President Joe Biden will announce a federal bailout for student loans at a cost to borrower $10,000, which amounts to at least $300 billion in one year. This is in response to warnings President Barack Obama and Democrats ignored back in 2009 and 2010.
When the Obama administration suggested a federal takeover, Democrats claimed that the government would provide 80% of student loans in the country, up from 20%. This would increase access and save money. Republicans, and even the Democrat-appointed head of the Congressional Budget Office, warned about the possibility of default with taxpayers paying potentially trillions in student loans unpaid.
The Obama plan calls for the U.S. Department of Education to move from its current 20% share of the student-loan origination market to 80% on July 1, 2010, when private lenders will be barred from making government-guaranteed loans. As lenders comply with the regulations Congress passed last year, the 20% remaining of this market will likely shrink. The next summer will see the need for taxpayers to contribute approximately $100 billion annually to student loans.
Douglas Elmendorf, CBO Director, admitted that government accounting was bogus in an extraordinary letter to Senator Judd Gregg. He wrote that the statutory methodology does not account for the cost to government resulting from the risk that cash flows might be lower than expected (that is, defaults may be greater than anticipated). Mr. Elmendorf also noted that government accounting is skewed so that direct loans from government seem to be much more expensive than private lender guaranteed loans. The real “savings” are only $47billion, though he claims that the official estimate is $80billion. This would be a fraud that would be considered criminal fraud.
Expect default rates to skyrocket if the feds now make and own all these loans. The government pays contractors who collect its loans for calling the borrower. Private lenders make more money on a performing loan, so they are more likely to be careful and aggressive in collecting.
The student loan takeover was passed by the Democrat-run House in 2009. It was also approved by the Senate in 2010 as part of larger Obamacare legislation.
The New York Times reported that Democrats celebrated the legislation as a key component of President Obama’s education agenda. It provided a massive infusion of money to federal financial aid and offered new assistance to low-income graduates to get out of student debt.
The Times called critics of the takeover “Congressional allies to the student-loan sector,” and claimed student loans would be simpler to repay under the new legislation.
Obama declared: “Today we are finally making our student loans system work for students, and all of us families.”
Biden is today bailing out student loan debts that students and their families couldn’t afford.