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Monica Showalter


NextImg:Surprise, surprise: Biden's student loan mass amnesties leads to a new wave of defaults

Joe Biden's mess to America is the gift that keeps on giving.

Which brings us to the Federal Reserve's findings about student loan defaults rising, as analyzed by the estimable economist, Stephen Moore, writing on HotAir:

Student loan debt soared to more than $1.5 trillion during the Biden presidency, and the response by Washington was to "forgive" hundreds of billions of these unpaid loans by deadbeat borrowers and let the taxpayers pick up the tab.

...

Those of us who watched these events unfold predicted that one result of this policy would be that many college graduates would stop paying back their loans. And guess what?

Just like clockwork, this headline from Bloomberg recently told the whole story: "Student Loans Drive US delinquency Rate to Highest Since 2020."

Gee, who -- except a bunch of head-in-the-sand politicians in Washington -- would have ever thought that forgiving as many people from paying their student loans as possible would increase future nonpayments?

A minor point -- I couldn't find any evidence that these loan-forgiveness recipients were necessarily deadbeats. Biden was looking for votes, so he 'forgave' $188 billion in student loan debt, passing the cost on to those who already paid their student loan debt, or else didn't borrow at all. For Biden, the more, the merrier. So he did it all over, again and again, never mind what the courts said. It's easy to forgive student loan debt if you can pass the cost onto the taxpayer.

But Moore's larger point, that loan forgiveness makes people less likely to bother paying back loans, stands pretty firmly based on this new evidence from the Federal Reserve.

There is an old saying in physics and economics: Every action in the universe has a reaction. How many students in the future will pay back unpaid student loans when the next forgiveness program is right around the corner? So people who did the right thing and paid back their debts now have to pay more for the people who refused to pay back the money they owed.

After all, why bother to pay back student loan debt when all you have to do is elect a Democrat who will make it go away? Better to keep the cash and spend it on vacation. And if someone like President Trump is elected, then it's just a matter of time that eventually a Democrat will come along. The pendulum always swings, and all a borrower need do is wait for the next Biden the way one waits for the next subway train. It will eventually come.

And as a statistic, it is an outlier, unrelated to the overall economy, according to the Bloomberg report:

The share of outstanding US consumer debt that’s in delinquency rose in the first quarter to the highest in five years, reflecting an end to the pandemic-era pause on reporting delinquent student loan payments on credit reports.
Some 4.3% of debt was delinquent in the first three months of this year, the most since 2020 and up from 3.6% in the prior quarter, the New York Fed said Tuesday in its Quarterly Report on Household Debt and Credit. Outside of student loans, however, transition to early delinquency held steady for nearly all debt types.
Missing payments on federal student loans have just begun to reappear on credit reports, following a years-long payment freeze. As a result, about 8% of student debt fell into serious delinquency — or was 90 or more days late — in the first quarter, up from less than 1% a year earlier.

In other words, debt default patterns remained steady as the economy moved towards the Trump era and began to improve, with the single exception of student loan debt.

It's likely that borrowers took the COVID-era pause on loan repayment, blanketly issued without regard for need and extended well beyond the COVID lockdown era, and took the 'pause' to be permanent, going on to acquire other debt in its place or spend it in a way that made returning to the regularly scheduled debt repayment was either impossible, or made a calculated decision that eventually the debt would be forgiven away by a Democrat.

Bidenflation, no doubt, took a toll, too, in this striking rise in defaults, based on its effect on everyone's bankbook, disincentivizing savings and encouraging spending.

This pattern roughly corresponds with what is known in the credit markets about sovereign defaults -- if a nation defaults once, it will be very likely to default again and again. Ecuador could tell us all about it.

And as Moore importantly concludes:

The bad news is that we should anticipate bigger stashes of student loans to pile up at taxpayers' doors in the years to come. The good news is that this scam has reminded us that in life, incentives matter. This episode brought to light the financial foolishness of debt forgiveness programs, and so hopefully we will never do this again.

Except that politicians have very short memories.

We see this happening in many aspects of leftist administrations, meaning, the bad knock-on effects of disregarding human incentives aren't confined to just student loan debt forgiveness.

We know that amnesty for illegal entrants into our country always brings in more of them. Do it for millions, and get millions more.

We also know that amnesty for criminals, through the abuse of the presidential pardon (Joe Biden's autopen signed more than 4,000 of them) pretty well renders justice meaningless, even for monstrous crimes like murder. If life no longer means life so long as there's a Joe Biden around, then public support for the death penalty is sure to rise.

As Moore said, incentives.

What a nightmare Joe Biden has now left us, the curse that keeps on giving.

Trump is right to try to eradicate the entire Democrat party, because it will take a lot to stamp out all its evil after-effects. They live on well after their perpetrators are gone.

Image: Pexels / Pexels License