$1 Trillion Student Loan Tab, Americans Ask “Where’s MY Bailout”?

by Darwin on November 29, 2012

Over the past few years, Americans have seen so many people, companies and entire industries bailed out, that naturally, they start wondering when they get “their bailout”, as if the multiple handouts the administration has doled out aren’t enough (a record 47 Million Americans on Food Stamps, unprecedented 99 weeks of unemployment, years of a payroll tax break, Obama phones and too many other government assistance programs to list).  So, with a headline grabbing $1 Trillion in US Student Debt, you can be sure that this will be the new bailout topic.

(click to enlarge)



Reasons People Expect a Student Loan Bailout

  • Students Got Screwed – There’s a growing chorus of pissed off 20-somethings that feel they would have had better job prospects had the economy not crashed.  Now they feel their degrees are worthless and they’re paying for something they’re never going to use.  Right, wrong or indifferent, this is how many recent graduates feel.
  • Student Loan Debt Hurts the Economy – With recent college grads unable to find the jobs they anticipated and using what little money they earn to pay down student debt, this suppresses everything from new home formation to consumer spending, which in turn suppresses overall economic growth in the country.
  • Corporations Were Bailed Out – As much as Obama has trashed Wall Street and “fat cat executives” both he and the prior administration have bailed out plenty of corporations – Wall Street, automakers, green companies which subsequently failed anyway, and more.  Recent students reckon, if corporations were being bailed out, why aren’t they?


Reasons We Should NOT Bail Out Student Loan Debt

  •  A Deal’s a Deal – OK, so people can walk away from their mortgages, great.  Well, here’s one loan you’re stuck with – unless you finagle your way out of it with an obscure hardship provision which is quite rate.  If you picked an easy or crappy or “fun” major and now you can’t get a job, that’s not the taxpayer’s fault.  There are a lot of people to blame – your parents for not giving you better guidance on the major your chose and the debt you’d eventually own, your guidance counselor for not being more forthcoming about the risks and employment prospects of your majors, the economy of course – it does suck graduating into a lousy economy.  That is outside your control.  There’s a lot of blame to go around, but that doesn’t mean the taxpayer should then foot the bill.
  • It’s Another Tax on Responsibility – So, what about all the students who paid for college themselves or the parents who saved up for their entire adult life to put their kids through college and have no debt?  Because they prepared, they paid full price, whereas people who borrowed get a bailout?
  • Moral Hazard – We hear this expression a lot.  We used to hear it terms of bailing out the banks in that since we bailed them out once, they know they’re too big to fail and will just take the same risks again knowing they present a systemic risk to the system, so they’ll always get a bailout in the future.  Well, this is no different.  There are plenty of teens now embarking on the same debt journey that will likely graduate into a similarly lousy economy.  Should they be bailed out too?
  • The Government Screws Everything Up – Just like all the various attempts to boost the economy ended in disaster (the “stimulus” [see the 10 dumbest stimulus programs] that cost close to a Billion dollars and left the unemployment rate over 8%, the cash for clunkers joke of a program, energy tax credit programs with moronic incentives, the list goes on).  I stated back in 2010 how Obama was screwing up the economy and it turns out, wow! Everything was spot on 2.5 years later.  When the government embarks on a mission, they law of unintended consequences kicks in – every time.  They always screw it up.  And they’d screw this up as well.  What would the terms be for a bailout.  How would they prevent the moral hazard problem?  College costs would probably just go up even faster!  All kinds of crazy things could and would happen.  And who pays?  The responsible.  People like you and I.  People that actually pay federal income taxes (because, yes, when the federal government does bailouts, it’s the 53% that pay federal income taxes that fund it) would be the ones funding this bailout.  Well, sort of.  Because the current generation of American adults is engaging in generational theft by way of rampant borrowing with no intent of ever pay it off.  The interest alone on the national debt is Billions per day and someday, we will have to start at least stabilizing our deficits which means massive debt service payments for future generations to even tread water (I have no faith that America will ever actually “pay down” its debt, but someday we may have to at least slow the bleeding in order to prevent an interest rate spike).
What Are Your Thoughts On a Student Loan Bailout?


