Bubble Popping: Student Loan Delinquency Rates Spiking

students-loans2

Comparisons between the inflated student loan market and the housing bubble circa 2008 are apt. Both have resulted from heavy government intervention in the lending markets to promote, in the case of mortgages, home ownership and, in the case of student loans, college education.

The housing bubble popped, shoving us into a national economic malaise from which we’ve yet to recover. The student loan bubble hasn’t yet popped, but we seem to be getting closer. Via Zero Hedge, 90 day delinquency rates for higher education are spiking:

From the New York Federal Reserve’s quarterly review of student loans:

Outstanding student loan debt now stands at $956 billion, an increase of $42 billion since last quarter. However, of the $42 billion, $23 billion is new debt while the remaining $19 billion is attributed to previously defaulted student loans that have been updated on credit reports this quarter. As a result, the percent of student loan balances 90+ days delinquent increased to 11 percent this quarter.

That’s bad, but remember that student loans are a unique sort of loan. Because they’re almost exclusively backed by the government (especially since the Obamacare law essentially nationalized them) there are many deferments and grace periods for paying them back. In fact, almost have of these loans are not in the repayment cycle because they’re in deferment:

As explained in a Liberty Street Economics blog post, these delinquency rates for student loans are likely to understate actual delinquency rates because almost 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.

The bottom line: The student loan situation is almost certainly much worse than it appears on paper. And it looks pretty bad right now.

Meanwhile, the higher education industry is carrying on as though this isn’t going on. Tuition rates continue to rise. State schools demand ever larger budgets from the taxpayers. And it’s all justified by this romantic vision of a nation of well-heeled scholars marching off into the work force after the sort expensive matriculation that was, once upon the time, a luxury only afforded nobility or the very wealthy.

And why wouldn’t the higher ed folks behave this way? After all, they get their money up front. If the student graduates and then can’t pay off the student loan debt they’ve accumulated? Well, that’s really not higher ed’s problem now is it?

The only context in which we should be talking about higher education policy should be the context of reducing its costs. And the best way to do that is to privatize both the universities and student lending.

Rob Port is the editor of SayAnythingBlog.com. In 2011 he was a finalist for the Watch Dog of the Year from the Sam Adams Alliance and winner of the Americans For Prosperity Award for Online Excellence. In 2013 the Washington Post named SAB one of the nation's top state-based political blogs, and named Rob one of the state's best political reporters. He writes a weekly column for several North Dakota newspapers, and also serves as a policy fellow for the North Dakota Policy Council.

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  • kevindf

    This was predictable. What are they going to do with all the excess tenured pointy heads; rubber rooms, perhaps?

  • 11B40

    Greetings:

    My current conclusion is that the student loan situation we find ourselves in is a predictable outcome of former President Clinton’s “reform” of welfare entitlements. Now that there is little in the way of requirements for getting into non-elite colleges and a burgeoning technical training sector, the non-producers have another apple to pick off someone else’s tree. Judging by the number of “students” appearing before the USofA’s premier, elderly, female, Jewish jurist, Judge Judy that is, there is an inordinately large number of non-traditional students working their way through the Obama recession via student loans. The “welfare-ishness” of the trend is evident in the student’s willingness to lend the money borrowed to others who seem well qualified for the ne’er-do-well category.

    There’s hardly a piece of legislation that becomes law these days that doesn’t have some kind of surreptitious mini-welfare program hidden away in it.

  • zdavid53

    The government has pumped money into the system with the mantra that we must provide quality education at all costs. The problem is most of the money being pumped is not grants but rather student loans. Billions of dollars for education sounds good. The availability of dollars has resulted in higher teacher salaries by an explosive rate. The result is an increase in the bottom line which ends up in an explosion in the last ten years in tuition rates. Never worry, the fed will pump money and make any promise to the college students to get their vote. After graduation, former students wonder what happened. Now comes bigger promises. It will not stop as long as the federal government keeps feeding the beast. Parents working overtime didn’t have time to vote while students were given bussing and time off to get to the polls. In the end it’s the college graduates who have unwittingly been duped.

