Will There Be A Student Loan Bailout? Outlook Not So Good.
January 4, 2013

There’s been a lot of discussion about the possibility of a student loan bailout. Student loan debt continues to rise like crazy and so do student loan defaults. Richard Vedder, director of the Center for College Affordability & Productivity and professor of economics at Ohio State University, recently spoke about his views on the possibility of a student loan bailout. According to Vedder, a bailout is both unlikely and unwise. Here’s why.

While Vedder is very much on board with finding a solution to outrageously high tuition rates and the corresponding student loans, he does not feel that a student loan bailout will be a fruitful way to manage the problem. In his own words: “I’ve always said the second worst idea ever was a student loan bailout. The worst idea ever was creating federal student loans in the first place.” Why is a bailout such a bad idea?

Accountability

If the government were to bail out student borrowers, there would be zero incentive for any borrowers repay their debt. The smart move would be to stop paying and wait for the next bailout to come around.

Equity Issue

Eighty to ninety percent of student loan borrowers do or at least attempt to repay their debt. A bailout would essentially reward delinquency, which would unfairly punish borrowers who managed (or attempted to) keep up their end of the bargain.

Macroeconomic Problems

If the U.S. government were to take on a $1 trillion liability it would send a dangerous message to the world; this would suggest the federal government is ill equipped to manage its finances.

How Likely Is A Bailout?

Despite Vedder’s strong position against a bailout he does admit that it’s a possibility in the future, albeit an unlikely one. Financially, he feels the government has its hands full what with dealing with the fiscal cliff, not to mention the pursuant budget negotiations. Notwithstanding, he states that he really can’t be sure and has often been surprised by Congress in the past, his bet, however, is that a bailout won’t be happening.

That being said, it’s certainly not something borrowers should be waiting around and holding out hope for. On the contrary, there are other, more practical and immediate debt solutions available right now. Being stuck with overwhelming student loan debt, well, sucks, but it doesn’t have to define your life: the key to liberating yourself from the confines of your debt is to optimize your debt management. By doing things like choosing the right repayment plan and possibly consolidating your debt, student loan payments can become infinitely more manageable. Navigating the complex nuances can difficult, so don’t hesitate to get some help from the experts on your path to feeling free again.