The Imminent Student-Loan Disaster
Over 20 million U.S. student borrowers are not making payments as the repayment on-ramp ends, raising concerns about delinquencies, credit scores, and the need for urgent reforms in the loan system.
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The article discusses the looming crisis in the U.S. student-loan system, highlighting that over half of student borrowers are not making payments as the repayment "on-ramp" period is set to expire at the end of September 2024. Legal challenges have stalled President Biden's debt forgiveness plans, while many borrowers have not resumed payments after a three-year pause due to the pandemic. As of March 2024, 20 million borrowers are either delinquent, in default, or utilizing forbearance, raising concerns about the sustainability of the student-loan program. The expiration of the on-ramp will lead to delinquencies being reported to credit bureaus, potentially harming borrowers' credit scores. The Education Department will regain the ability to garnish wages and withhold tax refunds from those who default. The article suggests that the Biden administration may extend the on-ramp to avoid immediate repercussions, but this is not a long-term solution. It calls for reforms to ensure borrowers are held accountable for repayments and proposes measures to prevent future crises, such as limiting student borrowing and requiring colleges to co-sign loans. The author emphasizes the urgency of addressing the nonpayment issue as the end of the on-ramp approaches.
- Over 20 million student borrowers are not making payments as the repayment on-ramp ends.
- Legal challenges have stalled significant student debt forgiveness initiatives.
- The expiration of the on-ramp will lead to negative credit reporting and potential wage garnishment for defaulted borrowers.
- The article advocates for reforms to ensure accountability in loan repayments.
- Urgent action is needed to address the impending student-loan crisis.
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Will there be 50B+ in student loan delinquencies in US?
The August 2024 Household Debt and Credit Report shows rising credit card delinquencies at 10.93%, increased bank provisions for losses, low student loan delinquencies, and concerns about the economy's resilience.
20 commentsOther countries are thinking that the cost of post-secondary education in the US is insane.
https://studentaid.gov/manage-loans/forgiveness-cancellation...
But, it turns out giving late-teenagers and young adults loans that can’t be discharged through the normal bankruptcy procedure, and then having every adult in their life tell them that they need to go to college to have the middle-class lifestyle their parents enjoyed, creates wildly a poisonous incentive structure.
Capitalism works pretty good, but it is reliant on people on both sides of the deal making rational decisions. There’s nobody doing due diligence on the loan issuer side. Why should they? They are offering these unique risk-free loans.
Most people don’t want to go through bankruptcy. It just exists as a looming specter to disincentivize bad investments. Let people discharge their loans through bankruptcy, and we’ll see the market work. College prices will go down when students can’t get ill-considered loans. I can’t promise this is the full fix but we should at least give the free market a try.
Many other first world countries have publicly subsided and affordable higher education. There seem to be plenty of good models to choose from.
If we don’t want to fund higher education then the government needs to step out entirely. As much as I think that’s the wrong way to go. This half-in half-out game that we play in so many areas seems to lead to failure so often. See the disaster that is Amtrak.
Compromise is important but it’s also important to realize when it won’t get you over the finish line. Similar wisdom to building a high-end desktop and not skimping on the PSU.
Very rarely dies one problem systemically rot out entire institutions, and so very rarely do you find such a huge mess can be cleaned up with a simple solution. But in this case it happens to be true. Student loans should not be special compared to other debt. The fact that they are has destroyed the value proposition of higher education and simultaneously made it unbelievably expensive. They teach garbage and gouge kids who have no understanding of the debt load they're taking on. Indentured servitude for nothing of value on return. If it could be discharged through bankruptcy, a university would have to offer it's students their dollar's worth or risk not getting paid, and they'd have to price an education at what it's worth.
Occupy has become too big to fail. But this market will correct, it has no choice, and when it does the result will be catastrophic. Or, we could fix it. Treat student loan debt like any other debt and allow it to be discharged through bankruptcy.
> Student loans are an aspect of generational warfare
> one can no more live without education than without water
> Student loans should be illegal
Will there be 50B+ in student loan delinquencies in US?
ITS NOT MORE NON PAYING ED LOAN BORROWERS....
Yes, the trend is there but its the wrong conclusion...
If you look at States spending per college student...you find a trend of less money spent per student as adjusted for inflation from before the programs were accessible 1960s to today 2024.
In Federalist systems...what often happens is when a Fed program starts up it acts to DEFUND the state efforts in the same need area...
Instead what should happen is what we do for first and secondary schools in that the Fed offers states thousands of dollars per student for school attendance.
An example:
Say 4 year costs $40,000 per student...
Fed pays $20,000 not through loans but same way we do for secondary...state school turns in attendance and student numbers and gets the money.
