Although Historically High, Student Loans Will Definitely Keep Growing as Government Subsidizes Loans to Future Government Employees and Then Forgives Them

Government is too big, debt is too high and students are too indebted. So naturally our fearless leaders have decided to make these already big problems even bigger. Government is at it again.


Now government is not only encouraging the young to take on debt, but it's incentivizing them to go to work for the government or a nonprofit entity. And if they do so, in ten years all remaining outstanding student debts will be "forgiven." In simple language, its unmistakable message is grow the government, grow the debt and forget the private sector. That's insanity in action.


Student loans outstanding now total ~$1.3 trillion, and that's going to increase at an even faster pace.


When future graduates enter what is already a relatively big and unproductive government sector instead of the more productive and risky private sector, their loans will receive preferential treatment. And as a result, We the People as taxpayers will get stuck with bigger government as well as the student's loan obligation. Just what we need --- more government and more debt.


In short, any outstanding balances after ten years are forgiven to new government and nonprofit employees, and the remaining balance will be charged to taxpayers. But for those student borrowers entering the private sector, their loans won't be forgiven until twenty years have passed --- twice as long. You can't make this stuff up.


Defaults on Federal Student Loans Decline tells us how the government worker gets the preferential and taxpayer provided freebies:
                             

"The Education Department reported a drop in Americans defaulting on their student loans, a development it attributed to an improving economy and a surge in enrollment in federal debt-forgiveness programs.

About one in seven borrowers who left college or graduate school in the fiscal year ended September 2011 had defaulted on their student loans within three years, the department said Wednesday. The official figure—13.7%—was down from the 14.7% rate for those who left school in fiscal 2010. . . .

Still, the government's default measure vastly underestimates the problem. The government considers people in default if they have made no payments in 360 days. A broader measure by the New York Federal Reserve—which accounts for all Americans with student loans—shows that roughly one in four borrowers are at least 90 days behind on a payment. . . .

The Education Department said this year's drop reflected the administration's efforts over the past two years to enroll borrowers in so-called income-based repayment plans, which set borrowers' payments at 10% of their discretionary income. The plans promise to forgive debt after a set period—10 years for those in nonprofit and government jobs, and 20 years for those in the private sector. . . .

Enrollment in the plans has surged, thanks in part to a continuing administration publicity campaign. As of June, the number had swelled to 1.91 million Americans holding more than $101 billion in student loans—nearly a 10th of all outstanding federal student debt. The number of borrowers and debt covered roughly has doubled in the past year.

The administration says stemming student-loan defaults helps not just individual borrowers but the economy because Americans who default damage their credit and thus impede their ability to spend and borrow. But the programs also carry long-term costs to the government, as any debt forgiven is covered by taxpayers."

Summing Up

Government spending and debt are far too high. Largely as a result, economic growth and employment continue to be weak in this all too anemic economic recovery.

At the same time, student loans outstanding are $1.3 trillion and climbing.

And there is a virtual certainty that already too high student loan delinquencies will go higher, even if we use the government's lowball ~14% estimate instead of the Federal Reserve's more realistic ~25% number.

And that's because those percentages are before the new forgiveness provisions are fully reflected in the "official" numbers, whatever that means.

This is nuts, but our government is hard at work creating more government workers and getting more votes.

This is precisely the kind of thing that We the People shouldn't want, don't need and can't afford --- more government, more taxes, more debt, fewer jobs, slower economic growth and more newly "bribed" government workers who will be incentivized to become voters for the status quo.

That's my take.

Thanks. Bob.