President Joe Biden is announcing a federal bailout of student loans at a cost of $10,000 per borrower, amounting to at least $300 billion in the first year — vindicating warnings that President Barack Obama and Democrats ignored in 2009 and 2010.
At that time, when the Obama administration proposed a federal takeover of much of the student loan market, Democrats claimed that having the government provide some 80% of the country’s student loans — up from 20% — would expand access and save money. But Republicans and even the Democrat-appointed leader of the Congressional Budget Office warned of the prospect of default, with the taxpayers on the hook for potentially trillions of dollars in student loans that could not be paid.
As the Wall Street Journal reported in 2009:
The Obama plan calls for the U.S. Department of Education to move from its current 20% share of the student-loan origination market to 80% on July 1, 2010, when private lenders will be barred from making government-guaranteed loans. The remaining 20% of the market that is now completely private will likely shrink further as lenders try to comply with regulations Congress created last year. Starting next summer, taxpayers will have to put up roughly $100 billion per year to lend to students.
But in a remarkable letter to Senator Judd Gregg, CBO Director Douglas Elmendorf admits that government accounting is bogus. He writes that the statutory methodology “does not include the cost to the government stemming from the risk that the cash flows may be less than the amount projected (that is, that defaults could be higher than projected).” Mr. Elmendorf further notes that the government’s accounting system is specifically skewed to make direct loans from the government appear to cost much less than guaranteed loans made by private lenders. He says the real “savings” are only $47 billion, even though, in a deception that would be criminal fraud if it weren’t mandated by Congress, the official estimate remains at $80 billion.
If the feds are now making and owning all such loans, expect default rates to soar. When the government hires contractors to collect on its loans, it pays them for simply calling the borrower, regardless of the result. Private lenders, on the other hand, make money from a performing loan and have a greater incentive to do careful underwriting and aggressive collection.
The Democrat-run House passed the student loan takeover in 2009; the Democrat-run Senate did so in 2010, as part of the larger Obamacare legislation.
The New York Times reported: “Democrats celebrated the legislation, a centerpiece of President Obama’s education agenda, as a far-reaching overhaul of federal financial aid, providing a huge infusion of money to the Pell grant program and offering new help to lower-income graduates in getting out from under crushing student debt.”
The Times described critics of the takeover as “Congressional allies of the student-loan industry,” and claimed that student loans would be easier to repay under the new legislation.
President Obama claimed: “Today, we’re finally making our student loan system work for students and all of our families.”
Today, Biden is bailing out student loans that students and their families could not afford, after all.
Joel B. Pollak is Senior Editor-at-Large at Breitbart News and the host of Breitbart News Sunday on Sirius XM Patriot on Sunday evenings from 7 p.m. to 10 p.m. ET (4 p.m. to 7 p.m. PT). He is the author of the recent e-book, Neither Free nor Fair: The 2020 U.S. Presidential Election. His recent book, RED NOVEMBER, tells the story of the 2020 Democratic presidential primary from a conservative perspective. He is a winner of the 2018 Robert Novak Journalism Alumni Fellowship. Follow him on Twitter at @joelpollak.