{ 26 comments… read them below or add one }

Sam November 29, 2012 at 10:40 am

We have a mentality of how much we can get from the government while they are still in power. Hence, I think there is a strong chance we will get student loan bailouts. A deal is not a deal.


Darwin November 29, 2012 at 10:30 pm

While they’re still in power? This “free shit army” government has never been stronger. They’re engendering a whole generation of handout seekers. I only see their power increasing each year.


Financial Samurai November 29, 2012 at 10:50 am

Oh, and here’s another question. If your son had $60,000 in student loans, would you say No to the bailout? Doubtful right?

We vote for Big Government to give us goodies. Otherwise, they are out!


Darwin November 29, 2012 at 10:33 pm

Why do you say that’s doubtful? People opt to support causes that may not be in their own interest all the time if they feel it is the right thing. Just like Buffet supports higher taxes, and I’d sooner pay higher taxes and see us fly off the fiscal cliff next year than the embarrassment Obama just proposed tonight as part of the negotiations.

First off, I’m making sacrifices now so my kids don’t have to take out $60,000 in debt by socking away as much as I can each year into 529 plans while they’re young. But if that’s not enough, and I don’t take the loan myself, then yes, when my kid goes to school, if they need a loan to finish off, I’d expect that they pay it back. That’s what a loan is right? A commitment to repay?


Financial Samurai December 3, 2012 at 11:42 am

But that’s the thing, why bother paying back $60,000 if the government is going to forgive it? That is rational thought. Don’t fight The Fed, and don’t fight Big Government! You’ll be more relaxed that way!


Paul N December 3, 2012 at 1:47 pm

Those people in Greece and Spain look really relaxed at throwing rocks and fire bombs at cars every night. Let’s forgive everything and we can do that in a few years too.

Does anyone pay attention to what they pay for in their shopping basket’s as compare to just a few years ago? Do we all understand why it’s about 30% more this November then it was last November?


Financial Samurai December 4, 2012 at 6:23 pm

Don’t think anything matters Paul. Everything is rational. People do what they want, and stop doing what they hate.

krantcents November 29, 2012 at 1:35 pm

Didn’t the students benefit from the low interest rates? There is never a guarantee of jobs when you graduate college.


Darwin November 29, 2012 at 10:34 pm

I don’t think the low interest rates help much when tuition continues to increase at 6-7% each year, but that’s quite a bit a function of all the free (taxpayer) money the government throws at colleges each year for grants, pet projects, scholarships, etc. anyway. I would agree that nobody should expect any guarantees coming out of college, especially for easy majors.


JT November 29, 2012 at 2:43 pm

I really feel like a student loan bailout is going to happen with 100% certainty. It’s my generation’s pet issue. We don’t make up a significant part of the voting public today, but that will change as seniors die off.

Seniors stole themselves Social Security benefits. We’ll steal ourselves a student loan bailout. The question really is when, and not if it will happen. Because so many baby boomers are either cosigners to student loan debt obligations, or holding parent loans in their own names for their kids, they’ll sign on.

My personal opinion is it’s a stinking pile of bullshit. Fair games require known rules. Changing the rules halfway through only punishes people who made responsible decisions with the burden of paying for people who didn’t. I would have made completely 100% different decisions if, going into college, I had known I wouldn’t be responsible to pay for any part of it. It sucks to know that you can play the game perfectly and still get screwed in the end.


Michael November 29, 2012 at 8:10 pm

Amen, JT. It’s hard to fathom that people like you, me, etc. are now in the minority. I’ve almost, not quite but almost, reached the “throw in the towel” point. This current administration took a major problem – people getting stuck to the government teet – and made it way worse. And for that, they were…..re-elected. Have we passed the point of no return?


Darwin November 29, 2012 at 10:35 pm

Yeah, it’s really devolved into a perpetual cycle of “when am I gonna get mine?” where each group feels like someone else or some corporation got their bailout so they’re entitled to one too. It makes me wonder how we’ll ever turn this around.


Tomare Utsu Zo November 30, 2012 at 7:40 am

Having spent six years in the Military got pay for my college education, what I want to know, is what will these crying lil’b***** do to make up for wasting societies money? Nothing but demand more free s***. Eff them. Let them sleep under a bridge. Or move somewhere where people are actually poor and complain them about how unfair their life is.


