Post Pandemic Student Loan Delinquency is Bad

These will never be paid back

Let’s be honest; a 55 year old person with a student loan has defaulted and that money is lost to the government forever.

The slide deck report below from Apollo Global Management outlines a growing financial risk embedded in the resumption of federal student loan payments. With 45 million individuals holding federal loans and 24 percent of payers already delinquent, the end of the pandemic-era pause is triggering more deterioration in consumer credit quality. Over 11 million borrowers may face credit score declines, reducing access to financing for cars, household goods, and other consumption categories.

At 8% the whole market collapses…

Consider this as an aside: The subprime collapse occured at less than 10%, 24% seems insane.Why is this not triggering a collapse? Because the government (you) is eating the losses slowly. The student loan industry is dead and with it the silent subsidy of higher education as an industry.

We are not suggesting this is a big short kind of play. You cannot short student loans just as it is almost impossible to short a municipal bond of a town dependent upon a college and student loan flows for its economy. We actually looked into that thinking college towns will die. What we are saying is that student loan defaults are a slow cancer on the economy.