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RE:
From Tyler over on Zero Hedge.

Bullish for sure. BTFD.  Gold, Bitchez!

RE

The Next Subprime Crisis Is Here: Over $120 Billion In Federal Student Loans In Default
 

Submitted by Tyler Durden on 09/28/2012 20:52 -0400
[*]Ben Bernanke
[*]Countrywide
[*]default
[*]Default Rate
[*]Federal Reserve
[*]New Century
[*]President Obama
[*]Reality
[*]recovery
[*]Sallie Mae
[*]Student Loans
[*]Subprime Mortgages



Whereas earlier today we presented one of the most exhaustive presentations on the state of the student debt bubble, one question that has always evaded greater scrutiny has been the very critical default rate for student borrowers: a number which few if any lenders and colleges openly disclose for fears the general public would comprehend not only the true extent of the student loan bubble, but that it has now burst. This is a question that we specifically posed a month ago when we asked "As HELOC delinquency rates hit a record, are student loans next?" Ironically in that same earlier post we showed a chart of default rates for federal loan borrowers that while rising was still not too troubling: as it turns out the reason why its was low is it was made using fudged data that drastically misrepresented the seriousness of the situation, dramatically undercutting the amount of bad debt in the system.
Luckily, this is a question that has now been answered, courtesy of the Department of Education, which today for the first time ever released official three-year, or much more thorough than the heretofore standard two-year benchmark, federal student loan cohort default rates. The number, for all colleges, stood at a stunning 13.4% for the 2009 cohort. The number is stunning because it is nearly 50% greater than the old benchmark, which tracked a two year default cohort, and which was a "mere" 8.8% for the 2009 year. Broken down by type of education, and using the new improved, and much more realistic benchmark, for-profit institutions had the highest average three-year default rates at 22.7 percent, with public institutions following at 11 percent and private non-profit institutions at 7.5 percent. In other words, more than one in five federal student loans used to fund private for-profit education, is now in default and will likely never be repaid!
And while it is impossible using historical data to extrapolate with precision what the current consolidated federal student loan default rate is, we do know that there is now $914 billion in federal student loans (which also was mysteriously revised over 50% higher by the Fed just a month ago). Using simple inference, all else equal (and all else has certainly deteriorated), there is now at least $122 billion in federal student loan defaults. And surging every day.
Ladies and gentlemen: meet the new subprime.
Another that quietly reported today on the change in the Department of Education's default tracking methodology was Bloomberg in "Student-Loan Default Rates Soar as Federal Scrutiny Grows." Needless to say, it was not impressed, because the new data indicated that there had been a concerted push by all sides to misrepresent the severity of the student debt problem, by over 50%. The "why" is quite simple:

 
 
The Education Department has revamped the way it reports student-loan defaults, which the government said had reached the highest level in 14 years. Previously, the agency reported the rate only for the first two years payments are required. Congress demanded a more comprehensive measure because of concern that colleges counsel students to defer payments to make default rates appear low.
 
“Default rates are the tip of the iceberg of borrower distress,” said Pauline Abernathy, vice president of The Institute for College Access & Success, a nonprofit based in Oakland, California.
 
On the stump, President Obama has touted an executive order that eases the process for applying for a loan program that lets students make lower payments tied to their income -- easing their burden and making it less likely they will default.
 
Under the new three-year measure, colleges with default rates of 30 percent or more for three consecutive years risk losing eligibility for federal financial aid. Schools can also be barred from the program if the rate balloons to 40 percent in a single year. The sanctions don’t take effect until results are released in 2014.

There it is again: a mega-government which gives amply with one hand, and yet with the other skews the incentives in the system to represent reality as far better than it truly is. One way to underwhelm reality and to soothe the blow of the true extent of the popped student loan bubble was using a shorter data cohort.

 
 
Some for-profit colleges encourage students to defer
payments in their early years, in an effort to keep down default rates that could jeopardize their federal funding, according to a report by the Senate Committee on Health, Education, Labor and Pensions released in July.
 
