have their debt forgiven.”

The Department of Education has committed to providing more transparency going forward, stating in the report that it is "committed to the transparent communication of the Federal student loan program costs, including describing trends in repayment options that may impact future estimated costs." 

As we reported last July, the US saw its largest one-month outlay on record at $429 billion, 33% higher than its July 2016 outlay -  because the Treasury revised up its estimates of the subsidy cost of student loans, and to a lesser extent housing, it guarantees.

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Here is the CBO explanation:

Outlays for the Department of Education rose by $31 billion (or 51 percent), because the department revised upward, by roughly $39 billion, the estimated net subsidy costs of loans and loan guarantees issued in prior years—a change much larger than last year’s $7 billion upward revision. If the effects of those revisions were excluded, outlays for the department for the first nine months of fiscal year 2017 would have fallen by $2 billion (or 3 percent).

Outlays for the Department of Housing and Urban Development rose by $29 billion, primarily because the department made upward revisions in June 2017, but downward revisions in April 2016, to the estimated net subsidy costs of loans and loan guarantees issued in prior years.

While the federal student loan debacle is going to fall on the shoulders of US taxpayers, it will be interesting to see how private lenders - such as Wells Fargo, adapt to 40% of their 2004 loans defaulting within the next five years. 

Comments

D503 hxc Wed, 02/07/2018 - 02:06 Permalink

The government wanted to pry women from the home thinking they would benefit from the increased tax revenue, but women are life-long dependents on average, and even the best of them rarely use their degrees to do anything but teach their children better. 

Now the bill for all these girls comes to call, men won't marry them with their unserviceable debt load and the state is panicking. 

Compounded by the shrinking volume of men in these shrieking shame villages of "destroy the cis gender, hetero normative, white male, patriarchy, rape culture, kill all men" and the impossible task of solving for physics defying "green" energy, carbon capture, h1b wage slave competition, two years of experience entry level positions in a global market where the only innovation left is automation and artificial intelligence:

If it's fuck me, you know it's fuck you. 

In reply to by hxc

JRobby ThinkerNotEmoter Wed, 02/07/2018 - 01:57 Permalink

The banks must be paid.

If the GOVT back stop fails, it will be bailed because:

The banks must be paid.

"Womyn's studies" candidate will have all tax refunds diverted to the banks until loans are paid (never) because:

The banks must be paid.

Don't put yourself in a position where you get a tax refund.

Leave before they start taking passports because of these debts. They already do for tax debt.

In reply to by ThinkerNotEmoter

Endgame Napoleon ebworthen Wed, 02/07/2018 - 00:58 Permalink

I sympathize with them, in that a quantity of good jobs for college grads are not out there (as sold) due to assortative mates, concentrating two of the few good-paying jobs in fewer households. Too many people have degrees, and the high earners with degrees marry other high earners. It has cut in half the size of the salaried middle class. 

However, they don’t do that with a business loan. You have to pay a business loan back in a few years. My and ex and I paid ours in 5 years, even though we chose an art-related business, where we could not expect to make a bundle.

When you choose an art degree, knowing that the major yields few high-paying jobs, it is different. You can stretch your loan out over 25 years, turning to this program when the jobs turn out to pay $12 per hour (or less).

Due to government-teacher’s-pet policies, some students have to pay their loans back in full. Some don’t.

Let me guess: Government shows even more favoritism, especially for the sex-and-reproduction crowd that, likewise, has access to layers of monthly welfare and now-doubled, refundable child tax credits up to $6,444, when they stay below the earned-income limits for the programs or fall on hard times, unlike their childless counterparts. Parents probably also get a better arrangement on repaying student debt. 

What students don’t realize is that, in many so-called “real-job” categories, it is an advantage to be a non-degree-holder, particularly when most employees and managers lack a degree. Most of the offices I have seen in financial services were like that, and more amazingly, the state-required licenses were also a drawback in some workplaces. Interviewers even directly admitted that in some places. 

I will never forget reading about a company that Buffett invested in right after the 2008 housing collapse, saying it was meant to bolster US jobs. Since I have worked in a related field extensively, had a shop related to that field, sold a ton in that field for others and have a lot of knowledge about the subject, I thought I might apply.

When I read the job reviews, I saw many comments that echoed what I have seen a lot throughout the inside sales and corporate back-office workforce. Former employees said that they just do not retain or promote college grads at that company.

Now, if you managed to slip through, getting a job, those working parents would be telling you all about how their kids were so smart and going....to....college, borrowing money in most cases, after which they will experience many anti-college bully cliques in the many workplaces, where it is all about being a “culture fit,” whether that is a crony-mom gang in financial services or a youthful, techie clique. 

In many different types of workplaces, including many so-called white-collar office jobs, a “culture fit” does not mean college-educated. Those workplaces are NOT always or even mostly the lowest paying jobs, either. 

 

In reply to by ebworthen

dchang0 Slammofandango Wed, 02/07/2018 - 00:19 Permalink

I'd rather give billions in corporate welfare to the Military Industrial Complex than the far-leftist Cultural Marxist university administrators and professors, if those are the only two choices available*.

