Recovery In Action: Nearly $300 Billion Student Debt In Default


You may want to hold off on that home purchase/new business start/auto purchase/flat-screen TV/evening out/vente cup of coffee. 

You keep hearing that economic recovery is gathering strength. (Which in practice translates into record numbers of people on food stamps, fewer people working for a living, and a drop in both new and existing home sales.) But here's a big D-Minus that could bring down the whole economy's GPA: 

According to the new Consumer Financial Protection Bureau, outstanding student loan debt now tops $1 trillion. And more than a quarter of that debt is delinquent. Student loan ombudsman Rohit Chopra claims the CFPB is addressing the problem by issuing work sheets, "providing tools," and even centralizing control: 

At the CFPB, we are attacking the problem on multiple fronts. Working with the Department of Education, we launched a Know Before You Owe project to solicit input on a "financial aid shopping sheet." The sheet should help students understand the debt implications of their college choice. We are supervising private student loan providers to ensure they comply with Federal consumer financial protection laws. We are providing tools for borrowers to help them navigate their student loan repayment options. And we set up a student loan complaint system to help ensure that private student lenders and servicers are responsive to potential mistakes and problems that borrowers encounter.

Before we opened our doors, these duties were spread across a myriad of federal agencies. Bringing these functions under one roof means we can better ensure that financial institutions operating outside of the traditional banking system are subject to the same rules of the road as all of you.

At The New American, Brian Koenig suggests all that bureaucratic shuffling won't actually solve the problem

The student debt debacle, which some experts are labeling the "next debt bomb," involves a coterie of malefactors. On the surface, the culprits entail a stale economy, rising interest rates, and persistently high unemployment. Moreover, CFPB officials contend that such debt is rising because young Americans are returning to college simply to avoid the anemic labor market. These seem to be the logical — and more politically safe — explanations.

But despite what Washington's entitlement-touting bureaucrats attest, that's not the end of the story. It encompasses a much more complex plotline.

Predictably, government deserves much of the blame, as its intervention in the higher-education market has spawned a seemingly irreversible distortion that has led to increased tuition costs, and consequently, a monumental rise in student loan debt.

Liberal professors and Occupy Wall Street protesters neglect to realize that their entitlement-based ideology — which affirms that "every American is entitled to a Harvard degree" — is the transgressor.

Meanwhile, a bankruptcy attorneys group says the pile of debt for worthless diplomas will suck up spending in other parts of the economy. And Fitch suggests about $270 billion in student loans are delinquent by a month or more: 

The Federal Reserve Bank of New York recently reported that as many as 27% of all student loan borrowers are more than 30 days past due. Recent estimates mark outstanding student loans at $900 billion- $1 trillion. Fitch believes that the recent increase in past-due and defaulted student loans presents a risk to investors in private student loan ABS, but not those in ABS trusts backed by FFELP loans.

Reason has been watching the student debt bubble for a while. John Stossel and I have said a diploma isn't really worth the money. Mike Riggs asks who will think of the unemployed puppeteers? And here are three reasons not to bail out college deadbeats