Rising college loan default rates

SatchelSF
Sun, 26 Aug 2018 15:53:26 +0000

It’s all a question I guess of how one defines “bailout,” @ucbalumnus. By bailout I mean that people will not have to live with the consequences of their bad decisions. So, in that sense, most financial institutions and players were insulated from their apparent poor forecasting (with notable exceptions, of course) with regard to the housing fiasco, and (perhaps) most student loan borrower will also not have to suffer for their poor decisions. If I am right, the USG will need to absorb these losses, imposing them upon taxpayers explicitly to the extent it can, and then implicitly upon the public generally through inflation to the extent it must.

The problem is large. Last I checked, student loan debt - the overwhelming majority of which is held by the USG - now surpasses all other categories of personal debt. Over $1.5T. We’re talking about some real money here, ~50% larger than credit card debt. Mortgage debt, at ~$9-10T is of course larger, but that is at least secured. Student loan debt is secured by nothing. The problem has literally blown up in the last decade, with aggregate debt tripling since 2007.

While it is nice to think that people should own their own decisions, society at large favors bailouts at all levels. This article contains a few figures, but is more valuable for its tone: it, and others like it, serve the function of preparing the public for the inevitable bailouts by characterizing the problem as one that will inhibit the economy generally, rather than rewarding poor decisions: https://www.bloomberg.com/view/articles/2018-08-20/student-loans-are-starting-to-bite-the-economy.

I’ll reiterate my advice: to the extent one can delay repaying principal without excessive costs, one should. The most unhappy people in the housing after math were those who paid their bills on time, while others skated. Saw plenty of that myself!