The Treasury’s Worst-Case Scenario: Over $3.3 Trillion In Student Loans In A Decade

One of the recurring topics on Zero Hedge over the past 3 years has been the relentless increase in student loans which, as a result of their cumulative default and loss severity (including those loans which are “merely” in deferment and forbearance) has surpassed the subprime bubble in terms of size.

In fact, as the following table from the TBAC shows, the actual default risk from student loans is several orders of magnitude above the 9% student loans which the Fed has revealed as currently “in default”, as one has to add those 12% of loans in deferment and 11% in forbearance to the entire risk pool. In short: a third of all student loans are likely to end up unrepaid!



Why is this number a problem? Because as the TBAC also forecasts, in its worst economic case scenario for the millennial generation (which sadly, based on recent employment and income trends for America’s young adults is more like the base case scenario), total student loans, which currently stand a little over $1 trillion (or more than all the credit card debt in America), is set to triple in just the next decade, hitting a whopping $3.3 trillion by 2024.

From the TBAC: Alternative Paths of Loan Balances

Higher Unemployment and Underemployment: Given the relationship between employment conditions and loan growth, a higher unemployment or underemployment (U-6) rate would be likely to cause lending to grow substantially more than the base case.


  • Specifically, if the unemployment rate were to edge up after reaching a trough in two years and the gap between U-6 and unemployment remains as wide as it is today – in excess of historical norms – the size of the program would be expected to reach roughly $3.3 trillion in 2024, $1.7 trillion more than in the base case.


This is what a tripling in student debt looks like:



And assuming a broad default rate including the tangent categories of 32% as currently, this would mean that over $1 trillion in student loans would ultimately end up in default in just about ten years.

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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