The report accused for-profits of using the tactic to manipulate their default rates. It singled out the role of SLM Corp. (SLM), the largest U.S. student-loan company commonly known as Sallie Mae. A subsidiary, General Revenue Corp. counsels for- profit colleges on keeping down default rates. University of Phoenix, owned by Apollo Group Inc. (APOL), is a customer, according to the Congressional report

Whether or not the reason for the government to demand more accurate data was to scapegoat the private sector yet again, what it did instead if expose just how deep the student loan hole already is. Because now that we know the revised default data, we can put it together with the recently revised as of a month ago revised total student loan notional number. Recall from the Fed:

 
 
The revisions to the data are fairly substantial: as of our August report, 2011Q2 student loan balances were reported at $550 billion. We now estimate that student loans outstanding in that quarter (2011Q2) amounted to $845 billion, $290 billion or 53.7% higher than we reported earlier. These previously excluded loans were also missing from the total debt outstanding; as a result, our estimate of total debt outstanding in 2011Q2 is also revised upward by $290 billion (2.5%).

This is what student debt looked like a month ago when we first reported the data:

One can see why everyone in the Federal administration has been so reticent about disclosing the true state of the Federally-funded student loan bubble. Because if one simply assumes the rising default rate has kept constant across all recent cohorts since the updated 2009 number, it would mean broadly speaking, that of the $914 billion in Federal Student Loans at least 13.4% will end up in default. Over $120 billion.
Of course all else is never equal: Federally funded student loans are now increasing at a rate of over $60 billion per quarter. This means that in just about 18 months, the total size of the Federal student loan market will hit $1.3 trillion. Why is that number important? Because that is how big the subprime market was at its peak in late 2007, when everything went to hell and the last credit bubble popped. From Responsible Lending:

As can be seen on the table above, 20% of all subprime mortgages was then expected to default (the ultimate number ended up being far higher). Note that as mentioned above, already over 22% of for-profit student loans are in default.
In other words, the Federal student loan bubble has not only popped, but has all the carbon copy makings of the next subprime crisis. Only when it pops it won't be New Century and Countrywide Financial on the hook: it will be all of America's taxpayers. Remember: these are Federal loans.
And the biggest problem: unlike housing where there is always at least some recovery of collateral, as the house remains, with student debt there is no recoverable asset as the asset is a human being. Granted said human effectively becomes a debt slave courtesy of the non-discharge nature of the student loan, which can not be wiped out even with a personal bankruptcy, but assuming the taxpayer can recover any money using discounted garnished wage flows of what are effectively perpetual(ly discouraged) debt slaves of the system, is simply idiotic.
We give Bernanke at most 2 years before everyone is aware of the true extent of not only the student debt bubble, but that it has already popped, at which point student loans will be the next "asset" to be monetized by the Federal Reserve.[/list]

widgeon:
This student loan situation is the most egregious violation of the citizenry by TPTB.  The system is set up to entice naive & believing young people into outrageous loans before they even know what they've done.  Also, whereas before loans covered pretty much only tuition, housing (on campus), etc. now yoiu can get enough to actually live a lower middle class existence - as long as the loans keep coming.

I'm read some, but am certain, that there are many 50 & 60 year olds that are "going back to school" for the sole purpose of getting access to the student loan system where they can get $20k or so living expenses as long as they are signed-up for a couple classes.  This is another case where the "soup-lines" are hidden.

g:

--- Quote from: widgeon on September 30, 2012, 05:10:56 AM ---This student loan situation is the most egregious violation of the citizenry by TPTB.  The system is set up to entice naive & believing young people into outrageous loans before they even know what they've done.  Also, whereas before loans covered pretty much only tuition, housing (on campus), etc. now yoiu can get enough to actually live a lower middle class existence - as long as the loans keep coming.

I'm read some, but am certain, that there are many 50 & 60 year olds that are "going back to school" for the sole purpose of getting access to the student loan system where they can get $20k or so living expenses as long as they are signed-up for a couple classes.  This is another case where the "soup-lines" are hidden.

--- End quote ---

It was the most horrific crime of the banksters to date widgeon.

If ever a group of loans should be totally forgiven it is these. They conned impressionable young trusting kids into slavery for life with the school teachers and colleges accomplices in their hateful crime of lies and phony promises.

If a thirty year old has to have something now and goes into hock with clearly published rates of interest on his credit card, Frig him. Could care less what they do to him with their usury, just another ass hole that couldn't save up to buy it. A sixteen year old kid listening to his parents, teachers, and guidance councilors as this being the proper way to make it in the world is truly a national shame and disgrace.

