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# Date When US Student Debt Bubble Pops

### Question

It's an open secret that student loan debts are crippling millions of Americans – particularly Millennials.

CNBC estimated that nearly 3 out of 4 college grads leave school "with a significant amount of loans" and estimates that Americans have around $1.5 trillion in student debt, collectively. That's "trillion" with a "T". See this link for additional up-to-date numbers. In November 2017, Rolling Stone columnist Matt Taibbi reported on the crisis in apocalyptic terms: The average amount of debt for a student leaving school is skyrocketing even faster than the rate of tuition increase. In 2016, for instance, the average amount of debt for an exiting college graduate was a staggering$37,172. That's a rise of six percent over just the previous year. With the average undergraduate interest rate at about 3.7 percent, the interest alone costs around $115 per month, meaning anyone who can't afford to pay into the principal faces the prospect of$69,000 in payments over 50 years.

Many independent financial analysts believe this situation is untenable.

In April 2017, a Financial Times analyst observed that "In an eerie echo of the housing crisis, debt is already flowing out of the private sector, and into the public."

Billionaire Mark Cuban has said straight up: "I think the student loan bubble is going to burst."

Clearly, some change is due. But when exactly will this bubble "burst"? We'll define this popping as a jump in the student load default rate. Those rates are tabulated various places, but depend a lot on the timescale. For example official Federal student loan default rates define a 3-year rate, which is at 10.8% for fiscal year 2015, by

A cohort default rate is the percentage of a school's borrowers who enter repayment on certain Federal Family Education Loan (FFEL) Program or William D. Ford Federal Direct Loan (Direct Loan) Program loans during a particular federal fiscal year (FY), October 1 to September 30, and default or meet other specified conditions prior to the end of the second following fiscal year.

A longer-term study looks at default rates for 1996 and 2004 cohorts and finds that of those who took out loans, 18.2 and 27.2%, respectively, had defaulted 12 years later.

When will the US student loan debt bubble "pop"?

This question will resolve on the year when either of these occur:

• 20% or more of a graduation cohort have defaulted on their loans within 3 years of entering repayment

• 40% or more of a cohort have defaulted within 12 years of entering repayment

The date of resolution will be assumed to be April 1 of the year in question. For example if borrowers in fiscal year 2017 (October 1, 2016 to September 30, 2017) reached this 3-year threshold, the resolution date would be April 1, 2020. This rate will be calculated for all students in all colleges (public and private, 2-year and 4-year). This question will use data from the US National Center for Education Statistics, or if this data is not available, another report of similar methodology and results as that of NCES.

If this does not occur by April 1, 2038, this question will resolve as "> Jul 2038".

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