Root of the Problem: Fed Intervention

[twoIQdoug]

Happy Christmas!

Coming from a godless atheist, I'm sure that means a lot to all of us. But keeping in the spirit of the season, same to you and yours.

Ah, but one's own beliefs have nothing to do with well wishes offered to others. Also, Christmas is much more than a religious holiday. It is the most important holiday in U.S. Culture, yet a relatively minor one in the Christian church. (Easter dwarfs it.)

And thanks.

[twoIQdoug]

I'm not convinced the student loan program is the cause. I think it is a symptom. Student loans have been available for decades. The root cause is the diplomaism caused by a lack of a strong national qualifications framework coupled with the extreme worker mobility created by the shift from defined benefit retirement plans towards defined contribution. Blaming the availability of financial aid is rather elitist. The bubble is real, though cutting off loans won't get at the real underlying issues.

[Harrison J Bounel]

Remember the burst of the "housing loan bubble," when all the cheap loans the government forced banks to make to unqualified borrowers went into default? Coming soon, the "student loan bubble" is about to do the same.

Get your student loans now while you still can. When the bust comes there won't be any more, at least not on the same easy terms and conditions (i.e., fog a mirror) that we have now. They can foreclose on your house if you don't pay, but they can't foreclose on your education. Get that degree now while the gettin' is still good.

Don't worry about how you are going to pay it back, because the threat of default scares the government worse than they scare you. Pay the absolute minimum if you pay at all and it's win/win. The government counts it as a loan being paid back, their default percentages go down, and they can keep playing the Ponzi game another day. Cloward-Piven at its best, for when the whole thing collapses there will be no economically feasible way to fix it, and socialist helter skelter rules the day.

Obama admin. trying to cover up massive $15 billion college loan default spike
By Anthony Hennen | March 19, 2016 |


Shane Satterfield, a roofer who owes more than $30,000 in debt for an associate's degree in computer science from one
of the country's largest for-profit college companies that failed in 2014, sits on the back of his pickup truck. (AP Photo/David Goldman)


A quarterly report on student aid brags of "promising repayment trends,"? but it obscures a rise in student loan defaults.

The Department of Education mentions "notable decreases" in the student loan default rate, as they dropped in the first quarter of fiscal year 2016 from 2.5 percent a year ago to 2.3 percent.

What they don't highlight, however, is a $6 billion increase in the total amount of defaulted loans from the fourth quarter of 2015. Compared to a year ago, the amount of federal student loans in default has increased by $15 billion.

As Jason Delisle, the director of the federal education budget project at the New America Foundation, tweeted, $121 billion of student loans have entered default.

"Over the past seven years, we have taken unprecedented steps to make college more affordable and to help borrowers manage their student loan debt,"? Secretary of Education John B. King, Jr. said in a press release.

When looking into the data, however, borrowers have struggled to pay their loans. The $6 billion increase translates into almost 314,000 borrowers in default, a 19 percent increase from the previous quarter.

Default rates have fallen, but the amount has increased.

Even the default rate improvement could be misleading. Borrowers aren't necessarily earning more; they're moving into income-based repayment options that lower their monthly payments. By December, income-based repayment enrollees increased 48 percent compared to a year previously, and 140 percent compared to December 2013. Almost 5 million borrowers are now in income-based repayment plans.

Those plans have helped students avoid default, but the default rate decline doesn't mean that students have found better jobs or avoided financial hardship. Their position simply hasn't gotten worse.

"We will continue to make more data available to shed light on student debt in America. As President Obama has said, 'Government should be transparent,'" King said.

The Department of Education, however, isn't admitting the deeper problem that their data show. It's "amazing spin," as Delisle said.

In a recent report from the Treasury Department, student loans have ballooned to 37 percent of government assets.

Default rates, delinquencies, and "hardship deferments" have all fallen. The Department of Education isn't lying with statistics. However, by ignoring the underlying reasons behind those changes, they're misleading the public.

[Martin Eisenstadt]

Students Stiff Taxpayers on $600 Billion of Non-Perfoming Loans


by Chriss W. Street? 24 Mar 2016

With the U.S. taxpayer guaranteeing $1.2 trillion of student loans, only about half are being repaid.

New data from the U.S. Department of Education reveals that the total amount of outstanding of direct federal student loans stands at about $945.6 billion, distributed among over 30 million recipients. The current rate of growth for student-loan debt guaranteed by taxpayers is $2,726 every second.

The total amount of student loans is much higher, at about $1.7 trillion. Including federal guarantees to private loans, U.S. taxpayers are on the hook for up to $1.2 trillion. That is larger than the $1.1 trillion of auto loans outstanding and dwarfs the $700 billion in credit card debt outstanding.