What a way to build a strong democracy, everyone starting out adulthood with the bankster's chains wrapped around their neck.               :exp-cry: :exp-angry: :exp-cry: :exp-angry:

widgeon:
Here are a couple successful debtors trying to get out from their pile.

http://newsok.com/oklahomas-1st-congressional-district-candidates-have-large-student-loan-debts/article/3714700

The "democrat" has over $100k in loans and an income $36k ... disaster.

The 'conservative' "republican" (and his wife) have over $350k in loans and $111k in income.

RE:
We haven't chatted this monster up in a while.

RE

http://www.counterpunch.org/2016/04/18/blanket-student-debt-amnesty-now/

April 18, 2016
Blanket Student Debt Amnesty Now

by Mike Whitney


A couple weeks ago the Wall Street Journal confirmed our worst fears about the student loan program, that is, that it was going to blow up in the government’s face just like all the other gigantic debt-bubbles that preceded it. For the sake of background, here’s a brief excerpt from the article that will bring readers up-to-date:

    “More than 40% of Americans who borrowed from the government’s main student-loan program aren’t making payments or are behind on more than $200 billion owed, raising worries that millions of them may never repay.

    The new figures represent the fallout of a decadelong borrowing boom as record numbers of students enrolled in trade schools, universities and graduate schools.

    While most have since left school and joined the workforce, 43% of the roughly 22 million Americans with federal student loans weren’t making payments as of Jan. 1, according to a quarterly snapshot of the Education Department’s $1.2 trillion student-loan portfolio.” (More Than 40% of Student Borrowers Aren’t Making Payments, Wall Street Journal)

While it all sounds very shocking, the real eye-popper was buried deep in the text where it was most likely to be ignored. Here it is:

    “Carlo Salerno, an economist who studies higher education and has consulted for the private student-lending industry, noted that the government imposes virtually no credit checks on borrowers, requires no cosigners and doesn’t screen people for their preparedness for college-level course work. “On what planet does a financing vehicle with those kinds of terms and those kinds of performance metrics make sense,” he said.” (WSJ)

Let’s see if I got this right: The Fed, government regulators and the entire political establishment looked the other way while the mortgage industry cranked out trillions of dollars of “toxic” subprime liar’s loans that Wall Street bundled into garbage bonds that wound up blowing up the entire global financial system and plunging the world into a severe recession from which we still haven’t recovered. Then, a couple years later,  they start pumping up another lethal trillion-dollar credit bubble, this time comprised of equally toxic “student liar’s loans”?

Is that what they’re saying?

That’s it, alright. This is why there should be blanket amnesty for all the student debt generated in the last decade. It’s because the whole thing was another filthy credit-swindle from the get go.

And let’s be honest; it’s not the government lenders who were scammed in this deal, it’s the students. They’re the victims, in the same way that the applicants, who borrowed hundreds of thousands of dollars for mortgages they could never repay, were the victims. The lender is ALWAYS responsible when a loan that goes belly up.  ALWAYS.  Because it’s their freaking job to figure out who can pay and who can’t. Period. That’s all they do, lend money. And they’re pretty damn good at it too, when they actually expect to get repaid, which in this case, they don’t. That’s why we know it’s a scam.

So now we’re supposed to believe that no one could have foreseen this trainwreck ahead of time. Is that it? Is that what Obama and the media and the rest of the crooked financial establishment want us to believe; that no one could known that 40 percent of the borrowers were going to ‘stiff’ the government?

Baloney. The handwriting was on the wall from the very beginning. Take a look at this interview I did with professor Alan Nasser in 2011.

    M Whitney–Is it fair to say that the student loan industry is a scam that targets borrowers who will never be able to repay their debts?

    Alan Nasser—It’s as fair as fair can be. First, the student loan industry is huge – a large majority of students from every type of school are in debt. Debt is held by 62 percent of students enrolled at public colleges and universities, 72 percent at private non-profit schools and 96 percent at private, for-profit (“proprietary”) schools. It was announced last summer that total student loan debt, at $830 billion, now exceeds total US credit card debt, which is itself bloated to the bubble level of $827 billion. And student loan debt is growing at the rate of $90 billion a year. So we’re not talking small change.

    How many of these students are subprime borrowers? That is, how closely do student loans resemble junk mortgages? The answer hinges on three factors: how these loans are rated, how likely the borrower is to repay, and the default rate on student loans.

