news: more than 25 percent of student loans already delinquent

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businessinsider.com But the debt p roblem has been fixed, right? http://w w w .businessins ider.com/ the-next-shoe-drops-more-than-25-of-student- loans-are-already-delinquent-2012-3 More T han 25% Of Student Loans Are Already Delinquent... Tyler Durden, Zero Hedge | Mar. 25, 2012, 3:47 PM | 3,516 | 42 Ty ler Durden, Zero Hedge | M ar. 25, 2012 , 3:47 PM | 3,516 | Back in late 2006 and early 2007 a few (soon to be very rich) peop le were warning anyone who cared to listen, abou t what cracks in the subprime facad e mea nt f or the hou sing sec tor and the credit bubble in gener al. They were largely ignored as none other than the Fed chairman promise d that al l is fine (see here).  A few mon th s later New Cent ur y collapsed and the rest i s history: ten s of trillions later w e are still picking up th e p ieces and hou sing co nt inues to collapse. Yet one bubble which the Federal Government managed to blow in the meantime to staggering proportions in virtually no time, for no other reason than to give the impressi on of consumer releveraging, was the student debt bubble, which at last check  ju st su rpassed $1 trillion, and is growing at $4 0-50 b illion each month. Howev er, ju st like subprime, the first cracks have now appeared. In a report set  to co nv ince borrowers that Studen t Loan AB S are still safe - of course th ey are - they are backed by all tax payers after all in th e form of the Family Federal E ducation Program - F itch discloses something rather troubling, namely that of the $1 trillion + in student debt outstanding, " as many as 27% of all student loan borrowers are more than 30 days past due." In other words at least $270 billion in student loans are no longer current. That this is happening with int erest rates at record lows is quite stunning and a loud wake up call that it i s not rates that determine affordability an d sustainability: it is general economic conditions, deplorable a s they m ay be, which have made the popping of the student loan bubble inevitable. It also means that if the rise in interest rate continues, then the student loan bubble will pop that much faster, and bring another $1 trillion in unintended consequences on the shoulders of the US taxpayer who once again will be left footing the bill. From Fitch: Fitch believes most student loan asset-backed securities (ABS) transactions remain well protected due to th e go v ernmen t guaran tee on Fami ly Fede ral Education Prog ram (FFE LP) loans. The Federal Reserve Bank of New York recently reported that as many as 27% of all st udent loan borrowers are more than 30 days past due. Recent estimates mark outstanding studen t

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Page 1: News: More than 25 Percent of Student Loans Already Delinquent

7/29/2019 News: More than 25 Percent of Student Loans Already Delinquent

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businessinsider.com

But the debt problem has been fixed, right?

http://www.businessinsider.com/the-next-shoe-drops-more-than-25-of-student-

loans-are-already-delinquent-2012-3

More Than 25% Of Student Loans Are AlreadyDelinquent...Tyler Durden, Zero Hedge | Mar. 25, 2012, 3:47 PM | 3,516 | 42

Tyler Durden, Zero Hedge | Mar. 25, 2012, 3:47 PM | 3,516 |

Back in late 2006 and early 2007 afew (soon to be very rich) peoplewere warning anyone who cared tolisten, about what cracks in thesubprime facade meant for thehousing sector and the credit bubblein gener al.

They were largely ignored as noneother than the Fed chairmanpromised that all is fine (see here).

 A few months later New Centurycollapsed and the rest is history: tensof trillions later we are still picking upthe pieces and housing continues tocollapse.

Yet one bubble which the FederalGovernment managed to blow in the meantime tostaggering proportions in virtually no time, for no other reason than to give the impression of consumer releveraging, was the student debt bubble, which at lastcheck just surpassed $1 trillion, and is growing at $40-50 billion each month. However, just likesubprime, the first cracks have now appeared.

