Posted on 09/10/2013 4:13:23 PM PDT by whitedog57
The student loan bubble is starting to burst.
The largest bank in the United States will stop making student loans in a few weeks. JPMorgan Chase has sent a memorandum to colleges notifying them that the bank will stop making new student loans in October. “We just don’t see this as a market that we can significantly grow,” Thasunda Duckett tells Reuters. Duckett is the chief executive for auto and student loans at Chase, which means she’s basically delivering the news that a large part of her business is getting closed down.
And if you read Zero Hedge or AgainstCronyCapitalism, you have seen this chart:
student-loan-default-rates2-565x295
Wow. The serious delinquency rate looks like a space shot!
However, the data used by Zero Hedge and AgainstCronyCapitalism is out of date. The data as of Q2 2013 show a decline in the serious delinquency rate for student loans.
studentloanbubble
Don’t get me wrong. 10.9% serious delinquency rate is still terrible, but it is far lower than the subprime borrower delinquency rate (90+ days).
subdlinq
For the moment. Mortgage are collateralized by houses which are increasing again. Student loans are not collateralized. Hence, student loans are subject to the vagaries of the economy, like unemployment.
So the student loan bubble isn’t bursting in the same way that subprime borrowers went 90+ days delinquent on their mortgages. But with rising college tuitions and a moribund jobs recovery, anything is possible.
Thasunda?
“Thasunda?”
Sounds like the name of a planet from Issac Asimov novel
Looks like JPMorgan Chase doesn’t trust the government’s ability to avoid default and repudiation of debt.
How do you default on a student loan? Like taxes, student loans cannot be discharged by bankruptcy. The only way to eliminate a student loan without paying for it, is by death of the student.
Individuals can default on student loans but cannot dispose them in bankruptcy. Government can both default and refuse to pay the guaranteed funds to the banks—an action likely when government cannot pay many other liabilities.
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