  • Harold

    Just get the Federal Govt’s printing press for money out and print as much as those students need, then promise them that everything will be paid for by those rotten rich people and oh yes you need to vote for democrats the rest of your natural life for this help they promise everyone they come into contact with. See problem solved there is no debt crisis amongst student loans its all a lie put on Joe six pack by the evil conservatives in this country.

  • geoff

    Rob. Didn’t you post a couple of months back where professors salaries jumped close to 50K since 2001. Isn’t it funny how all of these young college grads voted this time around? Government approves public sector union raises, grants student loans without collatoral (personal guarantees only), students graduate in 6 years vs. 4 years, $100k debt when they graduate, ^^^^^^ No jobs after graduation, riddled with debt, if they take an entry level job they get to start repaying 100k debt while earning $10 per hour. LOL

    • banjo kid

      Too become a physician it takes right around $250,000 in student loans and some go into the military and they get the loans paid for . Doctors would have to make a half a mill a year to pay these loans back in any time at all .

      • SportsDoc

        While that’s true, most Physician’s, once they finish residency, go into group or Corporate (Sanford) practices and those groups or Corporations usually “buy out” the debt as part of the Physician contract. Very few MD’s pay back their own student loans.

        Of course, it could be argued that when those loans are bought out, someone (patient fees) ends up paying for it in a trickle down effect.

        One group that does pay for most of their student loans that are usually between $200-300K are graduating Dentists, and most of them go into Private or small group Practice and do have to pay their loans back.

        And, yes it’s true, one way these Professional students get their loans forgiven is to go into the military for 3-6 years.

        • http://sayanythingblog.com Rob

          Very few MD’s pay back their own student loans.

          Of course, it could be argued that when those loans are bought out, someone (patient fees) ends up paying for it in a trickle down effect.

          It could also be argued that these physicians might be able to get paid a little more, or that more of them could be hired meaning fewer hours worked, if their employers didn’t have to pick up the tab on their education.

        • awfulorv

          Again, those that will look can see that corporations, including medical corps. don’t pay, not only taxes, but other expenses, which are passed on to the consumer. As Peter, Paul, and Fatso, sang many years ago…”when will they ever learn, oh when will they ever learn”?

    • http://sayanythingblog.com Rob

      Rob. Didn’t you post a couple of months back where professors salaries jumped close to 50K since 2001.

      I did indeed:

      https://www.google.com/url?q=http://sayanythingblog.com/entry/average-professor-salary-at-ndsu-is-over-100000-per-year-has-grown-42500-since-2012/&sa=U&ei=mji2UN7sBMrlrAfbtYHgDA&ved=0CAcQFjAA&client=internal-uds-cse&usg=AFQjCNGINBvoOGsmkQHvVGUMR0u1zj9LUw

      Not only that, but remember that pay for the university presidents has also gone up significantly over the last decade. It’s more than doubled for the presidents at NDSU and UND.

  • banjo kid

    The schools has raped the young people wanting an education pure and simple. they are the ones banking all the money also they do not worry about loans being paid back they have the money now.

  • mikemc1970

    $200K of debt for a degree in Minority Studies. It’s like payday advance loans for higher education. You’ll never find a job that pays well enough to get out of debt.

  • gary gulrud

    Righteous post.

  • Waski_the_Squirrel

    I’ve gotten in some trouble for telling my students not to do loans when they go to college. I never did. Instead I worked 3 different jobs. I didn’t party in college: I had no time! But I appreciated it and, when I finished, had the financial freedom to work where I wanted: North Dakota with its low salaries. Had I graduated with debt, I would never have come to North Dakota. I would have worked somewhere that paid enough for me to live and pay off debt. Instead, I’m working my dream job teaching high school science and math in a rural part of North Dakota.

    Education should be encouraged, but so should the maturity and sacrifice to pay for it. That is missing in our culture: the notion of sacrificing and doing without in order to get what we want in the long run.

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