Banks already got their bailout, so is it time for loan-laden college grads to get theirs? Consider the following:
1. Student debt has climbed by 74% since the start of the Great Recession, according to a new report from Citigroup, and now approaches $1 trillion.
2. As of the third quarter of this year, roughly 11% of student loans were seriously delinquent, surpassing credit cards for the first time.
3. Default rates are also rising with 9.1% of student borrowers defaulting within their first two years of repayment.
4. Higher default rates mean lower credit scores for Generation Y than other age groups, hurting its ability to buy a first new car or starter home. Rutgers University find that 28% of recent graduates say they have moved back in with their parents to save money, and 40% have delayed a major purchase such as a house or car due to their educational debt.
See where this is heading? When you take into account America’s burgeoning bailout culture and the rising political power of younger voters, it’s no surprise that Citigroup thinks taxpayers might end up riding to the rescue:
Taxpayers already (or will) indirectly subsidize both the housing and healthcare sectors by covering GSE losses and paying for a healthcare system that pays out more than it receives in revenues. If the continued misalignment of educational resources ultimately leads to government “forgiveness” of student loan debt, it will simply be one more example of fiscal subsidies for a narrow demographic.
Citigroup estimates that writing off defaulted student loans would cost $74 billion, though such a move might nudge other borrowers to strategically default in hopes of a bailout of their own.