Belmont Club

I Owe My Soul to the Company Store

Gone are the days when civilizations perished from vice. Today they go bankrupt from a surfeit of virtue. If the subprime mortgage crisis was rooted in the quest for affordable housing, the curtain now rises on a scene laid waste by the student debt bomb. The Washington Post’s headline reads: “Student loans seen as potential ‘next debt bomb’ for U.S. economy“:

Bankruptcy lawyers have a frightening message for America: They’re seeing the telltale signs of a student loan debt bubble that is placing increased financial pressure on families struggling with their children’s mounting debt. According to a recent survey by the National Association of Consumer Bankruptcy Attorneys, more than 80 percent of bankruptcy lawyers have seen a substantial increase in the number of clients seeking relief from student loans in recent years. …

William Brewer, head of NACBA, has said, “This could very well be the next debt bomb for the U.S. economy” — something akin to the housing mortgage loan crisis that triggered the U.S. financial crisis.

Student loan debt is now $704 billion bigger than total U.S. credit card debt. Families which believed they were investing in the future find themselves facing eviction tomorrow. Aged parents who cosigned loans are losing their homes to the children’s unpaid educational debt. The educational debt crisis comes at a time when the president wants to keep kids in school longer and make a college degree the equivalent of a right. How is the public purse gong to resolve the contradiction between these two diametrically opposed goals? The answer is simple. The president,  like a mighty Titan, will lend students money when nobody else will.

The Christian Science Monitor writes:

President Obama has said he will help ease student loan debt, claiming he doesn’t even need Congress to do it. It seems the Education Department has the cash to back him up.

Which is just wow. Since when has the Department of Education had $704 billion more funds than credit card debt without the authority of Congress?

But never underestimate the brilliance of Hope and Change. The president simply took the burden upon the broad shoulders of the executive branch:

Even before the official rollout of the program at a rally in Denver, House Republicans challenged how the president could move forward without congressional approval. …

Part of the answer appears to be a move made by the Democrat-controlled Congress in March 2010. It ended taxpayer subsidies to private banks for student loans, meaning that the Education Department alone was responsible for handing out government money for such loans. That means the $60 billion set to go to private banks for student loans during the next 10 years is now tabbed for the Education Department. …

But many House Republicans who still oppose the move they say it has made the Department of Education one of the largest banks in the nation, largely unaccountable to Congress. …

Republican critics also note that the Education Department charges 6.8 percent for loans that cost much less, “creating a pretty big slush fund for the government,” said Rep. John Kline (R) of Minnesota, who chairs the House Education and Workforce Committee, at Tuesday’s hearing.

The new approach came buried deep in complex legislation. Inside Higher Ed informs us:

The government began originating all loans through direct lending in 2010, when a provision to eliminate bank-based student lending was included in the administration’s health care overhaul.

The administrators gave overall positive reports of the program. None said they would want to see bank-based lending reinstated. By the end of the hearing, representatives on both sides of the aisle commended the Education Department for a relatively smooth shift, even though several Republicans said they disagree with the overall philosophy of direct lending, which they viewed as a government takeover of the loan program.

The increasing interest rates on federal loans, though, came in for criticism. Student loans have become a profit center for the federal government, which borrows the money at a low rate and lends to students, who repay at a higher one. In the past, much of the difference went to the banks in the form of lender subsidies, a reality that drew sharp criticism from advocates for students.

The change left some students with two sets of liabilities. Some loans were owed to the pre-Obama “bank-based” loan system and some owed to the Department of Education. But each is serviced by the same tenuous cash flow:

“High unemployment will keep defaults high,” Moody’s said.

Experts have differing opinions about the strain of student loans to the broader economy. But there’s reason to be concerned. When asked about such risks by a lawmaker last week, Fed Chairman Ben Bernanke replied, “Well, student loans are becoming a very large category of loans.”

Both programs ultimately risk failure in case the proud holder of a degree can’t find a job, in which case the taxpayer gets the bill. If the “bank-based” student loan system collapses, then the government will bail them out to keep the financial system working just as it did in 2008. If, on the other hand, the Bank of the Department of Education goes under, then the taxpayer is on the hook just the same.

This simplifies matters enormously. Heads, the bankers win. Tails, the taxpayers lose.

That’s not how the administration puts it, however. In a press release titled We Can’t Wait: Obama Administration to Lower Student Loan Payments for Millions of Borrowers, it says “these changes carry no additional cost to taxpayers.” Sure. Like all the other free stuff the administration is handing out, the new affordable student loans are truly something for nothing.

The political world is a really miraculous place, where windmills power nations into the 21st century and the climate can be cured by purchasing little pieces of paper called carbon credits from China; where money by the trillions is routinely conjured from the presses, and all this incredible stuff is lying around, free for the taking. Merchandise that never had to be paid for by taxpayers, nor anyone, is available to all and sundry through the simple expedient of the Mandate. Like it fell off the back of a truck.

The miracles of the Bible pale beside the marvels of modern politics, and the best part of it is that millions of intellectuals who account themselves too sophisticated to be fooled by imbecilities of the Christian, Jewish, or Islamic religions are willing to swallow prodigies that would put science fiction to shame without so much as blinking an eye. Who said the Age of Faith has ended? It has scarcely begun.

And best of all, the future of the entire coming generation is going to be staked on this unshakeable foundation. Do you doubt it? A cynic might be tempted to say that the current crop of political leaders is setting the children up for a fall; that when they open their gaudily boxed presents at graduation all they will find is a little slip of paper saying “sucker” — and a bill for $500,000 each payable forever.

But of course that can’t be true. There can be no higher education bubble any more than there was ever the danger of a housing bubble. Greece, which now needs a new bailout only days after it got the old one, is proof in its own way that debts never mean anything when you can always get another loan:

“There is widespread acknowledgment that even after last weeks debt swap that the country will in all probability need a third bailout, after economic data Friday showed that the economy shrank even more than first thought in fourth quarter, by 7.5pc.”

In Germany lawyers said they were preparing a class action on behalf of 110 investors who want to sue banks for advising them to buy Greek debt.

Perhaps politicians believe that voters, like the jackass, can always be led by dangling a carrot before the nose. Just as happened to Arlen Specter, who now complains that Obama ditched him after he provided the 60th vote to pass health reform:

Specter also claims that Senate Majority Leader Harry Reid (D-Nev.) did not uphold his promise to grant him seniority accrued over 28 years of service in the Senate as a Republican.

Specter, who rocked Washington’s political establishment and made headlines around the country when he left the Republican Party to join Democrats in April of 2009, has kept quiet about these slights until now.

How could Specter anticipated the coming betrayal, seeing what fine upstanding people he associated with? Here’s Snarlin’ Arlen plumping for the Obamacare program, saying “we have to do this fast.” Now we know why. But that was then, Arlen, this is now.

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