At least the MIC likes guns; we know the leftist university admins and professors would love to disarm all of the American people so that we cannot defend themselves AND implement socialism so that we can't feed ourselves.

Seeing the recent headline "Leave right now or arm yourself to the teeth," about Venezuela, it's clear the university admins and profs are peddling death:

https://www.bloomberg.com/news/articles/2018-02-05/leave-right-now-or-a…

 

* I agree with you though that bombing the crap out of Afghanistan is a massive waste of taxpayer dollars, so this is a matter of choosing the lesser of two evils.

In reply to by Slammofandango

Give Me Some Truth dchang0 Wed, 02/07/2018 - 09:18 Permalink

Read elsewhere on this site today:Our neocon military "interventions" are creating a mass migration of desperate poor folks flooding into the nations of Europe. This will lead to ... the necessity of the EU to create even more debt. All of these dots (headlines) ultimately connect and perpetuate the "Status Quo" - an ever-growing State - which much be financed by ever-more vast sums of fiat money.

In reply to by dchang0

peippe Wed, 02/07/2018 - 00:14 Permalink

This one is easy:

they get hired as part-time contractors self-reporting their failure to pay off student loan debt 

in exchange for being forgiven interest payments, IF they have children, interest accrual will

begin again at offspring's 18th birthday. Easy. Let the children deal with it.

JailBanksters Wed, 02/07/2018 - 00:43 Permalink

Easily Fixed

The Government just gets another $1.5 Trillion Dollar loan, pays off the $1.4 Trillion Dollar Debt and can then spend another $100 Billion on something else. At some point they will have pay back the $1.5 Trillion Dollar loan, so they get $1.6 Trillion Dollar loan. You could do this to infinity, because nobody questions it.

Endgame Napoleon JailBanksters Wed, 02/07/2018 - 01:10 Permalink

How about taking the German approach. They are unquestionably a middle-class country, where only 12% of citizens have a degree. A degree is more valuable when fewer people have one. All the colleges are public, but they only admit the best students. It is free to the top students—the top 12%. They also have to wait for a place, depending on the popularity of their field, the competition and their grades / test scores. They go into the workforce while they wait, which is likely instructive for less mature students, giving them a chance to find out what they are suited for and how crappy the workforce can be. Maybe, it makes some of them study harder when they get their “place.” They give everyone else a substantial voc-ed education, placing them in the workplaces in high school to get some work experience. Of course, private colleges in this country have a ton of scholarships, funded by the wealthy, that take care of the best students from less affluent families. 

In reply to by JailBanksters

Paul John Smith Wed, 02/07/2018 - 00:50 Permalink

I know that my taxes are thievery - I've paid far more in taxes than I ever received in student loans. I know the banks are given massive bailouts - so, yeah, student loan debt is annoying and defaulting on it is terrible. But ask me, with the most powerful being rewarded with crony inside deals, if I care?

I simply do not ...

The loan programs are a scam - and as such BOTH SIDES deserve pain for the bad transaction. The FEDs for inflating the cost of education and the students for taking out loans for degrees that will never make them money to pay back the loan.

This entire sham of economy is worthy of defaulting on.

Screw it ... I simply don't care any longer.

Dragon HAwk Wed, 02/07/2018 - 00:58 Permalink

I love college kids with a problem... um you were the smartest in your school and you went of to college to learn how to think.. um when do you plan on starting the thinking part.  put your education to work, what a concept

HRH of Aquitaine 2.0 Wed, 02/07/2018 - 01:27 Permalink

The richest person I know is my landscaper. He gets two months off (Dec, Jan) and for one day a week the contract for my burb pays him $100K for one day a week for a yearly contract. That amount is gross not net. He has payroll, equipment, accounting, taxes, of course. I am guessing he grosses $500k but nets around $200K (or less). Hard working fool and I respect him. Unlike the fucking snowflakes. They get zero sympathy from me.

What is his degree? Real life.

The coolest thing is he has a deal with the county and gets people on work release. The county pays him to take these people and give them work skills. Some of my snotty assed neighbor's always bitch about this guy. I actually talk to him. He is a very smart guy and has figured out out to get the county to compensate him for taking bad actors off their hands and giving them work to do. I bet if you talked to all of my neighbor's none of them realize that the landscaping crew (white) are on work release. I am happy they are US citizens trying to reform their lives and not illegals. Nice they actually speak English which is why I have never complained.

HRH of Aquitaine 2.0 JRobby Wed, 02/07/2018 - 03:21 Permalink

Why not? Where do you think people on work release are employed? Who do think pays the employer? Do you think random people agree to give people on work release jobs and allow them to handle dangerous equipment?

I appreciate the hard work of this guy. I respect him for working hard. If he is paid for taking a few people under his wing, so what? Like I said, I am happy they are white and speak English. I am willing to give them a second chance.

In reply to by JRobby