Student Loan Debt at Record Highs in the Worst Economy since the Great Depression risk Default

Posted by PITHOCRATES - August 11th, 2012

Week in Review

Ben Bernanke gives us encouraging news.  Government guaranteed student loan debt is at a record high.  In a time when the unemployment rate is at a near record high.  In the worst economy since the Great Depression.  With a large chunk of those unemployed being those new college graduates.  But if these college graduates default it won’t put the financial system at risk (see Bernanke Says Student Loans Won’t Cause Crisis by Jeff Kearns and Janet Lorin posted 8/7/2012 on Bloomberg).

Federal Reserve Chairman Ben S. Bernanke said record U.S. student loan debt doesn’t put the financial system at risk the way mortgages did because most educational borrowing is backed by the government…

Outstanding educational debt, which includes loans taken out by students and their parents, is estimated at $1 trillion, according to the Consumer Financial Protection Bureau. About 15 percent is private student loans, issued by lenders including banks. The rest is backed by the government.

So instead of the government using tax dollars to bailout financial institutions the government will use tax dollars to pay off these guaranteed student loans once they default.  So what?  What’s putting another Obamacare on the books?  Then again, CBO originally scored Obamacare to cost $1 trillion over ten years.  So a student loan default would be like adding ten Obamacares on the books.   In a year or two.  That would be bad.  But it could be worse.  At least it won’t put the financial system at risk.

If these students default on their student loans because they can’t get a job in this rotten economy with their useless liberal arts or social sciences degrees that aren’t in demand then perhaps we should make the universities refund their money.  Or offer them a degree in something useful at no additional cost.  Like in science or engineering.

Record debt.  Record deficit.  Record government spending.  And now a trillion dollars in student loan debt that may add to the debt pile.  It’s as if the U.S. is on a subway.  And the next stop is Greece.

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