Student Loan Debt is Getting Ugly

By Craig Eyermann

On May 31, 2018, the total public debt outstanding of the U.S. government stood at $21.145 trillion dollars. Of that amount, $1.211 trillion was borrowed so that Uncle Sam could be in the business of making student loans.

Over $1 trillion of that subtotal was borrowed after President Obama took over the student loan industry on March 30, 2010.

The Ugly Hockey Stick

As trends go, the chart of the history of the U.S. government’s borrowing to fund student loans looks like an ugly hockey stick, the kind that can have negative implications for the population, particularly those Americans who have a crippling level of student loan debt.

So much so that a number of federal judges are now considering upending the laws written by Congress that make student loans largely exempt from being discharged in bankruptcy proceedings. These laws make it nearly impossible for recipients of Federal Direct Student Loans to gain relief from the burden of their having borrowed money from the U.S. government.

Katy Stech Ferek of the Wall Street Journal reports:

For decades, bankruptcy judges refused to consider reducing student loans. That is now changing, and some judges are throwing lifelines to people struggling to repay their debt.

In interviews with the Wall Street Journal, more than 50 current and former bankruptcy judges, frustrated at seeing borrowers leave federal courtrooms with six-figure debts, say they or their colleagues are more open to chipping away at the decades-old guidelines that determine how such debt is treated.

“If the law’s not going to be improved by Congress, we have to help these young people who are drowning in student loan debt,” said U.S. Bankruptcy Court Judge John Waites in South Carolina.

The articles go on to describe a number of remedies that U.S. judges are trying out, which are summarized in the following list:

While many of these judicial debt-relief strategies provide some benefit to those who have gone through the courts, by and large, the effects represent only a trivial nibbling around the edges of a much, much bigger problem.

The Government Is the Problem

The bigger problem is that the U.S. government is in the business of making student loans in the first place, where it has cumulatively borrowed more than a trillion dollars to be in that business. Because of its own massive borrowing, Uncle Sam cannot afford to let many student loan borrowers off the federal hook.

That’s why when the government has provided relief to its stressed student loan borrowers, it has done so in the form of income-based repayment plans, which trade regular student loan payments for what amounts to a special additional income tax levied on the borrower.

There is a solution. The U.S. government can return the student loan business to the private sector, allowing lenders and academic institutions to assume the primary risks for when their students might default on their loans.

At the same time, Congress should rewrite the nation’s laws to once again make student loans fully dischargeable through bankruptcy proceedings. Just like almost every other kind of debt.

Until it does, that ugly hockey stick is only going to get uglier.

Reprinted from The Independent Institute and sourced from

Craig Eyermann is a Research Fellow at the Independent Institute.


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4 Comments on "Student Loan Debt is Getting Ugly"

  1. michael howard | June 28, 2018 at 12:09 am | Reply

    Who’d of thunk, you go to college to become smart. Only to merely become indoctrinated, lacking any more original thought. Plus, in debt and Uncle Sam won’t let you off the hook.

    Seriously, college has helped create the “smart people” that are in office to this day. Still didn’t make them smart enough to weigh Austrian economics vs kensian economics. Didn’t make them smart enough to figure out who bombed the world trade center, at least, not without destroying two nations in the process. Didn’t make them smart enough to know if gaining the world makes you lose something far more special.

    In short, think for yourself and fuq college.

  2. The unfederal unreserveless bank must be happy.
    More debt to pay back for what…?
    A job that starts out at 30K…re-dick-ulus.

  3. This report ignores the claim that the government is making money on student loans by charging the high interest rates the Repubicans insist on. Even Trump has said student loans by the government generates a profit. A politifact analysis shows that the issue is complicated, depending on the accounting method used: “In a May 2014 report, the Congressional Budget Office did student loan projections for 2015 through 2024. During that 10-year period, using the official accounting method that Warren relied on in making her claim, the loans are expected to generate a “profit” of $135 billion.

    But using the “fair value” accounting method CBO prefers, the projection is an $88 billion loss to the government.”

    This much we can be certain of: counting only the money borrowed to give the loans without counting the high interest paid by is phony

    cnnmoney highlights the problem: “The two estimates are so widely different because there’s no way to know the exact cost of loans given out in one year until it’s fully paid off — and that could take 40 years, according to a report from the Government Accountability Office.

    That means they have to make guesses about how fast students can pay back the loans, how many will defer payments while they go to grad school or look for work, and how many will default.”

    It all depends on the level of risk,, and it is impossible to calculate this for the future It mostly depends on jobs being available for those who took out the loans.

  4. anticriminals | June 28, 2018 at 10:54 am | Reply

    The problem is organized crime, masquerading as government, using scraps of paper as money (created out of thin air) to indebt/ enslave the ignorant masses.
    Thinking that this organized crime ring is going to do something to stop, or lessen, its crimes just goes to show how ignorant the masses are.

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