Students Aren’t Paying Their Loan Debt

The federal government has long been playing games with federal student loans. Since 2010 — the President Barack Obama era — federal student loans have become a major entitlement program. Borrowers are paying as little as possible, and the government is just letting the debt (now at $1.6 trillion) accrue.

According to The Wall Street Journal editorial board:

Democrats say the student debt “crisis” is caused by for-profit colleges. But CBO [Congressional Budget Office] shows that many students at nonprofit and public colleges are failing to repay their loans. After six years, the typical borrower who attended a nonprofit or four-year public college had paid down only 1% or 2% of his starting balance.

Unlike private lenders, the government has no incentive to ensure borrowers are making payments. The political imperative is to conceal the taxpayer losses on student loans by reducing defaults while effectively turning the program into a new entitlement.

How does the federal government get away with this? Enter President Joe Biden’s SAVE Act, which has continued despite opposition in court. This debt-forgiveness scheme simply waves the government’s magic wand, and payments and interest fees for millions of borrowers are waived. It’s an accounting trick to keep student loan debt from growing out of control. However, like all fiscally irresponsible actions, the bubble is eventually going to burst, and the fallout will likely hit all Americans in the form of taxes.

Navient Dirty Dealing

On top of borrowers not paying (or paying the bare minimum), student loan companies can’t be trusted to responsibly steward federal loans either.

The Consumer Financial Protection Bureau recently sued Navient for misleading borrowers into paying more than they needed to and purposely providing them with bad information. In some instances, the CFPB accused the loan giant of pushing borrowers into pricy forbearance, making their interest skyrocket. In other cases, the company miscalculated payments, besmirched the credit reports on disabled borrowers, and, in general, tried to get as much money out of borrowers as possible.

The company was so corrupt that even the inefficient government decided to ban it from processing student loans.

Navient settled with the CFPB to the tune of $120 million in restitution.

Sunsetting Biden’s COVID-Era Student Loan Policies?

Former President Ronald Reagan once said, “No government ever voluntarily reduces itself in size. So governments’ programs, once launched, never disappear. Actually, a government bureau is the nearest thing to eternal life we’ll ever see on this earth.” How prescient he was.

President Biden’s COVID-era student loan relief programs are supposed to end on September 30. This means that borrowers who have chosen not to pay their loans are about to have a rude awakening. Considering how relentless Biden has been in concocting student loan forgiveness schemes, it would not be surprising if he simply extended the life of these government programs.

Debt Collective spokesperson Braxton Brewington argued, “Sending tens of millions of working families a massive bill while the student loan system is in absolute shambles is simply bad federal policy, and doing it a month before the election is even worse politics. Not pausing student loans means borrowers who were wronged by the federal government must figuratively and literally pay the price.”

If borrowers aren’t paying their bills and the government is “covering them,” what does that actually mean? It means you and I and all taxpayers are now gifted the burden of other people’s student loan debt.

Honestly, it’s an election year, so Democrats will be handing out as much free money as they can get away with. However, this sort of chicanery is a money suck. Borrowers need to pay their bills, and the federal government needs to get itself out of the student loan game. Its interference has only made the cost of college greater and contributed significantly to the national debt.