In 1998, Michael Mann published his infamous “hockey stick chart“, which showed that after centuries of holding relatively level, world temperatures began skyrocketing out of control in very recent decades – in a pattern that looks much like a hockey stick. The chart quickly became an icon among political activists seeking to solely blame human activities for the increasing global temperatures, claiming that the chart was evidence of an irreversible trend where temperatures would continue rising indefinitely, unless their political agenda was followed.
Flashing forward to today’s world, in which there has been no significant change in measured global temperatures for over 17 years, the political use of that scary chart has become an example of what might be described as climate alarmism.
At the risk of seeming alarmist then, here’s another scary hockey stick chart, showing just how much Americans are borrowing from the federal government:
Most of the consumer loans shown in this chart are actually student loans issued by the federal government, the total value of which has tripled since the government’s forced takeover of the student loan industry in 2010.
And of course, the alarming thing is that when it’s the federal government to whom former students owe money, even if they are experiencing extreme hardships that make it extremely unlikely that they will ever be able to repay them before they die, the government is going to do whatever it takes to collect. The New York Times reports on the abusive practices of Uncle Sam’s preferred student loan debt collector:
There is $1 trillion in federal student debt today, and the possibility of default on those taxpayer-backed loans poses an acute risk to the economy’s recovery. Congress, faced with troubling default rates in the past, has made it especially hard for borrowers to get bankruptcy relief for student loans, and so only some hundreds try every year. And while there has been attention to aggressive student debt collectors hired by the federal government, the organization pursuing Ms. Jorgensen does something else: it brings legal challenges to those few who are desperate enough to seek bankruptcy relief.
That organization is the Educational Credit Management Corporation, which, since its founding in Minnesota nearly two decades ago, has been the main private entity hired by the Department of Education to fight student debtors who file for bankruptcy on federal loans.
Founded in 1994, just after the largest agency backstopping federal student loans collapsed, Educational Credit is now facing concerns that its tactics have grown ruthless. A review of hundreds of pages of court documents as well as interviews with consumer advocates, experts and bankruptcy lawyers suggest that Educational Credit’s pursuit of student borrowers has veered more than occasionally into dubious terrain. A law professor and critic of Educational Credit, Rafael Pardo of Emory University, estimates that the agency oversteps in dozens of cases per year.
With the ability to garnish wages, Social Security benefits and to intercept income tax refunds, not to mention the ability to deny Americans the ability to discharge their student loan debts through bankruptcy proceedings, student loan payments have become the virtual equivalent of taxes.
Student loans represents a very profitable business for the federal government, which is able to borrow at much lower rates than what it requires student borrowers to pay. The Huffington Post reports on the government’s profits:
The Education Department, led by Arne Duncan, was expected to earn $33.5 billion off student loans made during the 2013 fiscal year, according to budget documents. The agency’s Direct Loan program delivered a $24 billion profit on loans made in 2012, and nearly $27.5 billion on 2011 loans.
All told, over the last five fiscal years, the Education Department has generated $101.8 billion in profit from student borrowers, thanks to low borrowing costs for the government and fixed interest rates for students, budget documents show. Some student advocates have charged that the department is profiting off the backs of students.
Education Department spokesmen did not respond to requests for comment.
With so many students having so much student loan debt burden, is it any surprise that the federal government’s greed is damaging the U.S. economy? Motley Fool cites the impact on the still-struggling U.S. real estate industry:
In a recent speech at the ABS East conference in Miami, Consumer Financial Protection Bureau Ombudsman Rohit Chopra told a gathering of structured finance specialists that college debt is dragging down the economy. Housing is taking it on the chin, as prospective first-time homebuyers graduating with student loan debt are finding their credit profiles negatively affected. Chopra tied 75% of the decrease in household formation over the past few years to college debt.
Treasury Secretary Jacob Lew told the members of the Financial Literacy Education Commission several days ago that a college education is vital to young people, increasing the chances of upward income mobility by 75%. But high levels of student debt are keeping graduates from achieving goals such as saving for retirement, starting new businesses—and buying a home.
The really perverse thing is that the federal government is literally borrowing money to cause this kind of damage – putting its paper profits ahead of the deadweight loss it is inflicting upon both the economy and the American people.