Darwin December 1, 2012 at 6:09 pm

Sounds like the can-do military attitude. The admin is fostering a handout generation (not just the young people, but overleveraged homeowners, unions, all ages…)


TeresaE November 30, 2012 at 12:09 pm

Nicely laid out Darwin.

As soon as I saw your posting at TBP, I thought, “why in the hell did I pay for it on credit cards, caffeine and two jobs?”

Oh, that’s right, I attended school back in the dark ages where their was little free cash for bright kids not from the mansions or the hood. The middle. The hated middle. And raised to keep my end of bargains I enter into. Even if my end was the short-stick side of things.

The new America, where doing the right thing, the legal thing, the moral thing, is so last century. Greenspan was right, we have entered the goldilocks economy.

And JT, you are assuming that there will be some all-giving government left to bail you all out.

That assumption isn’t based on facts, but on the normalcy bias.

Sadly, I really believe this, like obesity, is going to be a moot issue when we find ourselves in a world of dwindling food and little – if any – disposable income.

Whom is going to care about things like “credit scores” or “loan defaults” if their children are cold and hungry? I sure as hell wouldn’t/won’t.


Darwin December 1, 2012 at 6:10 pm

I would have thought with Europe as an example now of what happens, Americans would learn. We’re not. We’ll have to experience the mess ourselves in the next several years.


Paul N November 30, 2012 at 12:56 pm

As a middle aged person who probably could use some brushing up on their skills as the world changes so fast around us, should we also be entitled to take out a loan, learn some additional skills then default on our obligation to pay the loan? Wow. How do you pick the winners and losers of a bailout lottery?

What the kids don’t understand, is right or wrong, some of the bailouts were made as an attempt to keep their parents employed (eg : GM) to help families and to pay for their kids sorry whining butts. But the only message they got is some “fat cats” got a bailout so where’s mine? It’s ludicrous.


Darwin December 1, 2012 at 5:55 pm

This administration has made a complete embarrassment out of moral hazard. Nobody has to think about consequences anymore. The government will be there for you.


Wayne @ Young Family Finance November 30, 2012 at 10:13 pm

My wife and I have $65K in student loans still…after paying them down for almost a decade. We got a raw deal in the job department, but we would never expect our fellow citizens to foot the bill. We went into college knowing the financial risks and took them anyway. The worst occurred, but that is no one’s fault in particular. It just is a lousy lot. So, I’ll whine about my loans, but still pay them.


Darwin December 1, 2012 at 5:55 pm

I paid my parents back for a decent part of my college degree; can I get a bailout retroactively? After all, that’s money that could be “stimulating the economy” right? Crazy…


Financial Samurai December 3, 2012 at 11:44 am

BTW Dan, when I tweet, it doesn’t autopopulate your Twitter handle. Just has @sharethis. I rec adding @everydayfinance to it so you get notified when someone tweet your post. Feel free to delete this comment after reading. thx


Darwin December 5, 2012 at 10:38 pm

Thanks for the note – if anyone reading this knows how to remedy, please let me know!


Mike December 3, 2012 at 1:18 pm

I honestly see valid points in both sides of the argument, however, I am certainly not the guy with the answer. All I can say is what a mess. Personally, I believe there is tremendous value in a college education, but it is grossly overpriced. There are so many ways to have college paid for without debt – military service, government grants, unemployment grants, volunteer firefighting, and your employer (I’ve had two employers in my past who paid 100% of your tuition) to name a few. Best advice is to avoid the loans altogether.


Darwin December 5, 2012 at 10:39 pm

I can’t see a valid point on the bailout side – not in the real world.


101 Centavos December 4, 2012 at 11:07 pm

A trillion here, a trillion there, pretty soon we’re talking about real money. It’ll just be another stimulus. And at least, there’ll be some of the youth vote, the ones that bother showing up.


Darwin December 5, 2012 at 10:40 pm

Obama’s really pandered to the youth vote; they’ll keep turning out in droves for Dems as long as they keep promising to transfer more wealth to them.


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