Another dispatch from the United States, whose bizarre system of financing higher education forces university students to take out huge amounts of debt before they have jobs. In the face of a weak job market for new graduates, the system is steadily collapsing:
Student loan debt has been
growing every quarter since at least 2003, the earliest data included in
the report. And delinquency rates look worse than previously believed.
student loan balances totaled $956 billion as of the end of September,
rising $42 billion from the previous quarter….
The New York Fed calculates that 11 percent of
student loans are now at least 90 days delinquent, with this rate now
officially passing the “serious delinquency” rate for credit card debt
for the first time.
That milestone may be misleading, though. The
report says in a footnote that “these delinquency rates for student
loans are likely to understate actual delinquency rates because almost
half of these loans are currently in deferment or in grace periods and
therefore temporarily not in the repayment cycle,” adding, “This implies
that among loans in the repayment cycle delinquency rates are roughly
twice as high.”
It’s worth mentioning, by the way, that student
loan debt cannot be discharged in bankruptcy, while most other forms of
debt can. One reason consumers have managed to shed so much debt is that
lenders ended up writing off quite a bit after the financial crisis.
Yves Smith piles on:
Student loan delinquencies are getting into nosebleed territory. The
Wall Street Journal, citing New York Fed data, tells us that student debt outstanding increased 4.6% in the last quarter.
Repeat: in the last quarter. Annualized, that’s a 19.7% rate of
increase* during a period when other consumer borrowings were on the
decline. And this growth is taking place while borrower distress is
becoming acute. 11% of the loans were 90+ days delinquent, up from 8.9%
at the close of last quarter. The underlying credit picture is certain
to be worse, since many borrowers aren’t even required to service loans
(as in they are still in school or have gotten a postponement, which is
available to the unemployed for a short period). And it was the only
type of consumer debt to show rising delinquency rates.
This is the new subprime: escalating borrowing taking place as loan
quality is lousy and getting worse. And in keeping with parallel to
subprime, one of the big reasons is, to use a cliche from that product,
anyone who can fog a mirror can get a loan.
The most popular type of loan, Stafford loans, allow undergraduates
to borrow up to $57,500, no questions asked. Perversely, this practice,
in isolation, looks rational. Look, if you could put borrowers in
virtual debt slavery, would you care much about lending standards? All
you need to worry about is death and those few cases where borrowers are
so clearly unable to ever work for a decent amount of money that they
can get their student debt that they can get their loans reduced or
Things are so bad that each media report seems able to present
anecdotes more extreme than previous accounts. The WSJ found a recent
graduate of Embry-Riddle Aeronautical University in Daytona Beach whose
education loans total nearly $230,000 for a college education that has
enabled him to get a job that pays $60,000. And $184,500 of that total
was borrowed by his unemployed, disabled mother through a program called