The student loan market is the next bubble to burst. It
used to be good business for banks to make federally subsidized
student loans. Students received cash for college at favorable
interest rates and lenders had credit enhancement from the federal
government. But that was then, and this is now.
Hand in glove with the passage of the Dodd-Frank financial
regulatory behemoth legislation, the federal government took
federally subsidized student loans out of the private sector. And
as with most federal programs, student loans are now being
gimmicked with fraudulent accounting and brazen demagoguery. The
most recent example of the former is the bill introduced by Sen.
Elizabeth Warren that would set the rate of student loans-which are
long term unsecured debt obligations with documented historic
default rate-at the interest rate that the Federal Reserve charges
for secured, overnight loans to participating banks through the
discount window.
