[AE] Student loan defaults have surged to 9.2 million borrowers, representing roughly one in every five people with student debt. What is astonishing is the speed of the deterioration. There were approximately 6 million borrowers in default last August. That figure jumped to 7.7 million by December. By April it had reached 9.2 million. Another 3 million borrowers are reportedly at least 90 days delinquent and appear headed in the same direction.The government suspended reality for years through payment pauses, forbearance programs, and emergency measures that temporarily masked the problem. Now collections have resumed. Wage garnishment is returning and borrowers are once again being confronted with debts that never disappeared. Politicians celebrated the pause as though the crisis had been solved. All they really did was postpone the reckoning.
What nobody wants to admit is that the student loan system became fundamentally broken the moment the federal government guaranteed virtually unlimited lending. Once colleges realized that students could borrow almost any amount with government backing, tuition exploded. Universities had no incentive to control costs. They built lavish facilities, expanded administrations, hired armies of bureaucrats, and continuously raised tuition....
The roots of this disaster go back decades to the Clinton Administration. In 1998, Congress made federally guaranteed student loans virtually impossible to discharge in bankruptcy, and in 2005 that protection was extended to most private student loans as well except under the nearly impossible "undue hardship" standard. At the same time, Washington dismantled the old restraints that once separated commercial banking from investment banking by repealing Glass-Steagall through the Gramm-Leach-Bliley Act, signed by Bill Clinton in 1999. Wall Street suddenly had access to an endless stream of federally protected student debt that could be packaged, securitized, and sold to investors while taxpayers ultimately carried much of the risk. This was no longer simply about helping students attend college.
Education had become another financial product.
| Professional education always has been. The mistakes those taking other degrees make is badly overestimating the payout for their investment |
This is why I continue to stress that confidence is the real issue. The student loan crisis is not merely about missed payments. It reflects a growing realization that many of the promises made to younger generations were never realistic. They were told education guaranteed prosperity. They were told debt was an investment. They were told the economy would provide opportunities sufficient to justify the cost. Millions are now discovering otherwise. That loss of confidence has consequences far beyond student loans. It affects housing, family formation, consumer spending, and ultimately the broader economy itself.
| Some will go on to invest in training as master plumbers and electricians, or get a job in one of the new factories, then quickly pay off all their loans. The others will vote DSA and take on a side hustle as an Antifa protester. The sorting will go quickly. |