Are we seeing a ‘big quasi-bailout’ for student loan borrowers?

by Grace

The Obama administration projects that the increased use of student loan forgiveness programs will cost taxpayers $22 billion next year.

… Primarily because of the recent growth in enrollment in the program, projected long-term revenues from the federal direct student loan portfolio were reduced by almost $22 billion compared with the best guess from the previous year….

This looks like ‘a big quasi-bailout’

That’s a big quasi-bailout, increasing the deficit nearly 5 percent. The White House budget office was unaware of any larger re-estimates since the current scoring rules for credit programs went into effect in 1992. As a January Politico Magazine feature on the government’s unusual credit portfolio reported, the Federal Housing Administration has stuck more than $75 billion worth of similar re-estimates onto Uncle Sam’s tab over the last two decades, most of them after the recent housing bust led to a cascade of FHA-backed mortgage defaults. But it’s never had a one-year shortfall quite as drastic as this.

Borrowers are made out to be innocent victims of “circumstances beyond their control”.

Regardless of which accounting method is used, the federal government is expecting to write off billions of dollars in future student loan balances under the program in order to reward public service employment and protect borrowers from economic circumstances beyond their control.

It’s not as if a student loan bailout should come as a surprise.  Here’s a question from 2011.

Is a student loan bailout inevitable?

20110913.COCCollegeLoanGrowth

Seeing the trend lines, Mark Gimein wrote this four years ago.

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.

Taxpayers just took on $22 billion, and there’s probably more to come.

Related:  “Politicized federal student loan program bails out ‘deadbeats’”

———

Kevin Carey, “Flip Side of Reducing Student Debt Is Increasing the Federal Deficit”, New York Times, February 10, 2015.

Michael Grunwald, “The College Loan Bombshell Hidden in the Budget”, Politico,  February 05, 2015.

Advertisements

One Trackback to “Are we seeing a ‘big quasi-bailout’ for student loan borrowers?”

%d bloggers like this: