Despite the accumulation of nearly ten years worth of evidence that the U.S. government cannot make money from its student loan business despite having a near monopoly in it, it may soon get into a whole new lending racket.
Disguised Taxpayer Bailout
But what makes this lending racket different is that what they would offer their political crony clients is little more than a taxpayer bailout by another name. Writing at RealClearMarkets, Alex Pollack explains the business model being advanced by the legislative authors of H.R. 397:
Here's a remarkable lending opportunity to consider: Let's make billions of dollars in loans to borrowers which "are insolvent" or in "critical or declining status." These loans would be unsecured and no payments of principal would be due for 30 years. At that point, in case of default, the loans would be forgiven. Would you make such a loan? Obviously not, and neither would anybody else—except maybe the government. This idea is one only politicians could love, since it gives them a way to spend the taxpayers' money without calling it spending.