US Government Caught Massively Fabricating Student Loan Default Data

Tyler Durden's picture

Ever since 2012 we have warned that one of the biggest threats arising from the US student loan bubble – which is no longer disputed by anyone except perhaps members of the outgoing administration – is not that it is soaring at an unprecedented pace, that’s obvious for anyone with the latest loan total number over $1.4 trillion, rising at a pace of nearly $100 billion per year, but that the government – either on purpose or due to honest miscalculation – was not correctly accounting for the true extent of delinquencies and defaults. Today, we finally got confirmation that, as speculated, the US government was indeed fabricating student loan default data, making it appear far lower than it was in reality.

An the WSJ reported overnight “many more students have defaulted on or failed to pay back their college loans than the U.S. government previously believed.”

The admission came last Friday, when the Education Department released a memo saying that it had overstated student loan repayment rates at most colleges and trade schools and provided updated numbers. This also means that the number of loan defaults in various cohorts is far greater than previously revealed.

A spokeswoman for the Education Department said that the problem resulted from a “technical programming error.”

And so, the infamous “glitch” strikes again.

How bad was the data fabrication? When The Wall Street Journal analyzed the new numbers, the data revealed that the Department previously had inflated the repayment rates for 99.8% of all colleges and trade schools in the country. In other words, virtually every single number was made to appear better than it actually was. And people mock China for its own “fake data.”

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According to an analysis of the revised data, at more than 1,000 colleges and trade schools, or about a quarter of the total, at least half the students had defaulted or failed to pay down at least $1 on their debt within seven years. This is a stunning number and suggests that the student loan crisis is far greater than anyone had anticipated previously. It also means that the US taxpayer will be on the hook for hundreds of billions in government-funded loans once attention finally turns to who is expected to foot the bill for years of flawed lending practices.

As the WSJ adds, this isn’t the first time data problems have affected the Education Department: a recent government report criticized how the department tracks information including the budgetary implications of student loan forgiveness.  “This is a quality control issue with a Department of Education that has been facing criticism already for other data issues,” Robert Kelchen, an assistant professor of higher education at Seton Hall University.  The department “needs to be regularly audited so these issues can be discovered sooner.”

There is another interpretation: as we reported yesterday, when we revealed that a Chinese province admitted it had fabricated fiscal data for the period 2011-2014, the reason the data were made up “because officials wanted to advance their careers.” One can imagine that the career pressure for those government workers who would report, and be held accountable, for revealing the true picture of America’s disastrous student loan bubble, would be likewise staggering.

* * *

Going back to the report findings, the student loan repayment rates were originally released in 2015 as part of the Obama administration’s College Scorecard, which followed an aborted attempt to rate colleges and tie federal funds to those ratings.

At the time, the Journal reported that at 347 colleges and vocational schools, more than half of students had defaulted or failed to pay down their debt within seven years. Those figures were based on students were supposed to start repaying loans in 2006 and 2007.  In September, the Department released data tracking students who should have begun repayment in 2007 and 2008, and that number rose to 477. But with the updated number released last week, that number grew to 1,029. Worse, no college saw its repayment rate improve under the revision, and some schools saw their seven-year repayment rates fall by as much as 29%.

The worst offender was the University of Memphis which had one of the largest drops in its repayment rate following the recalculation. Previously, the Department said that 67% of its students were repaying loans within seven years of entering the repayment period. That number fell to 47% after the recalculation.

The University was not happy. In a statement, the school said it “was not contacted by or made aware of the data changes” from the Education department.  “Given the magnitude of the numerical changes in the report released by the Department of Education, the University of Memphis will be challenging the accuracy of the newly adjusted data,” the statement said.

The far more dire implications, however, are for broader student loan market, because if the latest unfabricated data suggesting that loan delinquencies are rapidly rising toward 50% across most of America’s colleges, then the US is facing a default problem of staggering proportions. Recall that back in December 2014, The Treasury Borrowing Advisory Committee forecast that in an aggressive scenario, as much as $3.3 trillion in student loans could be oustanding by 2024. Incidentally, that is the scenario that has captured the growth of student loans since it was presented.

