HIGHER EDUCATION BUBBLE UPDATE: Growing Student Loan Sorrows:

Students voted disproportionately for Barack Obama in 2008, and Obama, as president, reciprocated by nationalizing the student loan program that allowed private banks to offer government-insured loans (“Sallie Mae”). The federal government now issues about 85 percent of student loans. And he more recently pushed Congress to keep the interest rates on those loans from going up to the rate Congress had planned at the time of nationalization.

But this has only intensified a problem inherent in this program from its inception: moral hazard. It has proven powerful at inducing rationally self-interested people to behave badly – in this case, to pile up debt pursuing degrees that are often of dubious worth. . . .

To begin with, the student debt load has skyrocketed. There are now more than 3 million households with debt of more than $50,000, an almost four-fold increase over a decade ago (in inflation-adjusted dollars), and 10 times higher than in 1989. And the debt is rising most quickly among the upper-middle-class households.

Because taxpayer-backed student loans cannot be discharged in bankruptcy, an especially worrisome unintended consequence has emerged: Student loan debt is hurting Americans entering into retirement. The Treasury Department has recently confirmed that it is garnisheeing seniors’ Social Security income for unpaid student loans. And this practice is growing: Only six seniors had student loan debt payments withheld from their Social Security checks in 2000; by 2007 it rose to 60,000 seniors; and it hit a record 115,000 seniors last year.

Gee, if only there were a concise, easy-to-read description of this important national problem.