    …the Department’s Inspector General Office employed a more realistic method in its 2003 audit, which calculated lifetime risk. It estimated that over their lifetime between 19 and 31 percent of college freshmen and sophomores would default on their loans… For community college students, the prospects were grimmer still: between 30 and 42 percent were expected to default. And the future was most discouraging for students at for-profits: between 38 and 51 percent were anticipated to default. You can see that the default rate among student borrowers is expected to be higher than that for subprime home mortgages.” (The Student Loan Swindle, CounterPunch)

Repeat: “between 38 and 51 percent were anticipated to default” … “Higher than subprime mortgages.”

Bottom line: The shysters who issued these roadside bombs knew from the beginning that a high percentage of them were going to blow up. What more proof do you need that the whole thing is crookeder then hell?  And this interview was conducted back in 2011, which means that these credit chiselers knew what they were doing from the very beginning. The Obama-Fed-Wall Street cabal wanted to inflate another massive credit bubble so the thieving lenders could skim heftier profits while Obama crowed about his great economic recovery. That’s what it’s all about. And they didn’t care that gullible college kids were being drawn-and-quartered so they could make more dough either.

What kind of country is this anyway, where the government deliberately bamboozles its kids about the “value of a good education” just so they can extort as much money as possible from them in the future?

Here’s Nasser again:

    “Alan Collinge of StudentLoanJustice.org has shown that the Department of Education makes more on defaulted loans than it does on loans in good stead. Washington has just as much an interest in encouraging student loan defaults as do, for example, collection companies, which obviously live off defaults.”

“Cha-ching!” That’s the happy sound of your predatory government fleecing your children.

It’s outrageous!

Of course the private lenders make even more than the government does because they’ve developed a whole system for extracting as much wealth as possible from their unwitting victims. No surprise there. Private lenders always get their pound of flesh and then-some.

So here’s a question for you: Why do you think Congress passed legislation making it impossible to discharge student loan debt through bankruptcy just months before the surge of student lending began? Do you think it was all just a big coincidence?

Give me a break! This thing has “setup” written all over it. Congress knew what they were doing.  They knew they were part of  a big sting operation targeting credulous students who never guessed that their government was just a bunch of lousy shakedown artists.  And now congress can pat themselves on the back for a job well done, for luring millions of millennials into a lifetime of indentured servitude. That’s quite an accomplishment, don’t you think?

Hurrah, for Congress! The scumbags.

Here’s Alan Nasser again:

    “Because Congress chose to withhold key consumer protections from student borrowers …the latter are virtually forced to enroll in “loan rehabilitation” programs. The borrower is subject to a form of extortion, whereby (s)he essentially buys her way out of allegedly more severe penalties with payments that are rarely applied to principal or interest on the defaulted loan. These outlays are in effect the price of access to a substitute loan, accompanied of course by additional fees. The new loan is typically larger than the defaulted one…

    The fee system is at the heart of the private lenders’ affection for default. It gives to loan guarantors the same kind of interest in default that is so obvious in the case of collection companies. Collinge has analyzed IRS filings of guarantors of federal student loans. It turns out that guaranty agencies average about 60 percent of their income from fees alone. If the default rate declines, so do the fees and income of the guarantors.” (CounterPunch)

Get the picture? So the worse it gets for the students, the better it gets for the lenders. Students get a lifetime of drowning in red ink, and lenders get a nice fat bonus of 60 percent off the top. Nice, eh?

Don’t you love America?

Let’s cut to the chase: Students have been defrauded on a massive scale by the credit Mafia, the brotherhood of crooks (Gov and private) whose only goal in life is to suck as much blood as humanly possible out of their victims and then move on to the next. That’s how the game is played.

The only way to defeat this cadres of racketeers is to stop paying. That’s it. No more money for you.

We’re not talking about lower rates, or partial relief or a temporary debt moratorium. Oh, no. We’re not looking for any namby-pamby, half-loaf “loser” solution.  We’re talking about total, blanket student debt amnesty. Wipe the slate clean. End the debt now.

And if it crashes the US Treasury, well, good riddance.
Join the debate on Facebook

MIKE WHITNEY lives in Washington state. He is a contributor to Hopeless: Barack Obama and the Politics of Illusion (AK Press). Hopeless is also available in a Kindle edition. He can be reached at fergiewhitney@msn.com.

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