August 21, 2019

HIGHER EDUCATION BUBBLE UPDATE: WSJ: The Great Student Loan Scam.

Defaults have fallen for most forms of consumer debt as the economic expansion continues. Mortgage delinquencies last quarter hit a historic low. But severely delinquent student loans have soared since 2012 and are now 35% of “severe derogatories”—more than credit cards (23%), auto loans (21%) and mortgages (11%).

About 10% of the $1.5 trillion federal student-loan portfolio is 30 days or more past due. Another 20% is in deferment or forbearance, and about 30% is in income-based repayment plans that allow most borrowers to cap monthly payments at 10% of discretionary income and discharge the remaining balance after 20 years or 10 for folks in “public service.” . . .

Income-based repayment plans have also encouraged schools to raise prices and enroll students who probably won’t earn enough to pay off their loans. Someone with a master’s degree in dance from New York University shoulders on average $96,000 in debt, according to government data. Imagine if the government created income-based repayment plans for mortgages. . . .

But many loans will be written off long before then due to the Obama repayment plans. “We are running a big experiment here: No generation before has carried student debt burdens anything like what today’s students are carrying,” former Obama higher-education adviser James Kvaal told Bloomberg. “There will be substantial amounts of student debt that will never be repaid.” Now he tells us, though he should have done so in 2010.

The student loan program isn’t a subsidy for students. It’s a subsidy for a vital Democrat-supporting industry. Understand that and a lot of other things make sense.

If only there had been some sort of warning.

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