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Eugen Tarnow


      Student Loans Go Missing

      Eugen G Tarnow  January 19 2017 12:59:59 PM
      By Eugen Tarnow, Ph.D.
      Avalon Business Systems, Inc.

      Student loans are in the news because the Department of Education had a programming glitch that understated the number of delinquent student loans.

      It is interesting to see how the student loans become delinquent.  I used the data from https://studentaid.ed.gov/sa/about/data-center/student/portfolio .

      Student loans that are 31-90 days delinquent have a 56% chance of becoming delinquent 91-180 days, then a 57% chance of becoming delinquent 181-270 days and then a 70% chance of becoming delinquent 271-360 days.  

      After that the loans are to be transferred into collection.  The number of loans in collection is not reported, only the number of loans transferred into collection.

      This is where it becomes interesting.  One would think that the loans would go into collection as soon as they reach 361 days.  But after a quarter, there is no correlation between the delinquencies and the collections (all in billions):

      Image:Student Loans Go Missing

      Rather, if we plot the linear coefficient between delinquencies and collections as a function of the time delay, we find that it takes 6 quarters before there is a relationship between the two and then the relationship is a negative one, the more delinquencies, the fewer of them go to collection:

      Image:Student Loans Go Missing

      If we plot the missing loans as a function of quarter we find that it keeps rising:

      Image:Student Loans Go Missing

      If we add up the total missing loans after so many quarters we get:

      Image:Student Loans Go Missing

      Forecasting by extrapolation we get:

      Image:Student Loans Go Missing

      It will reach $1 Trillion in 68 quarters from now, in 17 years.  

      As always, I reserve the right to be wrong.
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