The Next Economic Bubble Is Growing

Yesterday The Star Tribune posted an article about the rising number of student loan defaults.

The article reports:

A new analysis of federal student loans reveals the number of people severely behind on repaying their debt has soared in the last year, painting a bleak picture of one of the largest government programs.

The Consumer Federation of America released a study Tuesday that found that millions of people had not made a payment on $137 billion in federal student loans for at least nine months in 2016, a 14 percent increase in defaults from a year earlier. The consumer watchdog used the latest data from the Education Department, which manages $1.3 trillion in federal student debt owed by 42.4 million Americans.

 What’s striking about the findings is that Americans have a variety of repayment options to avoid default. The Obama administration expanded programs that cap monthly payments to a percentage of earnings, but even though millions of people are enrolled in those income-driven plans, there is still a disconnect.

“Despite a rising stock market and falling unemployment, student loan borrowers are still struggling,” said Rohit Chopra, a senior fellow at CFA and former student loan ombudsman at the Consumer Financial Protection Bureau. “The economy remains very difficult for so many young people just starting out.”

In recent years, as more money has become available for college loans, the cost of college has increased at levels higher than inflation. Students have also pursued degrees in subjects that may not translate well into the marketplace. The combination has created an increasing debt with a decreasing ability of students to pay back that debt.

It’s time to let banks and other financial institutions handle student loans. Historically, banks and financial institutions loan money to people with the expectation that the money will be paid back. They are careful in their lending practices. Scholarships should be made available to worthy students who cannot qualify for loans. It is time for colleges to bring their tuition into line with the overall cost of living so that students are not taking out loans they cannot afford to pay back.

Another Failed Government Program

Yesterday The Wall Street Journal ran a story about the now government-run student loan program. In 2010 Congress passed a law that essentially forced commercial banks out of the student loan business and made student loans a federal program. At the time, critics of the change pointed out that the banks had a better handle on how to screen people to see if they were likely to repay the loans. Congress chose to ignore those warnings. Now the U.S. taxpayers are quite likely to find themselves stuck with a bill for $125 billion in unpaid student loans. This is not good for our economy. It is another example of a government program that has failed miserably.

The article in The Wall Street Journal focused on two students from for-profit colleges.

The article points out:

Borrowers in long-term default represent about 16% of the roughly 43 million Americans with student debt, now totaling $1.3 trillion across the U.S., and their numbers have continued to climb despite the expanding labor market.

One story involves a student from Abdill College:

Mr. Osborne said Abdill provided a low-quality education and exaggerated the likelihood that they would find career success. And he said the government should have never extended them so much debt for jobs that are in low demand. The typical phlebotomist makes just under $32,000 a year, according to the Labor Department.

About 1 in 5 student borrowers who left Abdill in 2012 defaulted on their loans within three years, the latest federal figures show. Its default rate of nearly 21% is far higher than the national average of 12% among all colleges.

Would a commercial bank have given these loans? What is the responsibility of the borrower in doing research on the college and its graduates? I don’t have a problem with for-profit colleges, but there is a need for students to study the employment rates of these colleges before borrowing large amounts of money to attend them.

The story reported on another student:

He is in default on his private loans and in forbearance on his federal loans. Debt collectors call him almost daily but he ignores their calls.

Mr. Lopko, who lives in a Chicago suburb, now earns $32,000 a year as a customer-service agent for an Illinois manufacturer.

“The only way out of this situation honestly is to win the lotto or to find a job that pays me $300,000 a year,” Mr. Lopko said.

He says he tries to be frugal but admits he occasionally splurges. He recently upgraded to a one-bedroom apartment from a studio and took out a loan for a new Subaru WRX that carries a $445 monthly payment.

“Are you supposed to stay in inside all the time, never go out, and pay these loans?” he said.

Maybe I’m old-fashioned, but I think I would have bought a cheaper car for a few years. I am also somewhat amazed that he was able to get a car loan. Part of the problem here is that we have not taught all of our young people financial responsibility and that there are always people willing to lend them money that they may not be able to pay back.

What Happens When The Government Makes Something Better

Investor’s Business Daily posted an article about what has happened to student loans under the Obama Administration.

This is the picture:

The Obama Administration took over the student loan program in 2010.

The article reports:

In a nutshell, federal loan aid to colleges is pushing up tuition faster than inflation. Students must take out ever higher amounts of debt to pay for their education, but starting salaries haven’t kept up. If students don’t get good jobs when they graduate, many will default.

The study, published by the National Bureau of Economic Research, shows conclusively that growth in one program — the Federal Student Loan Program — was more than enough to account for the entire rise in college tuition from 1987 to 2010 — a stunning conclusion that suggests a massive market failure.