Or via loan which means that the loan costs acts to take out of the economy.... -loan costs of $80,000 direct to student..... $1million earning- $80,000 = no longer making house payment and purchase -ripple effect as 40% less housing purchases means house building labor has to go down by 40%
In short words, making state colleges somewhat more free acts as an economy GDP multiplier both in student income, gov taxes, and consumer buying...
In very attention grabbing words....making state colleges somewhat free with fed help increases GDP by 3 to 5 percent....which is why economists are somewhat screaming for it to be done.
I managed an R1 universities LMS for several years, and I taught at community college, as well as going through my own 8 year Associates to Bachelor adventure (without government assistance).
It sickened me, paying my way, and then later in my career, how many people I saw cheating and putting in minimal effort...but the expectation is to generally accept both of these and award the same degree. Cheating had to be extensive, or for profit, for it to result in anything that would prevent a degree from being possible.
The end result seems to be "why bother" if it's all the same, and probably less than half the students in a classroom actually want the education.
However, schools have to invest in more dorms, parking, teachers, etc. which all makes the costs higher... And businesses like Microsoft and GitLab want licenses based on total employees + students.. which is ignoring the actual usage/needs of different classes of employees and schools of students. GitLab wanted $250/user/year (effectively), which was almost twice our existing technology fee.
We like to blame universities for all the raised costs, and they are to blame for a lot of it.. but many operate close to non-profit, and their rates are set by what businesses demand for what they need to operate.
Between 2012–22, university tuition more than tripled and student loans were offered with the following terms: no debt collection or defaulting; no impact on credit rating; only repay 9% when you earn over £27,000/yr (average UK graduate salary is £38,500, ranging between £16,000 and £90,000[1]); debt wiped after 30 years.[0]
The idea was that having more graduates was a good thing, but this was in the midst of the post-2008 austerity hysteria so the government couldn't be seen to just be paying to subsidise higher ed. So the dumbest possible solution was devised, such that all the money given out as 'student loans' could be recorded on the balance sheets as loans that would one day be repaid (i.e., not an expense but an asset).
One can voluntarily make additional repayments, but there is no benefit to doing so because there is no downside to having the debt.[2] The interest gained (which is comparatively high) results in the balance usually increasing faster than most people are paying it off. The government has in the past backed off on highly controversial plans for retroactive changes to the repayment thresholds,[3] although in 2022 they did freeze the thresholds for three years (which had until then been rising with inflation).[4]
As a result, in 2042 a good amount of the first tranche of these loans will default, leaving a big hole in the budget. By that point, the total value of student loan debt is forecast to be £500bn.[5] It's estimated that over 80% of loans will never be fully repaid.[6] For comparison, UK annual spending on defence is ~£55bn and healthcare is ~£180bn.
[0]: https://www.moneysavingexpert.com/students/student-loans-tui... — I think post-2022 loans are similar, but I'm less familiar with them
[1]: https://www.savethestudent.org/student-jobs/whats-the-expect...
[2]: https://www.moneysavingexpert.com/students/repay-post-2012-s...
[3]: https://www.moneysavingexpert.com/news/2015/11/autumn-statem...
[4]: https://www.moneysavingexpert.com/news/2022/02/plan-2-studen...
[5]: https://commonslibrary.parliament.uk/research-briefings/sn01...
[6]: https://fullfact.org/education/about-17-students-are-forecas...
https://larson.house.gov/media-center/in-the-news/inside-fig....
It's coming and the government knows what it did.
Student debt being categorized is a separate uncancelable debt in bankruptcy is a curious aspect of this. Much like the mortgage crisis, student debt was not a problem as long as the value of a college education and the job market justified it as a good investment.
The fact that student loans have punitive lock-in for a class of consumer coming straight out of high school with almost no real world experience and arguably lacking biological cognitive aspects to appreciate long-term implications of the loan contract, that seems like collective exploitation.
In a sense, the generation did the proper thing. It was a quiet rebellion. They simply stop trying and paying. Regardless of the legal requirements of forced repayment, The government is now forced to deal with its malfeasance in policy.
I didn't like the tone of the article. It places all the blame on the lack of payment by loan holders, while absolving all responsibility for providing good loans by the loan givers. Situations very similar to the housing crisis of the aughts.
We've all seen what happens with bad debt on this website. It goes for pennies on the dollar or less.
And if the alleged scope of the problem is only 475 billion, as ridiculous as that sounds, this is not some nuclear bomb for the economy as a whole.
I would say just take it out of a couple years of social security payouts and Medicare. Obviously politically untenable.
EFF off James G Martin.
I am a 50 year old for reference.
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Will there be 50B+ in student loan delinquencies in US?
The August 2024 Household Debt and Credit Report shows rising credit card delinquencies at 10.93%, increased bank provisions for losses, low student loan delinquencies, and concerns about the economy's resilience.