$1.4 Trillion in Student Debt and the Government Makes Billions!?
Posted On January 9, 2020
This article contains commentary which reflects the author's opinion
Get The Real News Delivered To Your Inbox
You Won’t Believe Who Voted for This!
You have of course heard the old tag “one man’s trash is another man’s treasure.”
Well go ahead and imagine all the trashy debt you’ve racked up over the years. It’s okay because your parents never taught you a thing about saving a dime. Now realize each one of them — though a liability to you — is counted as an asset on someone else’s balance sheet.
Over $1.5 Trillon in Student Loan Debt
Think, though, about the poor young adults in this country who are burdened with student loan debt somewhere north of $1.5 trillion. This debt is so trashy it’s estimated 40% of borrowers could default on paying their loans by 2023.
What evil-intentioned, predatory lending agencies and despicably large private corporations have contributed the most to saddling our youth with this crushing liability of shitty debt? More importantly, which of these corporations is profiting the most off of counting those trashy loans as “assets” on their balance sheets?
How the Federal Government Got in the Student Loan Business
Exactly whose “treasure” is this “trash?” The United States Government. That’s right. The US Government owns over 90% of student debt. In 1965, the Federal Family Education Loan Program was created. As part of this program, the Federal Government guarantees student loans. This removed risks and thereby allowed students and parents, who may not otherwise qualify, fund higher education for themselves or their children.
In 1993, under Bill Clinton’s presidency direct lending from the federal government was phased in and replaced the subsidy program. The government was no longer just guaranteeing loans, but also giving colleges the option to enroll in the government lending program. The percentage of participating colleges in this program rose and fell. In fact, it was a point of policy contention in Congress throughout the ’90s and early 2000s. However, the direct lending stuff was only halfsies and always kind of “just the tip.”
How Lending Became Only the Tip of the Iceberg
In 2008 the recession came and with it an increase in colleges enrolling in the direct lending program. It wasn’t until 2010 that “just the tip” would become the whole shaft. Under President Obama and a couple of low-profile pieces of legislation referred to as “Obamacare,” the FFEL program was ended and the Federal government fully invested itself into the direct lending business.
Fast forward to now. What this means is approximately $1.4 trillion of the $1.6 trillion “student loan crisis” isn’t spread out amongst the banks and evil lenders. This means $1.4 trillion is sitting on the “assets” side of the US Treasury’s ledger. Whether this was wise on the part of the government, or whether it was responsible is now a useless discussion and it’s all moot. Governments are notoriously unwise and irresponsible. It’s safe to say most wise and responsible people probably would not create a financial asset portfolio consisting of over 50% in high-risk loan receivables.
College tuition, of course, sky rocketed and private institutions (receiving no government funding) increased theirs more than their public counterparts in order to compete. Turns out people become very grabby-hands when easy to get, free money is thrown all over the place.
Democrats…The Modern Day Robin Hood?
Of course, after creating a disaster not needed in the first place, Democrats are blaming it all on the private citizens who don’t need those loans and private colleges. Needless to say, all the plans from Democrat candidates involve higher taxes on the wealthy and promises to pay off all student loans. You heard right, the government will swoop in like Robin Hood and give that tax money to…itself as they try to cover the huge loss of financial assets.
This is why the government can’t use money military funding, or any other funds already allocated elsewhere, to handle this situation. Receivables simply can’t be erased from the books then covered with money already allocated elsewhere. This is the crux of the issue and why the Democrats will obfuscate where these loans came from, how we even got into this mess and how any new tax money will be used. They just want to “pay for it with taxes” but won’t explain what they will do with those taxes to “pay for it.”
“Just like anyone else, the government needs to increase revenue and collateral”
Right now those student loans are assets. Assets establish collateral. Just like anyone else, the government needs to increase revenue and collateral to maintain a credit rating and to increase the credit it can receive. The question is whether the revenue from these new taxes would go into a sovereign wealth fund, or maybe some other sensible sort of financial asset.
Maybe conservatives could get behind a program of easing student loan debt through a 3-5 year plan transitioning those high risk receivable assets into strong portfolio investments. It is not a likely scenario as Democrats just want to blow the money on free college, an economy crippling “Green New Deal” and numerous other entitlement programs.
But do they even read?
Senator Bernie Sanders has been the most vocal on eliminating student debt and has been consistent on this since his 2016 run for President. Here’s a laughable tweet.
But this is not some grand revelation. This is a skeleton in his own closet. You see, it’s not like this exact, madenning scenario was something no one could have predicted.
Maybe Bernie Didn’t Read the CBO report
The Congressional Budget Office in 2010 conducted a report on the Health Care and Education Reconciliation Act. They estimated the student loans held by the government would increase to around $1.4 Trillion in 10 years time. They also estimated the government stood to gain $68 billion by acting as a direct lender. Both have come to pass.
The time for Sanders to have realized the government planned to profit from giving high risk loans to low income families would have been after reading the report. Instead, he voted for it. Hopefully, there will be a way for the Sanders and the rest of the US Government to find their way out of the lending business and back to governing.
Max Jevda is a writer for NRN. He's a self-proclaimed political quark made up of vibrating strands of devilry.