Bad Student Loan Debt: $435 Billion and Counting

by James A. Bacon

“A billion here, a billion there, and pretty soon you’re talking real money,” Illinois Senator Everett Dirksen said many years ago. With the passage of time and inflation, we might need to update the quote to “a hundred billion here, a hundred billion there…” But even by the debased standards of 2020, the $435 billion that the federal government likely will have to write off as bad student loan debt amounts to real  money.

The losses projected by the most authoritative study yet, reports the Wall Street Journal, are far steeper than prior government forecasts. Last year the Congressional Budget Office that the government would have to write off only $31.5 billion.

The problem has long been evident. “We make no attempt to evaluate the quality of the borrower, the ability to repay, the effectiveness of the loans,” said Douglas Holtz-Eakin, a former CBO head who now heads the American Action Forum. Not surprisingly, borrowers with subprime credit scores are among the most likely to default. As with all government excesses, taxpayers will be stuck with the tab — unless the government just monetizes the bad debt and accelerates the nation’s headlong rush to Boomergeddon, the society-crushing collapse of federal finances when lenders finally conclude they will never be repaid.

Sooner or later there will be a reckoning for America’s — and Virginia’s — system of higher education. Even a nation as profligate as the United States — estimated 2020 budget deficit this year, $3.7 trillion, national debt $27 trillion — has to staunch the losses. The nation cannot afford to continue shoveling money into the abyss. Any meaningful reform, however, would be traumatic for the many higher-ed institutions whose business models are predicated on indiscriminate lending to students.

In Virginia, federal aid to students to Virginia’s public four-year institutions amounted to $1.032 billion in the 2018-19 academic year. Aid to community college students was $1.34 million, and to private nonprofit institutions $791 million. All told, federal aid to 234,000 Virginia students exceeded $2.1 billion in a single year.

Tighter lending likely would favor students working toward degrees that have a higher value in the marketplace than others — continued loans for engineering students and fewer loans for students majoring in interdisciplinary feminist studies. Reforming the student loan program also would favor students at institutions with higher degree-completion rates than those with lower rates.

Colleges and universities would have to invest more resources into ensuring that students don’t drop out. And here’s the real killer, institutions would have to be more selective about whom they admit in the first place. No more admitting students to fulfill demographic quotas with no thought about their ability to repay their loans. Any tightening would make it difficult for students from lower-income families to attend college. But given the frightfully high percentage of such students who drop out of college with a load of student debt they can never repay, that might not be an altogether bad thing.

Turning off the money spigot might have one beneficial effect. Easy money has allowed many colleges and universities to grow fat and happy, more attentive to the needs of their internal constituencies rather to the students they were set up to serve. Student loan reform would compel them to refocus their missions, slash costs, shed peripheral enterprises and lower the cost of attendance. The main people to suffer under that scenario would be the legions of pampered professors and administrators.

Crocodile tears.

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22 responses to “Bad Student Loan Debt: $435 Billion and Counting

  1. … and like clockwork, CONservatives find Jesus when it comes to fiscal responsibility and the deficit….

    • Yeah, that comment might have some basis in fact…. if I hadn’t been consistently railing against boht federal deficits and against indiscriminate student loans for years now.

      • Public universities in Virginia now are like chronic drunks who just emptied their last bottle of gin. This is why their politics is so viciously liberal Democratic, their existential fear that their decades long splurge and gorge on public monies, their wildly uncontrolled student loan fundings, and their soaring tuition costs, are coming to an end. Desperately now, these bloated institutions need an enormous federal bail out. Hence Biden or any Democrat is critically to keep the gravy trains rolling. But the nation, parents, students, and taxpayers now are wising up to the scam. The jig is up.

        There is another important article on the front pages of today’s Wall Street Journal. Tech Talent Seeks New Opportunities Far From Coasts. Another words, American tech talent is now fleeing cities like New York and San Fransisco to upstart places like Lexington, Kentucky.

        What is happening here?

