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EDITORIAL: Federal loan program gets parents on the hook

During the mortgage meltdown, politicians piled on the banks for their lax lending practices. Will they now point the finger at themselves for another looming debt crisis?

Most everyone is aware of the student loan bubble. Outstanding obligations now total about $1.3 trillion and default rates are rising. That’s the inevitable result of a system that showers taxpayer loans on young college students with skeletal credit histories regardless of their academic major or job prospects.

But the problem gets worse. The Wall Street Journal reported this week that millions of U.S. parents are now facing judgment day on federal loans they took out to help their children pay for college. “Hundreds of thousands have tumbled into delinquency and default,” the paper revealed.

As is the case with direct government loans to students, federal officials clearly aren’t too concerned about underwriting standards for the Parent Plus program created in 1980 and administered by the Education Department.

“The government asks almost nothing about borrowers’ incomes, existing debts, savings, credit scores or ability to pay,” the Journal notes. “Then it extends loans that are nearly impossible to extinguish in bankruptcy if borrowers fall on hard times.”

What could possibly go wrong? For one, more than 11 percent of borrowers are at least a year behind on payments.

Toby Merrill of Harvard Law School’s Legal Services Center to the Journal that “this credit is being extended on terms that specifically, willfully ignore their ability to repay. You can’t avoid that we’re targeting high-cost, high-dollar-amount loans to people who we know can’t afford to repay them.”

If any private-sector bank engaged in similar practices, its executives would be subpoenaed to the beltway to appear in a made-for-TV congressional auto-da-fe. But in the public sector, this is all just standard operating procedure when you’re spending other people’s money.

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