ZeroHedge: The Scariest Chart Of The Quarter: Student Debt Bubble Officially Pops As 90+ Day Delinquency Rate Goes Parabolic
(h/t: John Difool)
Submitted by Tyler Durden on 11/27/2012 16:10 -0500
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.
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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.
Let’s hear from our colleagues at 2.0: The Blogmocracy:
Says John Difool:
Either the student loan bubble just popped or it will in a few short weeks. This really going to be a death knell for the stock market & economy.
A friend of mine who’s wife is in school right now just had her student loans cut off with no explanation given. I wonder how many other folks this has just happened to?
Student loan debt is not dischargable in bankruptcy except in extreme cases (total disabled/car wreck etc.), and in many cases the parents have co-signed.
50% of law school grads from last year do not have jobs and many of them owe like $50,000 to $100,000 ie Harvard on student loans.
Many voted for Obama, but looks like he can not print money fast enough and our boat is sinking via the borrowing hole in the bottom.
…As soon as Obatomy won the election the delinquent rate on student loans spiked as if many of them were saying “Gee, Obama’s gonna be Prezzy again. I don’t have to pay back my loan.” They could be right. Obama could just issue an executive fatwah declaring all student loans are forgiven, null and and void.
Could that possibly happen?
The Fed will sell Student Loan Bonds to any dumb shmuck who will buy them and “We The People” are the cattle…a/k/a the stuff put up at the Ones of Chinas Pawn Shop.
Not unless he plans to write a check to cover them, he can’t.
Most student loans are issued by banks and guaranteed by the government, much like VA mortgages.
Forgiving them means the government has to pay them off.
Answers John Difool:
Yes, funny that. Like I said in that post, a friend of mines wife has had her loans cut off with no explanation.
My guess is, this is happening all over the country right now & the money will be cut off until the Fed guarantees a bail-out which they most certainly will do since most of these loan companies are headed & staffed by powerful & influential Democrats.
Not to mention they aren’t going to let funding get off to universities to see them shuttered or mass layoffs implemented since that for the most part are the grist mills for the corruption of our youth & where the liberal sausage gets made.
huckfunn isn’t so sure:
That’s the assumption based upon law, etc… How many GM bond holders got paid for their bonds when Obama grabbed GM? I’m not much of a finance/banking/econ guy but I know that this is a lawless regime and they are truly out to overturn the apple cart in every way possible. Everything we have accepted all of our lives as inviolable law is being swept away on a daily basis.
Since those loans are held by the same banks that paid for Obama’s re-election, I’m pretty sure they’ll get paid.
And we’re talking about a trillion dollars here, not $40-50 billion.
1389 dons her prediction hat again:
So much for those young chumps who voted for Obama in the hope that he would bail them out of their student loan predicament. They should have remembered that the bursting of the subprime mortgage bubble led to the bailout of the big financial institutions at taxpayers’ expense – but not to debt forgiveness for individual mortgagors.
That said, it’s possible that we will get some legislation that will ‘allow’ easier terms for beleaguered student debtors to repay what they owe, perhaps in exchange for some form of indentured servitude. By the time any bailout bill gets through the House and Senate and is signed, the repayment terms for the student debtors won’t be anywhere near as easy as those students hoped when they all voted for Obama. In any event, the taxpayers will be holding the bag for any bailout that takes place – and who will those taxpayers be? Those same student debtors.
The upshot? Everyone other than Obama’s cronies in academia and the financial world will end up screwed. You can take THAT to the bank.