The Next Big Bailout: Student Loans

Career College Central summary:

  • As tuition costs continue to rise and students take on more debt, some policy experts say another taxpayer bailout of a teetering government-subsidized program — the massive student loan industry — is all but certain. The numbers are startling: there is $1.11 trillion in student loans outstanding and $121 billion of them are 90-plus days delinquent or in default. Making matters worse, college costs are rising and incomes, particularly for college grads in industries other than technology and finance, are falling.
  • It’s a recipe for the same type of implosion and eventual government assistance directed to homeowners with delinquent mortgages and banks in the aftermath of the 2007 and 2008 housing meltdown and subsequent financial crisis. Access to cheap lending spurred by government incentives and subsidies from mortgage lenders Fannie Mae and Freddie Mac drove housing prices to bubble-like proportions until many borrowers discovered they couldn’t make good on their loan. Now, similarly easy access to college loans has both inflated tuitions and made college grads a new debtor class, economists say.
  • Economist Douglas Holtz-Eakin, President of the American Action Forum, says the impact of increased indebtedness and the inability of college grads to repay loans (some are saddled with college debt of as much as $200,000) has already sparked a series of small-scale taxpayer-financed bailouts by the Obama Administration that he says will grow over time.
  • “The Obama administration has steadily increased the forgiveness and income-based repayment features, which are all ways to relieve the borrower of the obligation to repay in a timely fashion, if at all,” said Holtz-Eakin. “There already has been a government bailout (of student loan programs),” he added.

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