Obama’s $1.2 Trillion Student Loan Program Is Falling Apart

Aug 27, 2015 by


Debt Crisis: In less than five years, President Obama turned a relatively small, privately run, guaranteed student-loan program into a massive government-run disaster. What’s his answer? More government, naturally.

The latest figures on the government-run loan program should be worrisome to anyone who cares about fiscal sanity and economic growth.

Delinquency rates on the feds’ $1.2 trillion of student loans are sky high — worse than mortgage loans during the housing crisis.

The New York Fed reports that 11.5% of student loan debt was more than three months past due in Q2 of this year, which was up from Q1. By comparison, the 90-day delinquency rate on credit card debt is just 8.4%. The St. Louis Fed says that 27.3% of student loans that are currently being repaid are at least a month behind.

Now comes word from the Department of Education that 6.9 million people haven’t made a student loan payment in more than 360 days, which is up 6% from the year before.

And this comes at a time when the economy and the job market have improved, and when more and more students are taking advantage of Obama’s ridiculously easy student loan repayment plans.

In fact, enrollment in income-based loan programs — which base monthly payments on current income and forgive any remaining debt after 20 years — exploded 56% in just the past year.

This debt crisis is entirely of President Obama’s making. In 2010, Obama signed a law federalizing the student loan program, claiming that the banks were needless middlemen and that the government could just lend the money directly and save truckloads of money.

It never worked out that way. Experts say that the Education Department is ill-equipped to identify risks when making loans. Easy terms and high default rates forced the Congressional Budget Office recently to increase the program’s cost by 7 billion — a 30% jump.

And the risk of another financial crisis looms as the amount of direct federal student loan debt has climbed more than 600%. The Department of Education now manages a loan portfolio bigger than the entire loan business of JPMorgan Chase.

But rather than rein in this program, Obama is instead targeting private loan servicing companies that contract with the government to collect the loans for what he calls overly aggressive tactics. This is typical of liberals. If a government program isn’t working, the answer is always more government, never less.

Source: Obama’s $1.2 Trillion Student Loan Program Is Falling Apart – Investors.com

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