Politicians typically try to win votes by giving away money. Being a political Santa Claus usually is seen as more rewarding than being a federal Ebenezer Scrooge. Which is why there’s now a $1.2 trillion federal student loan program which, the New York Times politely observed, “has been removed from the norms and values of prudent lending.”
Federally subsidized student loans have become a political favorite, as Uncle Sam added $82 billion to his loan portfolio in 2015. An incredible 42 million Americans have outstanding debt; 6100 schools have collected subsidized loans. Congress has created an educational “entitlement” akin to Medicare and Social Security, only for the young.
A lot of that cash will never be repaid. As of 2014, 28 percent of those whose loans became due in 2009 were in default. Anticipated lifetime default rates for cohorts 2007 through 2011 steadily increase from 15.9 percent to 18.4 percent. The Huffington Post’s Shahien Nasiripour warned: “Federal student loans made in recent years resemble the toxic subprime mortgage loans that helped cause the Great Recession.”