 

Apply default rates of 40-50% to this number, and the bill to the US taxpayer for the next mass bailout starts taking shape.

 

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kokoda the deplorable
kokoda the deplorable

The Gubbermint should not give out higher education loans to those with IQ’s less than 95 (or other).

Related, it was reported that all Gov’t economic data is Fake News.

Jason Calley
Jason Calley

Hey kokoda! “The Gubbermint should not give out higher education loans to those with IQ’s less than 95 (or other). ”

The Gubbermint should not give out higher education loans.

Fixed it…

Anonymous
Anonymous

And particularly not for nonsense degrees that won’t result in an income large enough to repay them.

kokoda the deplorable
kokoda the deplorable

OK !!!

But reality tells me that Ed. loans won’t be eliminated, only possibly changed.

Iska Waran
Iska Waran

The government shouldn’t make – nor insure – student loans. Also student loans should be dischargeable in bankruptcy like ANY OTHER unsecured debt. Student loan lenders would then assess the prospective borrower’s capabilities, field of study, etc. Student loan volume would collapse and tuition would plummet commensurately. We don’t need a “program” to accomplish this. We just need government to GTFO and remove the SPECIFIC EXEMPTION that student loans currently have in bankruptcy law.

Dutchman
Dutchman

I have a feeling that once Trump takes charge – we will get a lot more ‘revised’ statistics – covering up Obama’s incessant lying.

Anon
Anon

I think many of the ponzi’s are starting to blow, and they are not able to massage the numbers anymore, so the strategy is to start leaking out slowly all of these “statistical errors” to try and save face and / or avoid indictments.
There is a new sheriff in town, and I suspect that many of the freeloaders in the beltway know they are now going to be under the microscope, so better to come out now and say – oops, data error, than for them to be found in blatant lies later on and possible dismissal or prosecution.

Jason Calley
Jason Calley

Let’s just hope that someone doesn’t accidentally fly an airliner into the accounting offices of the Bureau of Labor Statistics, the Government Accountability Office, The Department of Education, the Pell Grant offices, the Federal Reserve, etc. https://www.youtube.com/watch?v=JCIAWrfkj_s

kokoda the deplorable
kokoda the deplorable

Or use the ‘Direct Energy Weapon’ to Dustify the bldg’s.

hardscrabble farmer

Wow, this was so unanticipated, so unexpected. It just came out of nowhere.

You know what I’d really like to see, a breakdown on the demographics and the degrees obtained. I bet that would shed a lot of light on the problem.

Jason Calley
Jason Calley

Years ago I came to the conclusion that our universities were no longer primarily in the job of educating the educable, but were mostly in the business of warehousing young people for a few years of their life. It didn’t really make sense, so I figured that it was probably to keep young people out of the job market for a while to keep the labor market from being flooded with more workers than were needed. That was a comfortable justification while it lasted, but it didn’t take long to realize that the gummint was becoming more and more blatant about not merely allowing illegal immigration, but was actively encouraging it — a policy which is diametrically opposed to any efforts to keep the labor pool smaller.

So what is the reason for our maximally screwed up higher education system? Just as any government program or bill is given a name which is the opposite of what it actually does (“Patriot Act” anyone? How about “Justice Department”?) our education system has become the opposite of what it is named. It is now designed to enstupidate. Even worse, it is designed to actively prevent any of its students from growing into functional adulthood.

Who on earth would want something like that? Someone who is setting up a program to domesticate human beings. If you are a rancher or a herdsman, which would you rather have in your herd? Dull witted, child-like sheep and cows, or smart, independent wolves and foxes?

rhs jr
rhs jr

About eight years ago, Hussein took the college loan business from banks and we knew then that it would become another huge failed minority welfare program. I have talked to Black friends that claim the government owes them an education and no Blacks pay back their loans (of course there are good Blacks who do and who vote Republican). This “shock” comes about like night follows day. The solution for that corruption is on the way; for the solution to the Blacks Attitude Problems, we might have to look back historically to the solution of the Frontier Problem.

musket
musket

Memphis State doesn’t even qualify as a junior college……

overthecliff
overthecliff

Here it comes. It won’t end well.

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