Student Loan Default Rates at Historic High

By On

The Financial Times has an excellent article about student debt (it is behind a pay wall - for those of you like me who don’t subscribe here is an excellent summary and commentary from which I quote below).

The graphic tells the horrifying story - student loans, 90% of which are guaranteed by the federal government, are in default at an all-time high rate of 11.2%, according to the NY Federal Reserve Bank. Of 44 million Americans with student debt, fully 8 million are in default. (I make this more like 18.2% - but this calculation doesn’t include those who have paid back their loans or those in deferment - so the Fed’s 11.2% is based on excluding those in deferment and including those paid back). However, as the Fed notes:

“About half of these loans are currently in deferment, in grace periods or in forbearance and therefore temporarily not in the repayment cycle. This implies that among loans in the repayment cycle delinquency rates are roughly twice as high.”

Which makes the 18.2% figure probably a more accurate indicator of actual default rates. Further, there is now $1.4 trillion in student debt outstanding, which is bigger than the $1.3 trillion in subprime mortgage debt outstanding in 2008 at the start of the last financial crisis.

And what makes the situation worse is that while mortgage debt is dischargeable in bankruptcy - and all the millions who lost their homes to foreclosure at least were able to wipe the slate clean and unburden themselves from debt - student loans are not thanks to the Bankruptcy Reform Act of the first GW Bush administration - which passed on a bipartisan vote including Senator Hillary Clinton’s Yea vote to consigning our young to indentured servitude. (Is it any wonder she lost to Senator Sanders, who voted against bankruptcy reform, in the under-30 demographic in the Dem Primary?).

Where is Senator Elizabeth Warren, who teaches bankruptcy law, in all this? Where are the Democrats in general? Sucking up to the profiteers who make their money from making young people debt slaves? Why are they not championing Senator Bernie Sanders’ idea of tuition-free college? How corrupt and disconnected from the everyday reality of regular people are these bought-and-paid-for “representatives”?

And the easy availability of federally-guaranteed student debt

keeps inflating the cost of education. This may seem obvious but it can’t be said often enough. Per the article:

While the headline consumer price index is 2.7 per cent, between 2016 and 2017 published tuition and fee prices rose by 9 per cent at four-year state institutions, and 13 per cent at posher private colleges…....

....Spending increases are not going into improving education. As we’ve pointed out before, adjuncts are being squeezed into penury while the adminisphere bloat continues, as MBAs have swarmed in like locusts. Another waste of money is over-investment in plant. Again from the story:

A large chunk of the hike was due to schools hiring more administrators (who “brand build” and recruit wealthy donors) and building expensive facilities designed to lure wealthier, full-fee-paying students. This not only leads to excess borrowing on the part of universities — a number of them are caught up in dicey bond deals like the sort that sunk the city of Detroit — but higher tuition for students.

I’m told by a family member that Canadian universities in Ontario are experiencing a “Trump bump” in applications from American students. Perhaps the bump is less due to Mr. Trump and more to systematic corruption of the federal political apparatus in favor of rent-seeking parasites who suck the juice out of a debt-enslaved young people. To the detriment of society and of the Republic, such as it remains.

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About David Camp

Citizen Journalist • Member since Jul 12, 2009

David Camp is a cpa (Canada'86; USA'96) and MBA (Schulich'88) who toiled thirty years in the corporate salt mines, counting beans and telling stories to the auditors and whatnot. Now [...]