The Student Loan Mess
SCOTUS struck down this administration’s plan to forgive $127B in student debt last summer.
That hasn’t changed this administration’s bent to forgive. The latest proposal forgives $9B in debt to certain people, expanding the income for forgiveness down the line.
The debacle around the subject of student loans started with a major move by President Obama’s willing Congress to make the program an entirely governmental one.
In 2010 the government took over from the previous ‘federal guaranteed loan program,’ which let private lenders offer student loans at low interest rates – and guaranteed some loans made by them. Now, the Department of Education is the only place to go for such loans.
Obama sold Congress on the proposition that a government takeover was a way to save money. Why bear the costs of guaranteeing private loans, he said, when the government could cut out the middleman and lend the money itself?
Guess what? Like every government program that assumes private sector market dependability and accountability, the cost savings didn’t happen. As a matter of fact, program debt went from about $800B of which about 80% was guaranteed – to a trillion plus which is entirely guaranteed. In addition, it caused a hyper-inflationary market where colleges were given free rein to raise tuition and other prices/costs. When the current program was initiated and took hold 10 years ago, the average college graduate was about $17,000 in debt. Now those graduates are leaving school with an average of $35,000 of debt – substantially more at the higher priced schools.
According to the U.S. Department of Education, the total student loan guaranteed debt as of the first quarter of 2023 is over $1.77 trillion – and growing.
The Consumer Financial Protection Bureau (CFPB) was designed so as to give it essentially no jurisdiction over federal student loans. The CFPB busies itself only with private student loans, which at least have statutes of limitations, and are covered under Fair Debt Collection Practices, and Truth in Lending laws (federal loans are not). So the CFPB is no help.
So, the US taxpayers are now on the hook for that current $1.77 trillion, which the OMB projects will exceed $2T in the next few years. That number is shaping up to be among the largest financial catastrophes this country has ever seen.
While that shambles is growing, the Biden administration continues to try by various methods to forgive student loan debt, making the taxpayers pay for college costs for many graduates – and increasing an already unsustainable national debt.
Why?
The government is not guaranteeing the loans taken out by young, first-time business owners, including those who followed a ‘trade path’ versus a college degree – whether it be construction, electrician, plumber, carpet cleaner or many other trades/businesses. So why would the government want to forgive the debt of any student who bet on a college degree to advance their employability and salary in the future. Are those student graduates any better, more valuable to the country? Of course the answer is ‘no.’
Are those in the private sector with debt any less in debt? Of course the answer is again ‘no.’
The difference is private loans are made based on the risk of the loans being paid back by the borrower. If a bank finds the risk is too great it doesn’t make the loan. And depending on the risk the interest rate charged may well be different. No such criteria are used for student loans. Those seeking basket weaving degrees are just as eligible as those seeking one in electrical engineering.
The difference is student loans are now the total purview of the government. The difference is that as a government program we have these ‘geniuses’ who think they can decide what happens in the economy and in people’s lives – and that those things can be controlled by the government.
No one with a student loan has been required to pay anything – interest or principle – against their student loan for the past three years. The COVID pandemic initiated a grace period, which President Biden has extended several times. In addition, loan payments are already minimalized based on annual income, family size, dependents, marital status, and state poverty lines.
Further, government and nonprofit workers, teachers, nurses, doctors and healthcare professionals, lawyers and members of the military can have their loans forgiven at the end of the standard term if 120 payments have been made.
Those borrowing from a bank have not had that kind of forgiveness or latitude. But somehow, we owe the student loan borrowers more than what they’ve gotten already?
Don’t be fooled by the political rhetoric. It’s bad enough that the government is running the program, we don’t want to make it worse by arbitrarily forgiving it.
Give it up, please, President Biden.
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Have a great and prosperous week.
Hug somebody.
References:
https://www.nytimes.com/2023/10/04/us/politics/biden-student-loans.html
https://www.forbes.com/advisor/student-loans/average-student-loan-debt-statistics/
https://www.thebalancemoney.com/student-loan-debt-crisis-breakdown-4171739
SPIDER Bites
This week’s trivia question: Of which ship was Miles Standish captain? The answer to last week’s question: mystery writer who holds the Guinness World Record for the most translated works – Agartha Christie. She wrote 66 novels and 14 short stories particularly those revolving around fictional detectives Hercule Poirot and Miss Marple. Her novel And Then There Were None is one of the top-selling books of all time, with approximately 100 million copies sold.
The US support for Israel goes back to when it was established in 1948, following WWII and the Nazi holocaust. The US was the first country to recognize the new state. However, this administration remains hesitant to place direct involvement of Iran in the recent attack on Israel – which in turn has not wavered in its word and deed in its objective to destroy Israel and eliminate Jews from the planet. Where do we think Hamas in the Gaza Strip or Hezbollah in Lebanon got thousands of missiles and the ability to deliver them? The terrorists did not manufacture them. The Israeli invasion of the Gaza Strip will be devastating and bloody – and understandable. President Biden called for Israeli restraint on Friday while pledging total support.
Meanwhile, with our open borders, we have no idea who and how many jihadists/terrorists are in the country, much less where they are. We shouldn’t be surprised by some terrorist debacles attempt here.
The House Rules that interpret the Constitution to mean it cannot function/vote without a speaker is ridiculous. There’s nothing in the Constitution about suspending voting without a speaker. The floor vote is set for Monday for Jim Jordan from Ohio.
The Fed will likely not raise interest rates later this month because the market-driven bond rates and commensurate interest rates are higher without any action, but inflation still hangs on at 3.7% last month so I could be wrong.
Mounting worries about the national debt lowered demand for treasuries last week again as the yield for 30-year bonds hit 4.837% – the highest since 2007.
Meanwhile, with interest rates being the primary culprit, so far there’s been 516 corporate bankruptcies filed in 2023. Bankruptcies are surging and on track to outstrip 2020, potentially setting up 2023 to be the worst year for corporate bankruptcies in over a decade. Bidenomics, isn’t it wonderful?
Inflation is a major factor in the now 4-week-old UAW strike against the Detroit big three. The union is demanding 40% wage increases, cost of living adjustments and a litany of other benefits, including a shorter work week.
Exxon Mobile spent $59.9B to buy Texas fracking giant Pioneer Natural Resources last week, leaving little doubt of the company’s awareness the need for fossil fuel is far from over.
It was reported last week that the ACT college admissions test scores dropped to a 30-year low this year. Our K-12 education system is failing nationally – and getting worse. Maybe it’s past time to put individual teachers and school performance recognition back into compensation packages.
RFK Jr., in seeing the handwriting on the wall of no chance of winning the Democratic nomination for president over the Democratic Party establishment’s support for President Biden, announced last week he’ll be running as an independent in 2024.
