Just as the real estate industry suckered millions of Americans into taking on crushing debt to own a home because home ownership was the Meaning of Life, the education industry has suckered millions of Americans into taking on crushing debt to go to school because education is the Meaning of Life.
And like the housing bubble, the education bubble was created with easy money. If people actually had to save for college, colleges couldn't charge $40,000 a year. But when student-victims can be swindled into signing a lifetime debt agreement, colleges can charge whatever they want.
Just as with the housing bubble, consumers are now realizing they overpaid. Unlike a house, though, when you're underwater on your education, you can't walk away. Student loan laws make borrowers debt slaves forever, with the debt immune from discharge even in bankruptcy.
This weekend, the Wall Street Journal chimed in:
When Michelle Bisutti, a 41-year-old family practitioner in Columbus, Ohio, finished medical school in 2003, her student-loan debt amounted to roughly $250,000. Since then, it has ballooned to $555,000.
It is the result of her deferring loan payments while she completed her residency, default charges and relentlessly compounding interest rates. Among the charges: a single $53,870 fee for when her loan was turned over to a collection agency
There are a couple other sob stories in the article. And then this:
There is an estimated $730 billion in outstanding federal and private student-loan debt, says Mark Kantrowitz of FinAid.org, a Web site that tracks financial-aid issues—and only 40% of that debt is actively being repaid. The rest is in default, or in deferment, which means that payments and interest are halted, or in "forbearance," which means payments are halted while interest accrues.
How's that for a Ponzi scheme? Sounds an awful lot like Option-ARMs, where subprime lenders recorded phantom interest as "profit" while loan balances obviously would never be repaid as they grew far beyond the value of the collateral.
Now Obama wants to address this not by stopping the abusive lending of obscene amounts, but by forgiving all that student debt and just piling it onto the national debt. And government workers will be considered "public interest" and get a much sweeter deal than private sector peasants.