Student Loan Scam

No student loan debt in default has been referred for collection since March, 2020.

This policy will end on May 5 when those in default on their student loan debt will be subject to collection efforts including garnishment of their wages among other remedies.

There are currently 5.3 million student loans in default.

Almost 500,000 of the student loans in default relate to those 62+ years of age or older. Federal law allows Social Security benefits to be offset to pay the loans of those in default.

In 2019, 192,000 Social Security beneficiaries were having their benefits reduced to pay student loans in default. By contrast, only 6,200 were in this position in 2001.

Another 4 million student loans are delinquent on their loan payments and are close to default status as they have not made a payment in over nine months.

This compares to a total of 43 million total borrowers who owe $1.8 trillion in total student loan debt.

Source: https://educationdata.org/student-loan-debt-statistics

Only 38% of student borrowers are currently up to date on repaying their loans.

92% of this student loan debt is owed to the federal government which became the primary source of student loans during the Obama administration.

A often forgotten fact is that student loans were taken over by the federal government under Obama in 2010 in part to help pay for Obamacare.

Most student loans were nationalized in 2010 in the Obama-Biden administration in legislation  titled "The Health Care and Education Reconciliation Act of 2010".

As the chart above shows, student loan debt has increased by almost $1 trillion since that time.

The rationale of nationalizing the loans was that the federal government could earn interest on the student loans and the receipt of interest on those loans (instead of going to private banks) could instead be used to expand student aid and fund deficits caused by healthcare reform.

In fact, Barack Obama claimed that nationalizing the student loan program would save the taxpayers $68 billion over the next decade while also making it easier for graduates to afford their loan repayments.

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It does not seem to have worked out the way that Barack Obama and the Democrats said it would.

As more and more of those with student loan debt have struggled over the last decade the Democrats have been calling for student loans to be canceled or forgiven.

I guess they have forgotten that student borrowers were going to be much better off as well as the American taxpayers. because of those reforms.

In that same bill, most student loan repayments went from a fixed repayment schedule (such as your mortgage or car loan) to an income-based repayment program where payments would not exceed 10%-15% of the borrower's discretionary household income---generally defined as the amount exceeding 150% of the federal poverty guideline (this would be about $23,000 for a single individual and about $31,000 for a two person household).

This has resulted in many borrowers not being anywhere close to making the necessary payments in order to pay off the loan.

The student loan problem got even worse when a moratorium was put in place that did not require any payments to be made or interest accruing on the loans between March, 2020 and September, 2023.

Although payments were not REQUIRED there was no prohibition to continuing to make payments during this period. In fact, this was an excellent time to be paying down these loans due to the pause in interest accrual.

It was also a period of time that many student loan borrowers enjoyed financial windfalls due to Covid relief payments.

However. few borrowers appear to have taken advantage of this opportunity in which large amounts of the principal amounts of the loans could have been paid off since no interest was accruing.

My guess is that a substantial number of borrowers did not pay on their loans at this time as they were relying on the statements of Joe Biden and other Democrats that they would have their student loans canceled or forgiven.

After all, why pay on a loan if someone is telling you it is going to be canceled?

The news that student loans in default will now face involuntary collection has social media abuzz with one student borrower after another complaining it is all so UNFAIR.

Those who take to social media to complain about their student loans debt seem to blame everyone for their debt but themselves.

There is a lot of VICTIM MENTALITY  that is apparent in their responses to realizing the student debt has to be paid.

Here are a few of the arguments I have seen student borrowers make as to why it is unfair they should have to pay their student loan debt on social media.

Their parents made them go to college.

The fact that they were young and did not understand they would have to pay the debt.

The fact they have to pay interest on the debt.

The fact that interest rates have gone up.

Paying interest on the loan ought to be enough. Why do they have to pay the principal as well?

How it is unfair that many Trump voters did not go to college and do not have to pay student debt while they do.

Boomers should have their Social Security and retirement income garnished for forcing college on them.

They never had intention of paying the debt to begin with and now that it is going to be collected they might have to leave the country.

The sad reality is that much of the blame should be on the student loan program itself and the politicians  who promoted it over the years.

Like many progressive political programs it was well intentioned.

However, what often happens is that when government gets involved it only makes the problem worse.

Student loans were supposed to make college more accessible and affordable for those who did not have the resources to consider higher education.

Instead, it made college less affordable and made student loans a necessity even for those who previously might have been able to avoid going into debt for college.

College costs have vastly outpaced the consumer price index since student loans became prevalent.

Quite simply, without the infusion of billions of federal dollars, there is simply no way colleges could have increased tuition the way they have.

A program that was designed to assist students to afford college seems to be making it more unaffordable with each passing year. That is what occurs over and over when a well-intentioned "liberal" idea meets the real world.  A desire to do good by government ends up being the undoing of the very people it was intended to help. 

The return on investment on education has been declining for years.

However, despite this fact, more and more money is being borrowed to pay for higher education. It is simply not supported by the underlying fundamentals.

How have we allowed the cost of higher education to increase at multiples of the return on that investment in education?

If normal market forces were in play, this would not be allowed to continue.

The same is not true with a government program.

I understand the frustration and anger of those who took out student loans only to find out that they ended up with a far different result than they thought they were going to get.

However, they appear to not be able to understand who is truly at fault.

Whether they want to admit it or not, the blame starts with them.

Add to it the the politicians who designed the program.

And the colleges, universities and trade schools who were only to happy to assist in the student loan scam.

What can be done short of canceling the debts which I do not see as practical?

If you cancel current debts how do you then not have to make college free for everyone? How can you give current debt holders a free ride but make future college students pay?

One common sense idea might be to change the law so that the bankruptcy laws would permit someone who is really buried with debt to be able to have the student debt discharged as with other debts.

Perhaps some type of tax should be levied on those college endowment funds to put into a general fund to pay for any defaults or cancellation of student loan debts.

It might also make sense to require the educational institution that benefited from those student loans to be required to pay some or all of any debt default by its students. This might help insure that the schools have skin in the game and the best long-term interests of the student in getting a return on the tuition dollars they pay with that student debt. 

Right now the interest of the college is solely focused on the tuition dollars received today with little regard to whether that debt can be serviced later by its students in the job market.

As it stands now, the student loan program scams too many.

If any good is to come from what we see has come of the student loan program it should be to consider this as yet another example where the most well-intentioned government plans results in unintended consequences. 

However, the answer should never have been to spend more taxpayer money to cancel the debt.

We see it over and over and over again. Ronald Reagan said it well and we should remember it.

"Government does not solve problems; it subsidizes them".

Truer words have never be said.