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When will the student loan debt bubble "pop"?

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.

We'll ask:

In what year (if ever) will the 3-year rate, as defined above, reach 20% OR the 12 year rate reach 40%?

In each case the resolution date is defined by the middle of the year at the end of the interval in question. Resolution is by govt. or private numbers comparable in methodology and results to the above two reports.


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