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Thread: weekend commentary - 1/2 Trillion Dollar US Taxpayer Hit re student loan guarantees !

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    Default weekend commentary - 1/2 Trillion Dollar US Taxpayer Hit re student loan guarantees !

    (snip)"Inquiring minds have been wondering why the federal debt has been rising far faster than cumulative federal deficits. The short answer is off-balance-sheet scams like student loans and Fannie Mae and Freddie Mac "assets".

    A complete explanation comes from WC Varones in his post Mystery solved: the difference between the deficit and the increase in national debt

    The ex-Wall Street types at ZeroHedge chewed on this but couldn't come up with a good explanation. Karl Denninger called it crooked accounting, but couldn't pinpoint the fraud. B-Daddy at the Liberator Today noticed the same thing and didn't have an answer. Then I threw the question over to the academics at Econbrowser:
    If it's such a simple accounting identity, would you please reconcile the $1.9 trillion and $1.65 trillion debt increases in FY 09 and FY 10 with the alleged deficits of $1.4 trillion and $1.3 trillion for the same fiscal years?

    And before you answer that it's the Social Security Trust Fund, intragovernmental holdings increased by just $320 billion over the two years.

    So where's the other $530 billion?

    None of the academics among the bloggers and commenters at Econbrowser could answer the question, until Menzie Chinn found an expert who could.

    I and many others suspected the answer was in some off-budget shenanigans like Fannie/Freddie, GMAC, etc. It turns out we were right in general but missed the biggest specific off-budget item: student loans. In table S-14 of this FY2011 OMB Mid-Session Review shown to me by Menzie, you'll see that the financial asset "Direct loan accounts" increased from $489 billion to $689 billion. And the prior Mid-Session Review (table S-15) shows that account at $196 billion at the end of FY08. So an increase in student loans accounted for $393 billion of the missing money over the two years.

    There's also an increase of $100 billion in "Government-sponsored enterprise preferred stock" (Because Fannie and Freddie are assets to the Treasury, not liabilities, right! How are those preferred dividends working out for you, Timmy?). Together with the student loans and the change in intra-governmental holdings, that explains the vast majority of the difference between the reported two-year deficit and the actual increase in debt.


    Student Loan Scam

    Thanks WC, I had been wondering that myself.

    Let's dig into Table S-14 (page 55 - PDF page 65) and look at projections for "Guaranteed Loan Accounts" under the general heading of "Debt Held by the Public Net of Financial Assets".

    Using Data from the Table S-14 I made this chart of student loan projections.

    Student Loan Projections 2009-2020 in $Billions



    (snip)Time to Scrap Entire Student Loan Program

    That debt is government (taxpayer) guaranteed. It is one of the primary things fueling the ever-rising cost of higher education. Amazingly students scream for more aid, and Obama want to give it to them, even though the debt destroys millions of lives in the process.

    I propose the entire student loan program be scrapped. Much of that alleged "aid" goes straight to corrupt institutions like the University of Phoenix which charges exorbitant amounts for fluff degrees leaving students trapped as debt slaves for the rest of their lives.

    For more on the University of Phoenix and other collegiate scams, please consider ...

    •Subprime Goes to College; Students Buried in Debt; Who is to Blame?

    •Debt for Diploma Schemes and the Cookie Monster Principle

    •University of California Campus Erupts In Riots; Student Loan Scam Drives Up Cost Of Education; Expect More Riots

    Since student debt cannot be discharged in bankruptcy, and since universities get paid by the government, the universities (even legitimate ones) do not care how many lives they destroy.(snip)

    (snip)In the meantime, all off-balance-sheet debt needs to be properly accounted for in budget deficit projections, not hidden in places like Table S-14 where it took an army of people to figure out what was happening.

    Mike "Mish" Shedlock(snip)

    from


    The 'gold foil hat' crowd will speculate that student loans have become a de-facto 'unemployment insurance' program for young Americans who have never been employed !

    from

    (snip)"America’s nearly 1,200 community colleges are the workhorses of higher education, allowing open access to all who desire to learn. Of all students in college, about 45 percent attend these institutions, which were designed for a fast, two-year time of study to earn an associate degree.

    High unemployment and the cost of four-year colleges have spurred record enrollment at these schools – but they’re failing to graduate students in high numbers and on time. About half will drop out before their second year. Only 25 percent finish in three years. Those who do graduate take an average of five years to complete their degrees.(snip)


    and beside the community colleges having a graduation rate in the 30% neighborhood as described above, only EIGHT of the 37 major online colleges have a graduation rate above 50% ... with an average graduation rate also in the 30% neighborhood. See


    The obvious point here is that the US Taxpayer loaning money to students attending 'downscale' colleges is a 'longshot bet'. There is a ~70+% chance that the students won't actually graduate. There is a similar probability that the US taxpayer will have to make good on the defaulted student loan gov't guarantees. And of course, since student loans are not dischargeable via bankruptcy, the existance of defaulted student loans following a person for life serves as a strong dis-incentive for that person to actually work at a decent paying job ( because the minute that happens, the gov't will seek forced student loan repayments to begin via wage garnishment or tax refund confiscation ).

    But hey the student loan money keeps a whole lot of young Americans from rioting in the streets I suppose.

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    Default Re: weekend commentary - 1/2 Trillion Dollar US Taxpayer Hit re student loan guarante

    How about the over $100 million in taxpayer funded legal fees for former executives of Fannie and Freddie ? That's right the taxpayers are paying the legal fees of Franklin Raines and other former Fannie and Freddie execs. The real joke is that IF they are found liable they are supposed to reimburse the Treasury.

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    Default Re: weekend commentary - 1/2 Trillion Dollar US Taxpayer Hit re student loan guarante

    ^^^ yup for a fact, the US taxpayer shouldered legal fees for Fannie / Freddie lawsuits are getting up there ... but in reality we've only seen the tip of the proverbial iceberg so far. Undoubtedly Sallie Mae won't be far behind on legal fees either once the similar arguments start with banks that originated the gov't guaranteed deadbeat student loans. It's even possible that similar legal issues will arise re student loan approvals for 'unqualified' potential college students ( i.e. high school graduates who lack basic fundamentals in math, reading etc ).

    The fundamental argument in both cases is that when gov't policy mandates that loans must be made to borrowers who aren't truly 'qualified', and when gov't policy further mandates that the interest rates charged must be priced far below market rates for loans of similar risk of loss, then the gov't must step in to underwrite the interest rate and cover the loss risk. By extrapolation, US Taxpayers are already acting as co-signers for 1/2 Trillion in already delinquent student loans, and another $200 billion in new student loans are being added annually ( with $140+ billion worth of those winding up delinquent as well ). This is a BIG budget problem, even if it has 'conveniently' been left out of the main US gov't budget !!!

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