Is a student loan bailout inevitable?

by Grace

Mark Gimein writing in Bloomberg Businessweek thinks so.

We know the problems of increasing loan amounts and rising defaults.

NOTE: In 1998, Congress eliminated the ability to discharge student loans in bankruptcy.

Gimein makes the case for many of us eventually having to share the pain of some type of bailout.

A common take on student loans is that there’s little risk for lenders. Federally guaranteed loans are backed by the government, and even privately backed loans can’t be discharged in bankruptcy (in this education loans differ from other debts). The part about the government guarantee is true: yes, eventually the federal government will have to take over those loans. The other part is just nonsense. You can’t get money where there’s none to be got. That student debtors can’t discharge their loans in bankruptcy won’t help them find the money to pay.

Eventually both private lenders and the government will be on the hook. The government has already moved to ease some loan terms. It will need to find more, especially for those snookered into paying for degrees worthless in the job market. The private loans, meanwhile, will simply blow up. We may as well start figuring now how graduates, taxpayers, lenders, and schools will split the bill.

I can see it.

Related:  Freddie Mac seeks further $6bn from taxpayers

3 Comments to “Is a student loan bailout inevitable?”

  1. That is a terrifying graph.

    My head is still very much in the sand as to how I am going to pay for college. When I say I do not have ONE RED CENT saved, I am not exaggerating.


  2. This is very stressful for so many families, but remember that if you can keep the “base year” income as low as possible it could help in obtaining financial aid. The base year is Jan. 1 of junior year to Dec. 31 of senior year. It’s only part of the calculation, but it could make a difference.


  3. That shouldn’t be too difficult for me. Unfortunately.


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