From 2006 to today, total student loan debt soared from $517 billion to $1.3 trillion, a 152% jump, to cover surging tuition costs. Over that same period, real starting wages for college grads were essentially flat.

Sadly, this should be no surprise, given recent history.

Whenever government gets involved in subsidizing anything — from sugar to home mortgages — higher prices emerge, leading to market disruptions and, often, a “crisis.”

At some point, we need to realize that the private sector does a better job at everything than the government. The bubble of the student loan debt will be bailed out by the taxpayers, and the national debt will continue to spiral out of control. This is our future unless we begin to elect people who understand both human nature and free markets.

I’m Sorry, I Find This Attitude Offensive

On June 6, Lee Seigel posted an article in The New York Times explaining why he defaulted on his student loans. I’m sorry, I lack sympathy for his plight.

He states:

Years later, I found myself confronted with a choice that too many people have had to and will have to face. I could give up what had become my vocation (in my case, being a writer) and take a job that I didn’t want in order to repay the huge debt I had accumulated in college and graduate school. Or I could take what I had been led to believe was both the morally and legally reprehensible step of defaulting on my student loans, which was the only way I could survive without wasting my life in a job that had nothing to do with my particular usefulness to society.

I chose life. That is to say, I defaulted on my student loans.

The article concludes:

There would be a national shaming of colleges and universities for charging soaring tuition rates that are reaching lunatic levels. The rapacity of American colleges and universities is turning social mobility, the keystone of American freedom, into a commodified farce.

If people groaning under the weight of student loans simply said, “Enough,” then all the pieties about debt that have become absorbed into all the pieties about higher education might be brought into alignment with reality. Instead of guaranteeing loans, the government would have to guarantee a college education. There are a lot of people who could learn to live with that, too.

I agree with the writer that college tuition is too high. I wonder if he understands that the rise in tuition has been parallel to the amount of money made available through student loan programs (generally government-funded). In recent years, colleges have had no incentive to keep tuition low–students just keep taking out loans to pay the increased amounts.

As for the government guaranteeing a college education. Where in the world is that written in the U.S. Constitution? Why in the world should the government be responsible for anyone getting a college education? It sounds to me like the writer of the article is simply looking for a free education at the expense of the American taxpayer. The American taxpayer will eventually pay for all the loans that have been defaulted on, but I really don’t think those of us who paid for our children’s education should have to pay for everyone else’s children also. I little personal responsibility would be really nice. If graduates pay back their loans, there will be money available for students who are just entering college. Learning the responsibility of paying back you student loans should be part of your college education.

Behind The Scenes In The Student Loan Battle

Today’s Wall Street Journal posted an editorial about the current debate over student loan interest rates.

Today the Senate voted on student-loan subsidies. The news just reported that an attempt to roll back the interest rate increase has failed a procedural hurdle. One proposal suggests that the interest rate on the loans be tied to the 10-year Treasury rate. The advantage of this idea is that the taxpayers do not have to guarantee the lower rate to borrowers while the cost of the loans to the government goes up.

The Congressional Budget Office recently estimated taxpayer losses on student loans to be $95 billion over the next ten years. Remember that the government takeover of student loans was part of ObamaCare. (see rightwinggranny.com)

The article in the Wall Street Journal reports:

Liberals apologize for the price hikes imposed by their friends in the faculty lounge by pretending that universities are starved for revenue. Rep. Frank Pallone (D., N.J.) claimed on MSNBC on Saturday that “the federal government is not making the investment in higher education.” Perhaps he’s forgotten that annual Pell grant spending of $34 billion has roughly doubled in the Obama era, or that Uncle Sugar now originates more than $100 billion in annual loans.

In October 2011, I wrote in rightwinggranny.com:

The article also points out that under the proposed changes, the government would be entirely responsible for college loans. Students would borrow directly from the government and pay the government back. What happens when students default? The taxpayers pick up the tab. Aside from the fact that the benefits to the students of this program are minuscule, we need less government in all aspects of our lives–not more.

In a New York Post article quoted in the above article, John Podhoretz wrote:

One federal study found that between 1982 and 2007, tuition costs rose 432 percent while family income rose only 147 percent.

As taxpayers, we are subsidizing inflationary spending on the part of higher education. There is no incentive to cut costs if you know that the money will keep pouring in and that the government will enable the students to afford the rising tuition. Until parents refuse to pay the rising tuition at some of the prestige schools, we will continue to have this problem.

