Thursday 29 November 2012

Student Debt


The Scariest Chart Of The Quarter: Student Debt Bubble Officially Pops As 90+ Day Delinquency Rate Goes Parabolic


28 November, 2012


We have already discussed the student loan bubble, and its popping previously, most extensively in this article. Today, we get the Q3 consumer credit breakdown update courtesy of the NY Fed's quarterly credit breakdown. And it is quite ghastly. As of September 30, Federal (not total, just Federal) rose to a gargantuan $956 billion, an increase of $42 billion in the quarter - the biggest quarterly update since 2006.




But this is no surprise to anyone who read our latest piece on the topic. What also shouldn't be a surprise, at least to our readers who read about it here first, but what will stun the general public are the two charts below, the first of which shows the amount of 90+ day student loan delinquencies, and the second shows the amount of newly delinquent 30+ day student loan balances. The charts speak for themselves.




This is how the Fed described this "anomaly":







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.


oh and this from footnote 2:







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.



We'll let readers calculate on their own what a surge in 90+ day delinquency from 9% to 11% (or as footnote 2 explains: 22%) in one quarter on $1 trillion in student debt means. For those confused, read all about it in this September article: "The Next Subprime Crisis Is Here: Over $120 Billion In Federal Student Loans In Default" which predicted just this.

* * *

And so it's official: Pop goes the student loan bubble, as just confirmed by the Fed.


Luckily student debt is dischargeable in bankruptcy. Oh wait. It isn't.





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