Student Loans: The Taxpayers Lose Again

Politicians typically try to win votes by giving away money. Being a political Santa Claus is usually seen as more rewarding than being a federal Ebenezer Scrooge. Which is why there’s now a $1.2 trillion federal student loan program that, the New York Times politely observed, “has been removed from the norms and values of prudent lending.”

Federally subsidized student loans have become a political favorite, as Uncle Sam added $82 billion to his loan portfolio in 2015. An incredible 42 million Americans have outstanding debt; 6,100 schools have collected subsidized loans. Most of the money obviously has nothing to do with helping those in genuine financial need. Instead, Congress has created an educational “entitlement” akin to Medicare and Social Security, only for the young.

A lot of that cash will never be repaid. Borrowers whose loans came due from 2010 through 2012 collectively owed more two years after they started repaying their loans. The New York Times profiled the incredible story of a teacher who graduated in 1994 with a student loan debt of $26,278 that has ballooned to more than $410,000, mostly due to interest when she took out additional loans for graduate school and her kids and thrice took advantage of temporary federal loan forbearance, which allows borrowers to stop making payments for up to 12 months while interest continues to accrue.

As of 2014, 28 percent of those whose loans began requiring repayment in 2009 were in default. Almost half, 47 percent, of those who attended private schools were in default. Default rates were 51 percent at ITT and 53 percent at Kaplan. Anticipated lifetime default rates for cohorts 2007 through 2011 steadily increased from 15.9 percent to 18.4 p…