So Wednesday again and another blog post. This will not be a political post. When I say “U.S. Government” it doesn’t matter what party is in charge. Student loans are a huge issue in the U.S. Two generations have been saddled with this corrupt system of overcharging for a commodity (education) and those institutions (universities) having the debt secured by the government. The losers? Millennials and Gen Z. Government loans guaranteeing universities ridiculous tuition on the backs of the future earnings of teenagers is sinister IMHO.
So of course politicians will promise “Student Loan Relief” to get votes but they will never deliver it. That’s a bold claim and its one you will rarely see supported by finance professionals but there is a clear profound reason why, and I will explain it concisely in a minute. You see everyone in the finance world focuses on debt, in the context of student loans. You rarely if ever see a finance professional tell you the other side of that equation. AHHHHH now we get to it. Yes the other side of the equation is someone holds that debt as an asset.
Anytime you take a loan, you incur a debt the person giving you the loan secures an asset. This is why the government will never give Student Loan Relief. They hold the asset. Now I am going to give you some FY2022 numbers, don’t let your eyes gloss over it will be brief. For the math nerds/finance professionals I will provide a link to the data so you can go read it yourself.
In 2022 The U.S. Government had 5.0 trillion in net assets. AGAIN people always talk about the U.S. deficit but we do have assets too. Of the 5.0 trillion, 1.3 Trillion is student loans. That 27% of the total net assets of the federal government. This is the single largest asset class the U.S. government holds. Source https://www.fiscal.treasury.gov/reports-statements/financial-report/balance-sheets.html#table1 Let that sink in for a minute. Lets think about this logically. Even if you have only had a basic business class you know no entity in the world is going to “forgive” their biggest asset without replacing it with something else.
So let me do a quick summary here. The U.S. Government will never give student loan relief because student loans represent 27% of its total assets. This would be suicide financially without a huge increase in taxes. The simple reason being is liabilities (deficits) are 5 times the amount of the assets. If the U.S. had a smaller fiscal deficit student loan relief would be possible but that is not likely to happen anytime soon. Any politician telling you that they will give you student loan relief is full of shit.
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