After nearly two years as Education Secretary, Betsy DeVos has finally made some significant comments on the student loan problem. DeVos said she was “raising a warning flag”.
DeVos correctly pointed out that over $1 Trillion has been added to student loan debt in the past 11 years to where today, the government’s $1.5 Trillion loan portfolio makes up a third of the federal government’s balance sheet. She also correctly pointed out that the Department of Education now holds a loan portfolio large than any private bank on earth. Today, DeVos said, 20% of the loans they hold are in default or delinquent, and 43% are considered to be “in distress.”
DeVos went on to blame this drastic increase on the Obama Administration’s federalization of the lending system. She said that the various forgiveness programs in place have made the lending system “costly” to taxpayers. She also remarked that the loan portfolio’s true value is far less than the $1.5 Trillion it shows on paper.
DeVos closed by making three general recommendations:
- The Government needs to lend more responsibly.
- The Schools need to help students with higher quality degrees and lower debt
- The students need to be better informed.
DeVos got the large numbers right. Student Debt is exploding. Except for home mortgages, it has overwhelmed every other category of consumer debt. But there are some very important facts that Secretary DeVos didn’t mention, or got completely wrong, and these facts change the entire narrative.
- DeVos repeatedly appeals to “the taxpayers”, who are on the hook for these loans. But what she didn’t mention was that the Department of Education (ie the taxpayer) is now booking profits of about $75 billion per year on this problem (based on 2012 profits of $50 billion on a much smaller portfolio). What is most disturbing: Over a decade’s worth of White House Budget data show clearly that the government is not losing money on defaults. It is actually making a profit on defaulted loans, and has been for many years. This is due to the absence of bankruptcy protections and statutes of limitations that exist for all loans in this country, but have been removed uniquely, by Congress, from student loans. This is also due to the viciously strong collection powers that the federal government has to collect this debt. Donald Trump decried this fact in 2016. That DeVos is now ignoring it completely is very concerning.
- DeVos says that the various repayment/forgiveness programs in place are “costly to the taxpayers”, but this is completely wrong. We now know that the vast majority of people attempting to use these programs are being disqualified for one reason or another (the success rate for the Public Service Loan Forgiveness Program, for example, is less than 1 percent). The Department of Education clearly has no desire or intentions of cancelling any loans under these programs. The few loans that are cancelled will be more-than-made-up-for by the exploded balances that are tacked onto the vast majority of borrowers who are disqualified.
- The 42% distressed borrowers figure she cited was actually very low. A recent Brookings study found that the student loan default rate for the class of 2004, who were only borrowing a third of what is being borrowed today, is an astonishing 40%. Even the most adamant defenders of this lending system have to agree that the default rate for more recent students- who are borrowing triple what the class of 2004 was- has got to be well in excess of 50%. Most likely, the default rate for more recent borrowers is greater than 60%, if not 70%.
DeVos’ comments appear strongly to be aimed at protecting the Department of Education, rather than the citizens trapped by this debt. Every move DeVos has made on student loans to this point in her tenure have clearly been aimed at making student loans more viciously against the borrowers, and more lucrative for the lending system (which includes both the Department of Education and it’s for-profit “financial partners”). This should be alarming to anyone with student loans, and anyone who must pay out-of-pocket for college.
Conservatives everywhere should also be very, very concerned. Betsy DeVos should know that the Department of Education must be reined in. It must play by the same, uniform bankruptcy rules that every other lender for every other loan (including government loans) must play by. This is the only rational way to stabilize this lending system, and avoid what otherwise is inevitable: The evaporation of this entire lending system in a mist of illegitimacy.
The Founding Fathers called for uniform bankruptcy rights ahead of the power to declare war, coin currency, and raise an army. This tyrannical lending system have got to be what they had in mind when they made this call. There is a bipartisan bill in Congress that could be passed tomorrow, HR. 2366. This would reduced borrowing, rational college prices, and good-faith loan administration. This is precisely what is needed, and the Republicans should move on it before the end of the year.
Conservatives should be warned: Of the 44 million voting citizens with student loans (50 million if you count cosigners), most of them are distressed. These people will flock to real solutions. If DeVos and Congress fail to return bankruptcy rights, and instead continue to tighten the screws against the borrowers, these people will- and SHOULD- gladly embrace the call for the cancellation of all student debt.
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