Political  Calculations

James Pethoukoukis notes the skyrocketing ratio of student loan debt to household income, the currently spiking default rate on student loans, and wonders if a new federal government bailout is in the works:

See where this is heading? When you take into account America’s burgeoning bailout culture and the rising political power of younger voters, it’s no surprise that Citigroup thinks taxpayers might end up riding to the rescue:

Taxpayers already (or will) indirectly subsidize both the housing and healthcare sectors by covering GSE losses and paying for a healthcare system that pays out more than it receives in revenues. If the continued misalignment of educational resources ultimately leads to government “forgiveness” of student loan debt, it will simply be one more example of fiscal subsidies for a narrow demographic.

Citigroup estimates that writing off defaulted student loans would cost $74 billion, though such a move might nudge other borrowers to strategically default in hopes of a bailout of their own.

We have a very easy solution for this scenario, which enterprising politicians might use to both ride to the rescue of distressed student loan borrowers while avoiding the moral hazard issue of encouraging other borrowers to strategically default on their student loans: restore the ability of distressed borrowers to have their student loan debt discharged in bankruptcy!


Political Calculations

Political Calculations is a site that develops, applies and presents both established and cutting edge theory to the topics of investing, business and economics.

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