“If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks…will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered…. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.”

Thomas Jefferson in the debate over the Re-charter of the Bank Bill (1809)

Imagine you work at a bank. Your job is to evaluate new loan applicants. You review their credit history, calculate their finances, all to ensure the bank gets repaid. Some loan applicants want to start a business, others want to borrow for a mortgage. Most of your potential borrows have a job, a credit history, and savings. You determine the risks and approve those who meet the bank’s lending criteria.

Now imagine an 18 year old applies for a loan to go to college. They show you their 4.0 GPA. They provide a list of their extra curricular activities. They provide letters of recommendation from their volunteer work. They show you their SAT scores and their ACT scores. They prove they are a team player and goal oriented. They tell you their dream is to become a Veterinarian.

Of the two types of borrowers who should get a loan? Of the two types of borrowers who is guaranteed a loan? Of the two types of borrowers who will repay the loan?

The Federal Reserve has been cooking the books regarding student loan debt. Trying to paint a pretty picture of only a 9.5% delinquency rate. The Federal Reserve Bank of New York recently published its Quarterly Report on Household Debt and Credit.

According to credit.com this is a sham:

“The report highlights the fact that loan-payment delinquency rates continue to improve (i.e. decline). On average, a little over 7% of all outstanding consumer debt obligations are in some stage of delinquency (30 or more days past due), and roughly 70% of those are seriously so (90 or more days past due).

The executive summary also notes that student loan balances that are 90 or more days past due represent 11.5% of the total outstanding. Sure, it’s a troubling metric. But when the FRBNY juxtaposes that amount with the 9.5% of comparably delinquent (and equally uncollateralized) credit card debt, it doesn’t seem so out of whack—until you dig a little deeper.

Unlike credit card balances, not all outstanding student loans are due at any given moment in time. In fact, of the approximately $1.2 trillion of education debt that’s currently on the books, only about half that amount is actually amortizing (the other half pertains to loans for students who are still in school).

So the 11.5% is really closer to 23% because the total amount of delinquent loans should be divided by $600 billion instead of $1.2 trillion. What’s more, these are just the loans that are 90-plus days past due. What of the debts that are 30 or 60 days late? Curiously, that data is nowhere to be found, except for a strong clue in the back of the report.”

Without lending standards the student loan market is getting worse. The Federal Reserve’s easy money policies have created hyperinflation in the market:

“The size of the average student loan in 2005 was $17,233. By 2012 the average U.S. student loan debt climbed to $27,253–a 58% increase in just seven years, according to FICO.”

The perfect storm is brewing in the student loan market. For the bubble to continue, there needs to be a continuous increase of  Millennials enrolling in college. The numbers are not there. The Millennial generation’s population peak is nearly out of their undergraduate years.