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Student Loans: The Reverse Midas Touch

June 5, 2022

You may have heard the allegory about the man who stands up and rocks the boat and then offers to save you from the storm…….by sitting down. This is precisely the situation with government backed student loans. The government took student loans out of the hands of private lenders several years ago and it should be no surprise that this caused much bad behavior when the loans became an entitlement. Students took out too much money, they pursued course work that was easy but could not put them in a position to get a job to pay back the loans, and many questionable education institutions sprang up to be the beneficiaries of this government largesse. This drove up college costs, which required ever larger student loans, and this started a vicious cycle.
Now we have the equally obscene moves to “forgive” these loans, a move that will obviously encourage more bad behavior the next time around and will also be a slap in the face to those students and parents who were responsible enough to work extra jobs to pay off these loans or to not go into debt at all. These are known in the insurance business as adverse selection or adverse consequences. I have a much simpler explanation: It is called the reverse Midas Touch. It simply means that whatever the government touches turns into, not the gold that Midas predicted, but that brown stuff the farmers use on their crops.
The moral is this: Leave student loans (and most everything else) in the private sector, to be handled by people who have rational, economics related judgement.

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