Our old friend, the U.S. Department of Education, released an internal report showing that the U.S. government will probably lose more than $400 billion in unpaid student loans.
As Josh Mitchell pointed out in a Wall Street Journal article, this amount approaches the amount of money private lenders lost during the 2008 home-mortgage fiasco. Unlike 2008, however, the student-loan crisis will probably not trigger a financial meltdown. The feds can simply borrow billions of new dollars to absorb the loss. The taxpayers won't even notice.
But I think the student-loan debacle is even worse than DOE's internal report admits. Nine million people are in long-term, income-based repayment plans (IBRPs), and almost all of them are not making monthly loan payments that are large enough to cover accruing interest on their underlying loans. DOE's report estimates that IBRP borrowers will only pay off about half the amount of their loan balances, but the loss must be larger than that if the vast majority of people in these plans aren't paying down their loans.
Millions of people are taking out student loans to finance their college degrees--betting that their education will land them a good job. Too often, they lose the bet.
Meanwhile, people who skip college for a vocational school or an apprenticeship in the trades are making more money than college grads and aren't mired in student-loan debt. As Zero Hedge Fund put it, "there are plenty of hard working plumbers earning six-figures, who didn't take on a mountain of debt for a toilet-paper degree."
As conservative economists keep warning us, the Unites States will soon experience a spike in inflation unless the government stops printing money and running deficit budgets. When that occurs, students will have the grim satisfaction of paying off the loans for their toilet paper degrees with toilet-paper money.