In a report set to convince borrowers that Student Loan ABS are still safe - of course they are - theyare backed by all taxpayers after all in the form of the Family Federal Education Program - Fitchdiscloses something rather troubling, namely that of the $1 trillion + in student debt outstanding, "as

many as 27% of all student loan borrowers are more than 30 days past due."In other words at least $270 billion in student loans are no longer current. That this is happeningwith interest rates at record lows is quite stunning and a loud wake up call that it is not rates thatdetermine affordability and sustainability: it is general economic conditions, deplorable as they maybe, which have made the popping of the student loan bubble inevitable.

It also means that if the rise in interest rate continues, then the student loan bubble will pop thatmuch faster, and bring another $1 trillion in unintended consequences on the shoulders of the UStaxpayer who once again will be left footing the bill.

From Fitch:Fitch believes most student loan asset-backed securities (ABS) transactions remain well protecteddue to the government guarantee on Family Federal Education Program (FFELP) loans. TheFederal Reserve Bank of New York recently reported that as many as 27% of all studentloan borrowers are more than 30 days past due. Recent estimates mark outstanding student

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loans at $900 billion- $1 trillion. Fitch believes that the recent increase in past-due and defaultedstudent loans presents a risk to investors in private student loan ABS, but not those in ABS trustsbacked by FFELP loans.

Why is the bubble starting to pop now?

Several macroeconomic factors are putting pressure on student loan borrowers. The main ones areunemployment and underemployment. The Bureau of Labor Statistics estimates the current

unemployment rate for people 20 to 24 years old at nearly 14% and for those 25 to 34 years old,8.7%. Underemployment is difficult to measure for these demographics, but it is likely having anegative impact.

 Actually, no: the unemployment for 18-24 year olds is 46%. Yup: 46%.

 A month ago, Zero Hedge readers were stunned to learn that unemployment among Europe's youngadults has exploded as a result of the European financial crisis, and peaking anywhere between46% in the case of Greece all they way to 51% for Spain. Which makes us wonder what the reactionwill be to the discovery that when it comes to young adults 18-24) in the US, the employmentrate is just barely above half, or 54%, which just happens to be the lowest in 64 years, and 7%

worse than when Obama took office promising a whole lot of change 3 years ago.

 And while technically this means 46% are unemployed, or the same percentage as in Greece, theUS ratio, which comes from Pew, shows the ratio as a % of the total population: a very sensitivetopic now that every month we see another 250,000 drop off mysteriously from the total labor force.However, unlike those on the trailing age end, young adults by definition are the labor force in their age group demographic, so it would be difficult to explain away this horrendous number by claimingthat ever more 24 year olds are retiring. Although, yes, we agree that some may be dropping out of the labor force in order to go to college, incidentally the locus of the latest credit bubble, where theymeet a fate worse even than secular unemployment: they become debt slaves of the FederalSystem, with non-dischargable debt at that, which even assuming they can get a job would take

ages to pay back!

But wait: there's more - of all age groups, this is the one that has actually seen its wages drop themost under the Obama administration.

So not only are they unemployed, young adults are at least poor.

Net result: double the change, zero the hope.

But fear not dear banks: taxpayers got your back, as usual.

However, we believe that ABS trusts backed by FFELP loans are unlikely to be affected byemployment trends, as they are at least 97% backed by the federal government. In addition, recentsecuritizations have been structured more robustly and many have backup servicing agreements.

Even so, Fitch is covering its bases nonetheless:

While FFELP loans are largely protected from these trends, private student loan ABS trusts,especially those that were structured aggressively and with less stringent credit standards beforethe recession, are expected to continue experiencing high defaults and ratings pressure. Fitch willcontinue to monitor these political and macroeconomic factors as they evolve and will determineany impact they may have on ABS trusts.

The question then is - what is the student loan version of the ABX trade. After all if Bernanke iswilling to blow another bubble, someone has to be able to profit when this latest soon to be failedattempt at central planning.

Comment here or on Zero Hedge >

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