It’s an election year, and that means two things.
More volatility in the stock market ... and more giveaway promises from politicians.
A recent headline in The Wall Street Journal mentioned that President Joe Biden’s promise to forgive student debt had stalled.
I’d expect that discussion to regain some legs going into the coming election.
“We need to pass the forgiveness, so you need to get to the polls.”
But beyond loan forgiveness and fishing for votes, there’s little the government has even thought about doing to address the problem of student debt. As far as they may be concerned (I really can’t understand how they think) it may not even be a problem. But when has a lack of a problem ever stopped them?
Here’s how the whole mess started:
In 1990, Congress started factoring loan repayments into its student loan budgeting process, assuming loan repayment with interest made these loans a potential source of income. The logic was clear, in theory—make more loans, get more revenue.
Except it didn’t work that way.
The number of loans the government issued went up. But repayment rates have fallen. And I don’t need to tell you that when loan repayments fall short, the difference is made up by the Treasury Department, which pumps money into the Department of Education. Here’s an interesting number reported by the Journal:
Reality Bites
Economic reality has a way of intruding on your plans when you least expect it.The reality of the government’s student loan program has been this: Hand out cheap money to spend on education; drive up the price of education; lend out more cheap money because fewer can afford education; then rinse and repeat.
According to the Department of Education, the all-in cost to attend a “four-year post-secondary” school in 1980 was $9,438. Today, it’s $23,872. Of course, these figures likely exclude more pricey private institutions.
A slightly different set of data showed that during the 2017–18 school year public school tuition (in-state) cost $20,770, while private colleges and universities averaged $46,950.
That’s $187,800 to attend private college.
This is the effect of free money for education, which, of course, is lost completely on the “modern monetary” wing of the government.
When you add it all up, there’s roughly $1.6 trillion in federal student loans, but only $130 billion in private loans. This means the government owns nearly 92 percent of student debt.
So business has been good. Loans are flying out the door, but repayments on $1.6 trillion are so low already.
Conspiracies Are Becoming Less Conspiratorial
My two cents: Forgiving debt is asinine and irresponsible. It’s nearly impossible for a self-employed trader like me to get a loan. It’s a bit of a blessing and a curse. I have no debt, but I have to be able to pay cash for everything I buy, from cars to houses to breakfast cereal. I’m responsible for every area of my life.But setting my rant on personal responsibility aside for a second, I see a very real long-term threat to our economy here.
No business in the world could operate like the government does. Granted, the bar is pretty low for them. It would be nice if they could just balance their financials a little bit.
But when you’re never required to show a profit, failed outcomes can be dealt with by sweeping them under the rug. And if that isn’t enough to keep the heat off you, just throw trillions more out-of-thin-air money at them.
This lack of accountability makes it too easy to make a mess of things—like the economy.
And their student loan program is making a mess that may be impossible to clean up. It’s funding access to an educational system that indoctrinates students into thinking their student loans should just be forgiven.
And that kind of brain-dead thinking doesn’t bode well for the future of our country.
If this is where we’re headed, I’d load up on gold.
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