Federal involvement in student loan lending started with the Higher Education Act of 1965. But it never really took off until 1968, when the percentage of women attending college started to catch up, eventually passing the approximately 28 percent of men attending college.

This rise in college attendance by women appears to be responsible for the inflation of tuition. From 1968 to 2016, the cost of attending college grew by 1,272 percent. That compares to the consumer price index, which rose only 279 percent; medical costs, which grew 670 percent; or new car costs, which grew only 95 percent, according to Advisor Perspective blog.

After deducting student loans owed by borrowers enrolled in school, or in the six-month grace period after leaving school, 46 percent of student loans are currently not being repaid. That is a slight improvement over 2014.

Graduation rates for students attending four-year colleges have improved over the last two decades from about 55 percent to almost 60 percent. But most of that increase is due to a much higher percentage of students staying in school for up to 6 years.

Ten percent of student loans are in delinquency, meaning the borrower is 30 days or more late on a payment. 13 percent are in some type of deferment; 14 percent are in forbearance, meaning the borrower has encountered economic hardship and had payments suspended or reduced; and the remaining 8 percent are in default.

The amount of student loans in that are deemed in default by being more than 360 days delinquent increased 31 percent in 2015 to $56 billion. The outstanding balance for all borrowers not in school or a grace period also spiked by 20 percent last year.

[ham]

Excluding student loans owed by borrowers currently in school or in their six-month grace period, 46 percent of student loans are not currently being repaid. Ten percent of student loans are delinquent, meaning the borrower has missed payments for thirty days or more. Another 13 percent are in deferment, which means payments have been postponed for various reasons. Another 14 percent are in forbearance, meaning the borrower has encountered economic hardship and had their payments suspended or reduced.

[Armando Ramos]

Excluding student loans owed by borrowers currently in school or in their six-month grace period, 46 percent of student loans are not currently being repaid. Ten percent of student loans are delinquent, meaning the borrower has missed payments for thirty days or more. Another 13 percent are in deferment, which means payments have been postponed for various reasons. Another 14 percent are in forbearance, meaning the borrower has encountered economic hardship and had their payments suspended or reduced.

Good article, Mr. Ham. I copied it below because many of these articles have a short link life and disappear. I have a feeling this is a topic people will be revisiting quite often in the future when the "student loan crisis" hits and people are trying to figure out WTF happened.

Barely Half of Student Loans Are Being Repaid
Defaults Are Up, Again

Preston Cooper? Wednesday, March 23, 2016

The US Department of Education's new data on the status of outstanding student loans show that outright defaults are up. However, their press release -- and much of the accompanying media coverage -- instead played up a decline in loan delinquencies. The increase in defaults is worrisome and needs to be addressed by Congress.

The total amount of outstanding direct student loans stood at $855 billion at the beginning of the first quarter of 2016, distributed among over 30 million recipients. (This total does not include loans still outstanding under the now-discontinued FFEL program, which guaranteed private-sector student loans.) The total direct loan amount outstanding is up roughly 15 percent over a year ago, doubtlessly the result of relentless tuition increases.

Excluding student loans owed by borrowers currently in school or in their six-month grace period, 46 percent of student loans are not currently being repaid. Ten percent of student loans are delinquent, meaning the borrower has missed payments for thirty days or more. Another 13 percent are in deferment, which means payments have been postponed for various reasons. Another 14 percent are in forbearance, meaning the borrower has encountered economic hardship and had their payments suspended or reduced.

The remaining 8 percent are in default.

Fifty-four percent of loans are currently in repayment, up slightly from 51 percent at the same point in 2015.



Now, these statistics do not mean that taxpayers will need to pick up the tab for 46 percent of the outstanding student loan balance, but they do raise a red flag that taxpayers could be on the hook for a lot of money if these loans are not repaid in full. Moreover, high delinquency and default rates will hurt the ability of students to gain access to credit in the future, slowing the economy.

Unfortunately, the trend seems to be moving in the wrong direction. While delinquency rates dropped, overall loan nonperformance increased. Most notably, student loans in default (defined here as loans more than 360 days delinquent) increased 31 percent in the past year, to $56 billion. This far outpaced the 20 percent increase in the outstanding balance for all borrowers not in school or a grace period.



Extreme nonperformance of student loans is growing troublingly common. A strong predictor of student loan delinquency (or default) is whether the student has actually graduated from college, since students who drop out face limited employment prospects. Graduation rates, at 60 percent, have plenty of room for improvement.

