Reply To: Student Loan Bailout Proposal


Student loan debt is now the second largest category of household debt following only mortgage debt. Unlike other categories of debt which households have been paying down since the financial crisis, student loan debt has continued growing. It has reached the lofty height of $1 trillion. It is heavily subsidized by the state.

One problem is that default rates are very high on student loans. Politicians don’t want big banks to be left holding the bag, so they suggest having the Fed bailout students who would otherwise default. Another problem is that the borrowed money has generated larger revenues for colleges who have spent the money to build up their capital capacity and well as administrative bureaucracy.

Like the bankers, universities don’t want the gravy train to stop. They don’t want to face liquidation.