Because it worked so well for housing finance in the last bubble, the US government is poised to ease loan standards on this cycle's biggest bubble - student debt. [5] It appears being punched in the face by over-leveraged, over-debted, over-priced housing finance was not enough and as Bloomberg report [6]s, parents whose financial standing disqualify them from most loans will have an easier time borrowing to pay their children’s college costs under a U.S. government proposal to ease credit standards. Come on in - the debt-serf water is warm. With student loan delinquencies already soaring to record highs [5], some are actually questioning the government's sanity as consumer advotaes warn "a decent number of people are going to get in trouble."
Parents whose financial standing disqualify them from most loans may have an easier time borrowing to pay their children’s college costs under a U.S. government proposal to ease credit standards.
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The Education Department wants to look at “adverse credit” over two years instead of five and consider approving loans even if parents have delinquent credit balances, according to an agency document released this month.
However, the plan doesn’t sit well with consumer advocates and economists, who are sounding an alarm.
Consumer advocates say loosening the norms for parent PLUS loans will only hurt borrowers, and default rates, already on the rise, will continue to climb.
“Some of these loan characteristics -- potential payment shocks and not verifying a borrower’s income -- certainly strongly contributed to the mortgage crisis,”
[7]
Just 45 percent of the outstanding $62 billion in parent loans are being actively repaid, [5] mostly because borrowers don’t need to make payments until six months after their children graduate or leave college, according to department data. Families are struggling to pay for college as the costs increase faster than the rate of inflation.
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“A good share of these families are not the most financially secure households,” said Thomas Weko, a former Education Department official who is managing researcher for post-secondary education at the nonprofit American Institutes for Research in Washington. “A decent number of people are going to get in trouble.”
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“Until we bring in some element of the ability to repay, I don’t know if we’re providing the right loans to the right people in the right amounts,” said Suzanne Martindale, an attorney for Consumers Union. “That’s frightening.”
Of course - none of that matters - all that matters is credit extension and vote-buying. With a Fed funding Congress for nothing, why not just enable every Tom, Dick, and Harriet to borrow up to their neck, get a degree that does nothing for their future prospects, stalls any housing recovery even further, and leaves yet more of a younger generation encumbered to their parents' credit.
[8]
Oh and when this whole thing hits the fan - no one, not one politician, will be held accountable, will have seen it coming, would have been responsible for the legislation... Welcome to the United States of No Consequence.