Again, what percentage of the total federally insured student debt has already defaulted ?Higgenbotham wrote: It would be my guess that many of these graduates are going bankrupt and defaulting on all their debt including the student loans, but I don't know that.
And since you brought it up, what percentage of the total student loan defaults are also part of a bankruptcy ?
Mortgage defaults are driven by mortgage contract terms ( or deed of trust terms ) and promissory note terms as well as the relevant state and federal contract statutes and real estate statutes and case law. Long standing law and practices that legislatures are reluctant to change.Higgenbotham wrote: If someone doesn't pay their mortgage as agreed in the document, the lender can modify the agreement or foreclose. The modification is going to be within existing market conditions though and not dependent on income. Someone can go through foreclosure and not go bankrupt by choosing to remain timely with their other obligations. A long time ago, I used to buy foreclosures and in doing so had to read through many foreclosure case files at the courthouse. Sometimes bankruptcies were involved with those those but often times not.
Defaults on student loans guaranteed by the federal government are driven by the U.S. government statutes which have changed repeatedly and drastically over the last 10 year. The most drastic changes were after Obama, and Democratic super majorities in Congress, took power in 2009. To the degree contract law is involved, the contract terms were driven by federal law, contract terms required compliance with ever changing federal law, and the federal government is making the lenders whole, so there is no reason to reject free money ( and demand a default ) based on a contract dispute. Since 2009 all new federally insured student loans have been from the federal government and many of the pre-existing federally insured loans were involuntarily bought out by the federal government at principle value so the federal government could receive greater than 5 percent interest while paying less than 3 percent interest. The latter loan buy ups being a deficit reduction action, on paper, at the time the law was passed.
I looked at these student loan laws in detail at the end of 2010 because they impacted my son finishing college and going into the military on a delayed program. At that point in time many of the loan servicing contractors were not fully up to speed on the then recent changes to federal law. The colleges that serviced their own loans were in even worse shape on compliance.
The most striking thing about the newest student loan laws is they allow the ignorant and lazy to retroactively cure defaults, by retroactively eliminating/reducing required minimum monthly payments, without penalty for not taking timely action to cure the default. The cost of this delay is absorbed by the the U.S. tax payer, not the lender or the student. Having the minimum monthly loan payment indexed to student income ( after the student is out of college and working at minimum wage ) is also a huge deal.
Even if a former student defaults on their federally insured student loan they can not get out of it under bankruptcy, so the default does not become permanent via bankruptcy, and they can retroactively cure the default and resume making payments at a vastly lower monthly rate. At which point the loan is no longer in default on the U.S. governments books. Decades will pass before the loan can be forgiven due to low income, so it will continue to be carried on the books of the U.S. government as a performing loan during that period.
The point here is, that in my humble opinion, the sub-prime student loan crisis will take much longer to fully develop ( than the sub-prime real estate crisis), and once it does fully develop have much less impact, because existing federal laws, that have existed since the 2009/2010 U.S. Congress, delay and massively reduce the impact of ( by spreading the impact over many years ) a sub-prime student loan crisis will have. In addition the banks, and the banking system, have virtually no exposure to a sub-prime student loan crisis.
