Using student loans to bail out banks


More than one third (1/3) of the federal government’s assets are student loans according to the 2015 audited financial statements of the federal government. Hidden in Obamacare, the federal government took over student loans from banks and private lending institutions. Previously, banks loaned students or families money for education and the federal government guaranteed the loans made by the banks. Now banks service loans, but the federal government owns them. Total assets of the federal government are $3.2 trillion and two categories of student loans ($880.6 billion+134.7 billion) total $1,015.3 billion. Due to the Obamacare change, this category of loans has grown over 300% since 2007. At least 4 key points to make here:

(1) The cost for the federal government to service these 17 million student loans was $864 million as of fiscal 2012, the latest data I could find.

(2) Student and education loans are the largest category of assets, larger than all government and military lands and buildings. Balance sheet net worth is assets minus liabilities. This $1 trillion in loans along with $2 trillion in other assets has the effect of reducing the negative net worth, i.e. the official national debt, of the federal government to negative $17 trillion. (The net worth of the U.S. government is negative $17,000,000,000,000.)

“Total liabilities ($21.5 trillion) consist mostly of: (1) $13.2 trillion in federal debt securities held by the public and accrued interest and (2) $6.7 trillion in federal employee and veteran benefits payable.”

“The “public” consists of individuals, corporations, state and local governments, Federal Reserve Banks, foreign governments, and other entities outside the federal government.”

Total liabilities does NOT include liabilities that are not yet funded, that is, commitments to pay which have already been made by the government but which so far are not recorded as liabilities on the balance sheet nor have a source of funding. That number is unknown but could be 3 to 10 times higher than the $21.5 trillion. We can’t know the total until the Federal Reserve is audited, among other agencies.…/the-feds-16-trillion-bailouts-und…/…

(3) The Economist reported in June 2014 that over 7 million of these student loans were in default. That is a 41% default rate.

(4) The government has taken over a failing business and made it worse. As a result of Obamacare, the government now has about $1.2 trillion in student loans on its balance sheet, costing over $864 million per year to service the loans and 41% of those loans are in default.

Meanwhile, education is becoming more expensive and lower quality due to a variety of factors, especially artificial, excessive demand. According to, the cost of a college education has increased 4.5 times (450%) in the last 30 years. In comparison medical costs have jumped more than 286% while the consumer price index has jumped 121%. But, larger numbers of college graduates are not landing jobs in their area of study.

Now, at least one candidate for president, Bernie Sanders, is campaigning on promises to make college “free.” The expectation was already out there that college education should be free due to statements by president Obama. Providing “free” college would cost taxpayers more than $1.2 trillion to forgive the outstanding student loans, an amount equal to one fourth of the annual tax revenue taken by the government, plus at least $595 billion per year ($35K per year X 17 million) in additional operating expenses because even the people who today pay for their education would demand it for free. And, those student loans would probably not be classified as assets, meaning the quality of the nation’s balance sheet would take a negative slam from the point of view of creditors and bond ratings agencies. What’s the next step? Nationalize universities to install price controls and capture their endowment funds?

But, over and above all of the above, it appears that the Obama administration used Obamacare in a sleight-of-hand shell game to bail out the banks once again. The government removed seriously non-performing loans from the bank’s balance sheets, and it is now paying the banks hundred of millions of dollars to service those loans. And at least sometimes it is using the IRS as a collection agency.

For their part, the auditors of the federal government financial statements point out yet again that the government is not on a sustainable path.…/15…/02242016_FR(Final).pdf


About budbromley

Bud is a retired life sciences executive. Bud's entrepreneurial leadership exceeded three decades. He was the senior business development, marketing and sales executive at four public corporations, each company a supplier of analytical and life sciences instrumentation, software, consumables and service. Prior to those positions, his 19 year career in Hewlett-Packard Company's Analytical Products Group included worldwide sales and marketing responsibility for Bioscience Products, Global Accounts and the International Olympic Committee, as well as international management assignments based in Japan and Latin America. Bud has visited and worked in more than 65 countries and lived and worked in 3 countries.
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