Archive for December 4th, 2012

December 4, 2012

Did the student loan bubble just burst?

by Grace

This “Scariest Chart Of The Quarter” posted on Zero Hedge is making the rounds on the internet.  The chart is from the New York Federal Reserve’s quarterly report.

This increase from 9% to 11% in new delinquent student loans may actually be under-reported, according to a footnote in the Fed report.

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.
An ominous pronouncement from the Zero Hedge writer:

And so it’s official: Pop goes the student loan bubble, as just confirmed by the Fed.

A lively discussion in the comments section includes some arguments against this claim, but most seem to think the end is near.  If this sharp uptick is actually the beginning of the end, an increasing percentage of debtors may qualify for the Income-Based Repayment Plan (IBR) and eventual loan forgiveness.  That would mean taxpayers will be paying off these loans.


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