        Answer: We are watching the financial collapse of America’s major Democratic strongholds, just at the time that these cities face major social and financial dysfunction, rioting, and unrest. Look for these major failing cities to be rushing for bailouts along with the affluent pirate hordes from Higher Education. The Party is Over.

  2. Baconator with extra cheese

    Credit scores are racist…. and everyone should go to college so we don’t have poverty….
    Problem solved.
    Seriously I am fine if we pull back all worldwide programs for 2 years and use that to forgive debt for CITIZENS.
    We always hear we should be more like Norway or Iceland or the Dutch. I agree…. stop sending financial and military support to the world and use it for our CITIZENS first.

    • Again, pull back and look at the big picture. Protections from rental debt, protecting tenants from eviction. Protections from utility debt, with a new direct process for taxing those who can pay to cover the bills for those who cannot. Protection from college debt falls right into line with the program. And now that it seems to be accepted that government borrowing has no downside consequences, what’s to restrain it? Politicians do not think past the next election.

  3. Baconator with extra cheese

    You’re exactly right Steve.
    Politicians are just like the CEOs who only worry about the stock price…. not profit.
    It’s all about perception… and social media and the 24 hour news cycle makes it the priority.
    It is all “what have you done for me lately”.
    God should learn from this and do some miracles, it’s been a while! That way he could improve his market share.

  4. We’re borrowing money to pay for tax cuts, right? If we’re gonna do that, then why should students have any restaint?

    A LOT of the student debt is with the encouragement of parents.. I don’t see too many telling their kids to not go hog wild on debt.

    But a big difference between us and other countries is that we loan money not only for tuition but also room & board and student fees and sports.

    I’d be curious to know the percentages and I’d have no problem at all with limiting loans to tuition only.

    What’s gotten out of hand is really people, parents and kids , willing to borrow gobs of money without regard to consequences. Just because the government will end you the money does not mean you should take it, right?

    And pretty sure GOP/”conservatives” do it too!

  5. And what portion went to “for profits”, e.g. Trump U.?

    • What are you talking about? Trump’s private university was a fraction (way less than 1%) of his financial investments. In this discussion of $1.6T in student debt and $435B in likely write offs, your comment is ludicrous.

      Do you not understand the issue? Do you not comprehend the financial impact on Americans of writing off this debt? Do you not perceive how complicit universities are since they bear zero financial consequences when they overcharge students, they default on borrowed money, and American taxpayers pay in higher taxes? Until universities have skin in the game and bear a portion of the bad debt write offs, they have no reason to restrain expenses whatsoever.

      This isn’t rocket science. You don’t need an MBA, just an understanding of rudimentary math.

      Suggest you reread the article and comments again slowly to let them sink in.

      • Haaa! Seriously? 500B? Which war cost that little? Which tax cut added less to the nations debt?
        But the question wasn’t Trump U., it was for profits.

  6. James Wyatt Whitehead V

    Hyper inflation anyone? Virginia has been here before. April 1865. Boots $300 a pair. Bacon $20 a pound. Fresh shad $50 a pair. Live hens $50 each. Beef $15 a pound. Butter $20 a pound. Average income of a Virginian in April 1865 about $17 a month.

  7. JWWV,
    Classic description of inflation. Too much money chasing too few goods. Of course good were in short supply at the end of the Civil War.

    • James Wyatt Whitehead V

      Not if you knew where the goods were in plentiful supply…Southside Virginia. Untouched by Grant, Sherman, and Sheridan. Many southerners such as my 5th Great Grandfather Harwood Lockett of Lombardy Grove cashed in big on the woes of Virginia in 1865.

  8. Another great analysis, Jim. Bravo!

  9. The thing is no one forced anyone to take the loan. If this were a car or a house or something else – the taker of the loan who then wanted forgiveness would be characterized as irresponsible – and rightly so.

    Why do we accept the exuse that if the loan if for college, it was not their fault and instead the government’s fault?

    This sounds like someone who paid way too much for a vehicle then wants the govt to bail him out.

    You borrowed the money – you owe the money, just like any loan.

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