The Harvard University website reports:

The complete budget at Harvard College (exclusive of transportation) for 2012-2013 is $57,950. Tuition – $37,576; Room and Board – $13,630; College Facilities Fees (for use of library and other University facilities including the Health Services) – $3,290; Minimum for extras (books, clothing, dues, recreation, etc.) – $3,454.

In some parts of America, you can buy a house for that amount.

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Consequences Of Some Small Print In ObamaCare

CNS News reported today that the U. S. Treasury has released data stating that the outstanding balance for all of the direct student loans the federal government has issued topped $600 billion in April.

The article reports:

In January 2009, when Obama was inaugurated, the balance was $119.803 billion and has since increased more than fivefold.

The $480.654 billion increase since January 2009 in what is owed to the Treasury in direct student loans represents a climb of about 250 percent in just over four years.

What happened?

The article explains:

Before Obama’s first term, federally guaranteed student loans were made both by the government directly and by private lenders using their own capital through what was called the Federal Family Education Loan program. Language inserted into the the Obamacare law signed in March 2010, however, abolished the latter type of federally guaranteed student loan, giving the U.S. Treasury a monopoly over those loans.

As the Congressional Research Service has described it, this Obamacare provision made the U.S. Treasury the exclusive “banker” for federally guaranteed student loans. Thus, U.S. taxpayers essentially own these loans.

This is the housing bubble played out in student loans. The American taxpayer is the lender in these loans.

The article reminds us:

If the students who have borrowed the current outstanding balance of $600 billion in federal direct student loans default on those loans–or if Congress forgives them their debts–the burden of that $600 billion loss will fall on U.S. taxpayers.

This is not pocket change. This could well be our next financial crisis.

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Running The Economy When You Don’t Understand Business Principles

The Wall Street Journal posted an article online today entitled, “You Don’t Owe That.”

The article reports:

We’ll have to wait until Friday to see how slowly the U.S. economy expanded in the second quarter. But today Team Obama will tell Congress about its latest proposals to spread the wealth around—specifically from private lenders to the people who owe them money on student loans. The goal is to create new ways for borrowers to avoid repayment.

The government is focusing of ways to allow students to default on their loans. There are about $1 trillion in student loans outstanding; close to $900 billion are federal loans. About 90 percent of recent student loans are held by the government.

The article states:

The new report (by the Consumer Financial Protection Bureau) says that Congress should consider letting borrowers discharge their private student loans through bankruptcy. This would reverse a hard lesson learned during the 1970s. After a surge in former students declaring bankruptcy to avoid repaying their loans, Congress acted to protect lenders beginning in 1977. First it limited the ability of borrowers with government loans to use bankruptcy as a bailout ramp, and later the ban was applied to all student loans (with some exceptions for hardship cases).This reform also protected future borrowers.

Credit miraculously becomes more available when lenders believe they might be repaid.

You would think that the government might want to teach future leaders of American that when you sign a paper saying you will pay something back, you are supposed to mean it.

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Having It Both Ways On Religious Organizations

On Friday CNS News posted an article about the Public Service Loan Forgiveness Program (PSLFP) that President Obama signed into law on January 31 of this year. The government took over the student loan program in July of 2010. Now we are beginning to see the consequences.

The article reports:

The Public Service Loan Forgiveness Program was created by Congress in 2007 to encourage graduates to go into public service professions. The program forgives the balances of student loans for such graduates after they have made 120 full payments.

The new rules deny loan forgiveness to graduates who chose to go into public service with a religious orientation.

Religious organizations are seen as separate from public service in this law, yet in the healthcare law religious organizations are included and required to violate their consciences. The PSLFP also rules out labor unions and partisan political organizations. At least that makes sense.

The article further reports:

The Obama administration views anything the church does outside of the church building itself as not covered by the First Amendment’s religious liberty language.

Just as ObamaCare gave the Obama administration incredible power to regulate the health care industry – power it is now using to mandate limits to how Catholics live out their faith in America – the government takeover of the student loan business has empowered government to make these  new student loans forgiveness rules, by which the administration again attacks religious organizations that dare to reach out to the broader community.

Religious organization often view community outreach ministries as part of their religious mission. A church operating a free clinic for the poor, a shelter for the homeless, or gathering clothing and food for the less fortunate often views its efforts as both living out the will of the Savior and seeking to bring more people to Him. In other words, charity is often also a form of proselytizing.

The bottom line here is simple. The First Amendment protects the free exercise of religion. Most Christians interpret that as the freedom to practice their religion; the Obama Administration interprets that as the freedom to worship inside their church walls. The Obama Administration is attempting to take the morals of Christianity out of the public discourse. It’s time for all freedom-loving Americans to wake up and stop this assault on one of our basic freedoms.

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