In ‘The Treasury’s Worst Case Scenario: Over $3.3 Trillion In Student Loans In A Decade,’ we presented the following rather disturbing graphic which shows that in the event unemployment ‘edges up’ after 2017 and the gap between unemployment and underemployment doesn’t narrow between now and then, the size of the government’s direct loan program will balloon to $3.3 trillion by 2025.
Based on the real delinquency rate for student borrowers – which, as we have shown on dozens of occasions, is around 30% – some $1 trillion in student loans will be on their way to default in the space of 10 years, and that number could be much higher depending on how many former students opting to enroll in IBR payment plans end up with calculated payments of zero due to their financial circumstances. Note also that extrapolating from ‘delinquent’ to ‘default’ isn’t as much of a stretch as it once was and is in fact becoming less of a stretch by the year because we pointed out earlier this month, the percentage of borrowers delinquent by 90 days or less who eventually make a payment is falling steadily.
With tuition rates rising by a staggering 24% every five years, just about the last thing the government (and by extension, the taxpayer) needs is another reason to suspect that the student debt bubble is going to start growing even faster than it already is. Unfortunately, new evidence suggest that just might be the case.
Via WSJ:
This post was published at Zero Hedge on 04/30/2015.
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