Leef’s latest Forbes column notes problems created by a ‘generous’ Uncle Sam

George Leef shares with Forbes readers his concerns about lenient rules for paying back college student loans.

People keep talking about the high burden of college debt, which now surpasses credit card debt. And the federal government is doing something to help.

Unfortunately, what it is doing makes the problem worse.

Student loan debt has risen more than any other category, according to a February report by the Federal Reserve Bank of New York. That’s surprising because college enrollments (and also enrollments in many graduate and professional schools) have been declining.

So why is that student debt mountain still growing?

Instead of paying their debts down, many graduates are either keeping their loan balances steady or even allowing them to increase. About 17 percent of student borrowers are currently delinquent, but many more who aren’t officially delinquent have avoided that only by taking advantage of Uncle Sam’s generosity with taxpayer money.

One of the “generous” features of federal loans permits students to defer their payments. They can simply claim that they impose “economic hardship” or they can return to school. Just by enrolling half-time, the student can qualify for more loans and can use the money not just to pay for tuition, but to help cover living expenses.

This reflects political reality — politicians win more votes by being nice to college students than by watching out for the taxpayers.

People with mortgages can’t put off the payments just by saying that they impose a hardship, but mortgage lenders have their own money at risk and can’t indulge in foolish generosity. Politicians, on the other hand, don’t bear the costs of their follies.

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