Saturday, September 29, 2012

$120+ Billion In Federal Student Loans In Default

$120+ Billion In Federal Student Loans In DefaultPresenting the next bubble to burst. The Department of Education reported yesterday that $120+ billion in federal student loans are now in default. I reported in March (in one of my first posts) that 1/3 of federal student loans were in arrears. Today, just 6 months later, a full 1/2 of outstanding loans are in arrears and 13% are officially in default.

Notice in the following table that the federal student loan default rate of 13% and the amount of federal student loans outstanding (nearly $1 trillion) have nearly matched the rate and amount of subprime mortgage defaults during the peak of the mortgage meltdown in late 2007. Also notice that the projected subprime mortgage default rate during the peak of the crisis was 20%. A 20% default rate of federal student loans would be close to $200 billion. From Responsible Lending (.pdf):

$120+ Billion In Federal Student Loans In Default - table


Contrary to my libertarian principles, I stated back in April that if there's a government bailout program that is needed, it's student loan forgiveness. Federal student loans have made the cost of tuition rise exponentially (many of these loans shouldn't have been made), but the damage has already been done.

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