Saturday, September 17, 2016

The Federal Government is Financing a Monstrous Student Loan Bubble

Last week, Frontline featured a documentary on subprime student loans.  The premise being for-profit colleges were bullying students into their programs and financing their education with federal loans.

I have to admit, Frontline did a good job on showcasing this outright fraud by some of these unaccredited schools.  But they glossed over the real cause for this outrage.

A famous gangster was once asked why he robbed banks.  He replied, “That’s where the money is at.”  Today’s grafters are more sophisticated.  They rob the taxpayers. 

The housing bubble wouldn’t have happened without the federal government easing lending restrictions and guaranteeing subprime mortgages through GSA’s.  Banks wouldn’t have taken on the risk.  Fannie Mae and Freddie Mac were the engines for that economic disaster.

Now we have another bubble that’s ready to burst thanks again to easy money.  The Obama administration’s hostile student loan takeover is creating another economic disaster just waiting to unleash holy hell.  David Stockman wrote the following:    

Now we get to the subprimiest of subprime debt – student loans. Student loans are not officially classified as subprime debt, but let’s compare borrowers. A subprime borrower has a FICO score of 660 or below, has defaulted on previous obligations, and has limited ability to meet monthly living expenses. A student loan borrower doesn’t have a credit score because they have no credit, have no job with which to pay back the loan, and have no ability other than the loan proceeds to meet their monthly living expenses. And in today’s job environment, they are more likely to land a waiter job at TGI Fridays than a job in their major. These loans are nothing more than deep subprime loans made to young people who have little chance of every paying them off, with hundreds of billions in losses being borne by the ever shrinking number of working taxpaying Americans.

Student loan debt stood at $660 billion when Obama was sworn into office in 2009. The official reported default rate was 7.9%. Obama and his administration took complete control of the student loan market shortly after his inauguration. They have since handed out a staggering $500 billion of new loans (a 76% increase), and the official reported default rate has soared by 43% to 11.3%. Of course, the true default rate is much higher. The level of mal-investment and utter stupidity is astounding, even for the Federal government. Just some basic unequivocal facts can prove my case.

Frontline interviewed the usual suspects such as Sen. Dick Durbin who will never take responsibility for the disasters they cause. It’s much easier for a politician to blame for-profit businesses that take advantage of easy money spewing from Washington D.C. than to admit they’re the cause for all this misery they manufacture.


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