The problem with Federal Student Loans, and why nationalizing them does not help the situation.

Anybody remember a year or two ago how Fannie Mae and Freddie Mac went bankrupt because hey encouraged a whole bunch of people to take out loans on houses that they should have had no reasonable expectation of being able to afford? And how they went and sold this worthless paper off to major investment banking companies at the behest of the federal government in the form of credit default swaps and other murky and risky derivative investments? And do you remember how the Federal Government stepped in and paid off all of the investment banking firms that knowingly bought all of these risky bits of paper and paid them in full for these worthless investments, thereby socializing the losses. Anybody remember how that all worked out in the end? Yeah, apparently not... because we are doing the same thing with Federal Student Loans. What is that line about the definition of insanity again? Oh yeah, this is it....

Anybody who has been home sick or has been unemployed and tried to find any form of intelligence on the boob tube during the day has been inundated with the "become a dental assistant" or "become a paralegal" or "get your BS in Criminal Justice" ads (among many many other iterations on the same theme) in heavy rotation on virtually every broadcast and cable channel between the hours of 8 am and 4:30 PM. Virtually all of these are offered by private for profit companies that offer vastly overpriced, non-accreditied courses of questionable value to people who scored generally in the lower thirtieth precentile on standardized tests. (what is that line about fools and money?) And virtually every damned one of them is financed by federal student loans backed by the quasi-federal Sallie Mae corp.

By the time these people complete their 8 week BS degree coursework and finally discover that they have been sold a bill of goods, they find themselves looking at huge student loan bills staring them in the face without any hope of getting a job that will enable them to pay them off. So the loans go unpaid, the IRS refunds are garnisheed, and the interest and penalties continue to mount while the investment value of that loan dwindles down to nothing. But up until now, it was Sallie Mae and it's institutional investors on the hook for all those worthless loans. Not the Federal Government. Sallie Mae is NOT backed by the full faith and credit (such as it is) of the Federal Government, even though everyone assumed it would be. Just like they ASSUMED that Fannie Mae and Freddie Mac would be, even though everyone really knew better. Then Obama decided that after a few years of non-payment, those loans would be forgiven. Again, the Federal Government doesn't actually own the loans, I suppose they will be buying the worthless paper from the loan originators/investors. So now they are taking over Sallie Mae completely.

But the fundamental problem is that people with no chance in hell of every paying off the loan are being encouraged to take out loans they'll never be able to afford with the long term obligation to pay it back at some later date, knowing in the back of their minds that the loan will be forgiven eventually anyway. meanwhile the taxpayer is on the hook for all this endless free money.

If we are going to give away taxpayer money anyway (and there is no constitutional justification or authorization for that BTW!) why don't we just call this what it really is: a grant. "Free" money that we might as well be throwing down a hole more often than not. But in nationalizing it, Obama has taken the hand out of the institutional investor's pocket and put it in yours and mine.