According to the Washington Post, the next big financial crisis may be triggered by student loan defaults.
Many students are simply unable to repay their loans, and tragically, much of this will fall onto their parents, who for various reasons are unable to declare bankruptcy to get out from under them.
The Inghams of suburban Minneapolis are an example of how one family got into hot water. David Ingham, a 70-year-old disabled Vietnam War veteran, co-signed about $50,000 in student loans for his son to attend a fine-arts school in Minneapolis as well as Catholic University.
Ingham’s son held a couple of jobs after he left Catholic University, but he was laid off in October 2009 and has not found work since. When his son could not repay his loans, a Sallie Mae collection agency took the family to court, seeking to place a lien on the Inghams’ condominium in suburban Edina.
“It’s a nice condo, and I worked my butt off for years to get this thing. Now we don’t know what the heck is going to happen,” David Ingham said. “We’re in a free fall right now.”
Who’s to blame for this? Well, obviously the parents made a horrible choice. Mortgaging your retirement condo for fine arts degree from a private school is a terrible idea. But the truth is we all do stupid things for those we love. And the universities are also culpable, as we have noted before, for over-selling the benefits of degrees without adequately explaining the economics of the various choices.
But the biggest villain in this drama is the federal government, which guaranteed 90% of those loans, letting universities off the hook but not students and their parents. I agree with libertarians that the federal government should not be in the business of trying to prevent people from doing stupid things. At the same time, nor should it be in the business of enabling or even encouraging stupidity, as it has been with the educational loan system.