Out Of Control Student Loans

Once the Federal credit card gets behind something, how far and fast can it blow up and explode?  The student loan programs give a good example.  This is a trillion dollar or so Federal problem that you may never have thought was a problem.

I have located here something called the Federal Student Loan Programs Data Book from 2000, that gives a good summary of the financial status of the student loan programs from inception through that year.  It's a pdf - I hope the link works.  According to this book, the first Federal student loan guarantee program began in 1966.  By 1989, cumulative loan volume had reached $102 billion.  By the end of FY 2000, an additional program had been added, and the cumulative volume of the two was about $330 billion. 

Now to today.  According to this site, total outstanding student loan debt is now over $1 trillion.  Zero to one trillion in about 36 years.

Any chance of getting the trillion back?  Well, we can check in on how it's going so far.  From the web site ZeroHedge, we find the chart below just put out by the Federal Reserve.  It seems that the 90 day delinquent rate on these loans had reached about 6% by 2003, and then gradually crept up to about 9% and leveled off there in 2010 - 2011.  Early in 2012 it seemed to drop to 8.5% (election coming up?), but now suddenly when they report the Q3 2012 numbers it shoots up to 11%.

Oh, wait a minute, do you have to read the footnotes?  Here's what they say in 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.

So the real delinquency rate is actually 22%, and rising like a rocket.  Get ready to lose half or so of the trillion.  Of course, that's only the equivalent of one year's Medicare spending.

Transient