A sign of the times: Yale, Penn, and George Washington University are now suing their former students for defaulting on their student loans. The loans in question are Perkins loans, which are set aside for poor students and disbursed by colleges rather than the federal government and. This news broke shortly after the Wall Street Journal reported that the number of subprime borrowers is growing in the market for higher-ed loans. If this trend continues – and there is no reason to believe it won’t — one should expect to see many colleges taking a similar course of action against their delinquent alumni.
The Bloomberg article about the lawsuits highlights exactly why the student loan problem isn’t going away. Despite the growing ranks of subprime borrowers and the fact that poorer students are more likely to default, President Obama has pledged to increase funding for Perkins loans by $7.5 billion. Even better, he wants the federal government to take over the program. So, colleges, don’t you fear: Washington will assume the heavy risks. The bureaucrats at the Department of Education need not worry, either. At the end of the day, taxpayers will pay for the program’s losses.