This happened because the student loans were thought to be a way for the government to make money

As Mitchell writes, in the 1990s and 2000s lawmakers raised limits on loans and allowed parents to take on student debt partly because future revenues projected by the Congressional Budget Office meant the measures could be justified as deficit control

That brings me back to the kink I mentioned in the chart above. The looming repayment crisis inspired the Obama administration to set up an income-driven repayment (IDR) scheme, which was expanded several times, particularly in 2016. This allowed distressed borrowers to pay only a set fraction of their income, and theoretically after a number of years or doing certain public service tasks, get the loan forgiven (though few have actually been approved so far). Now, IDR is a great help to many people who saw their payments reduced, but it also meant that most of them were not paying enough to make progress on eroding their debt’s principal – thus the ballooning debt balances we’ve seen. This chart from the Congressional Budget Office (also cited by Steinbaum) shows that, on average, borrowers in IDR have seen their loan balances increase steadily:

Those who have not enrolled have seen far higher rates of default; on current trends most borrowers will be in IDR eventually, which is rapidly becoming a kind of ad hoc bankruptcy program for student borrowers. In a sense, the U.S. is starting to fund its higher education system with a payroll tax on people who go to college but are too poor to pay for it out of pocket – except we then force them to sit under an enormous load of basically imaginary debt for ages their credit, making it harder to get a job, a house, a car, and so on.

It’s easy to imagine a solution for this problem. Simply get rid of the debt, most of which is not going to be paid back anyhow, and in future finance public higher education directly. Then use that leverage to force schools to get their costs under control. The most logical payment method would be ordinary progressive taxes, but even an actual graduate tax would be fairer than the current system – at least people would not have the debt burden, and graduates from rich families wouldn’t be able to skate by having their parents pay up front.

But this would require facing some unpleasant truths. At The Wall Street Journal, Josh Mitchell reports that former Secretary of Education Betsy DeVos commissioned a report on the student loan portfolio from a private banker, who found the Department of Education had been using very unrealistic assumptions about how much it was likely to make on its loan portfolio. Indeed, the report, which focused on defaulted loans, was if anything not payday loans with debit card Roswell NM pessimistic enough, because most student loans are not in default. “I’m very confident in saying the government is underestimating how much debt can’t be repaid, and thus the whole portfolio looks way too rosy,” Steinbaum told The Week.

Effectively, the IDR program (whose enrollment has grown steadily to about a fifth of borrowers) is a tacit admission that most student loans are never going to be paid off in full

A deficit-reducing CBO score “is a key factor in deciding whether a policy is adopted or not,” Robert Shireman, who worked on several of these laws, told Mitchell. “The fact that it saved money helps enact it.”

Except it didn’t actually save money. It just inflated a huge bubble of student debt on the backs of people who did not make the higher wages lawmakers anticipated in their future plans, and the government will have to eat the losses at some point. Now the state’s own actions have ensured that debt will never be paid back in full.