Student Loan Forgiveness: Who pays?
By Alex Saitta
August 26, 2022
Introduction:
Who will pay for the student loan forgiveness policy by President Joe Biden?
I'll start with an excerpt from an article: "The federal government holds more than 90 percent of the $1.6 trillion in outstanding student loans, either as the original lender or the backer, making the Department of Education (DOE) effectively one of the world’s largest banks."
Where The Money Comes From:
Each year the US Treasury issues treasury bonds / that is, the Treasury borrows billions for 10 or 15 years from the public and the world at about a 3% rate. It then loans this borrowed money to students for college. The students pay back the loans with interest.
In the past, a private company might also lend the money to the students and the US Treasury would back the loan if the student failed to pay. This US guarantee made sure the lenders were kept whole if the student defaulted and could not pay.
What Happens Next:
I don’t know which ones the Biden administration is forgiving to the tune of $300 billion, but it is likely the former or direct loans. What is going to happen is, the student payments will stop. Those loans (which are an asset on the books of the US Treasury) will be marked down to zero. However, the initial 10 to 15 year borrowing the Treasury did to get the funds to lend to students, still has to be paid. Going forward those initial loans will no longer be paid with payments from the students who borrowed the money (those payments just stopped), BUT instead with your tax dollars.
Fiscal System is Broken:
In Feb 2020, I wrote our decline was about to accelerate. I didn't foresee Covid coming, but I did notice a leap to the left in government spending. Annual deficits went from $500 billion a year to $1 trillion plus a year to as far as the eye can see.
Folks this is a fleecing of the US Treasury that is going on now for political reasons. Both sides do it. The Republicans with tax cuts and no spending cuts. The Democrats with direct give-aways to voters.
All Politics:
Everything at the federal level is now controlled and manipulated to influence the outcome of the next election. Politics has leeched into everything -- the media, the FBI, public education, border policy, medical field, vote counting, US fiscal policy, everything has been compromised to gain an advantage in the next election.
The integrity in all these systems are crumbling. It is part and parcel of a decline of a nation.
Goodfellas:
Who saw the movie "Goodfellas"? Do you remember the part where the restaurant owner asked his mob friends to go in as partners in his restaurant? Then the mob guys had the owner borrow all this money in the name of the restaurant. They then bought these things like cash registers, equipment, liquor, furniture. Instead of using them in the restaurant, they took all that out the back door and sold for profit and pocketed the money or gave the stuff to friends and family. They ran the restaurant into bankruptcy, burned it to the ground literally, collected on the insurance and moved on.
This is what is happening to the United States of America. It is being fleeced the same way, by those in charge. They are using and in the process burning up the US's credit standing, borrowing to the max and using the money for their own gain -- vote buying.
In the private sector, if you do that to a company and get caught (e.g., Enron, Carolina Investors), you go to jail. In government, you get re-elected until it all blows up.
The Future:
The US Treasury is not insolvent, but it is surely speeding toward insolvency and an inability to make day to day payments. The symptoms of our growing fiscal problem will continue to increase, as the financial noose gets tighter and tighter around the neck of us all.
Either we are going to have inflation as the Federal Reserve pumps up the money supply as it is the only way to grow the economy. Or we will have low GDP growth as the Fed has to stop the printing presses to cool inflation. Add in more are becoming dependent on a government now $31 trillion in debt and less want to work to help carry all our debt, our economic wheels are wobbling. This will not end well; sometime this decade, we’ll face an an economic/ financial collapse in some way, shape or form.