There are some other notable data points from the Education Department release. Parent PLUS loans, an effectively unlimited stream of funds for taxpayers to finance undergraduate degrees, are up 9 percent to $71 billion, well outpacing the 6 percent increase in regular (Stafford) loans. Recipients of Parent PLUS loans are up 6 percent to three and a half million individuals — continuing a worrying trend that will likely result in ever-higher tuition inflation. I have previously argued that the PLUS program should be eliminated before it gets too large.

Total taxpayer exposure, including government guarantees of private loans, is up to $1.2 trillion. This is larger than outstanding auto loans ($1.1 trillion) and credit card debt ($0.7 trillion). The student loan balance is also growing faster than most other types of debt: credit card debt has grown 4.3 percent over the previous year, while housing debt has grown just 0.1 percent. Of the major debt types, only auto debt grew quicker than student loans, at a rate of 12 percent.

As time goes on, Congress will find it increasingly difficult to ignore student loans. Eliminating (or at least capping) the PLUS loan program would be a good start for reform. However, eventually more fundamental changes, including partial privatization, will be necessary. The longer Congress waits to act, the more difficult the transition will be.

[Ben Johnson]

Time for Rick Perry's cutbacks. Commerce, Education and Energy or was that Commerce, Interior and Energy? Throw in the EPA and round it out to 5.

Why does the federal government need anything more than defense and post office? Nobody really has to kill hillbillies for misdemeanor trespass. End federal student loans and tuition would probably cut in half.

[Harrison J Bounel]

The real culprit: the feds!

Student Loans: No Credit? No Collateral? No Problem!



Jonathan Newman

Last week, the Wall Street Journal published an article on rising student loan default and delinquency rates on the same day Ryan McMaken posted about rising tuition and fees at universities across the country.

The statistics are harrowing. Per the Education Department and the New York Fed, 43 percent of federal student loans are in postponement, delinquency, or default. And, while credit card and mortgage debt have fallen since the peak of the housing boom, student and auto loans have soared.


Student loan delinquency rates have surpassed the 2010 peak mortgage delinquency rate of the housing bubble and credit card delinquency in 2012.


The reason for this is that lending standards for federal student loans have deteriorated, down to one criterion it seems: the ability to sign your name. Finaid.org confirms that "Stafford, Perkins and PLUS loans do not depend on your credit score." Only PLUS loans are dependent on credit history at all, with the requirement that parent borrowers do not have adverse credit history.

Of course, all of this is reminiscent of a ballooning housing bubble. Instead of climbing home prices, we have climbing tuition. Instead of declining lending standards for home loans, we have the same for student loans. Instead of mountains of mortgage debt, we have an ever increasing amount of student debt. A cultural mandate that everyone deserves to go, should go or has a "right" to go to college has replaced a similar mandate about home ownership.

The biggest difference, however, is that there is no collateral for student loans. With mortgages in default, the lender can at least recover the house that served as collateral for the loan. The WSJ article reveals that some borrowers are using this fact to their advantage in choosing which bills to pay first:

Some borrowers aren't repaying even when they can. Research from Navient shows that borrowers prioritize other bills -- such as car loans, mortgages and heating bills -- over student debt. A borrower who fails to pay down an auto loan might have her car repossessed; with student loans, there is no such threat.

Another difference is that student loans cannot be discharged after bankruptcy. Even after default, the borrower is still on the line for the amount borrowed plus interest and other fees.

Some schools, like Purdue University, are trying income-based tuition payment, where students are funded today in exchange for a future cut from their post-school income. The New York Times reported on this new trend:

A senior studying mechanical engineering, one of Purdue's most popular majors, could get $15,000 in return for a commitment to pay 4.23 percent of his or her income for a bit less than eight years. Purdue estimates that the engineer would have a starting salary of about $56,000, and will be making monthly payments of $200. In that hypothetical situation, the student would eventually repay a total of $20,647.

But an English major can anticipate a starting salary of $34,000, by Purdue's calculation. For that student, the school would offer a different package, which might require a higher percentage of income over a longer period.

Indeed, such a set up gets closer to aligning the preferences of the borrowers and lenders in a responsible way. The lenders in this case have an incentive to lend to student borrowers who have a high probability of earning an income that can fully pay back what was borrowed. Many small firms are breaking away from the current student loan paradigm, realizing that probability of repayment is important in any loan contract.

You can bet that however this education bubble pops, abstractions like "greed" and "profit motive" will be blamed. They might get attached to profligate universities or private lenders, but no blame will ever reach the real culprit (and owner of most student loan debt): the federal government.