Student loans – good government assets? : News : Truth in Accounting

Student loans – good authorities belongings? : News : Truth in Accounting

Student loans have been the biggest and quickest rising asset on the federal authorities’s steadiness sheet over the previous decade. The federal authorities reported greater than $1 trillion in federal direct student loans in 2019. Calls for the federal government to forgive these loans have grown more and more vocal in recent times, significantly in current months. 

Late final 12 months, then-Senate Minority Leader Sen. Charles Schumer (NY) known as on President-elect Joe Biden to forgive as much as $50,000 in student debt per borrower on his first day in workplace. Several days in the past, President Biden directed the Department of Education to increase a freeze on federal student loan funds by means of at the least October 2021, and student loan forgiveness stays a spotlight of curiosity amongst many in Congress.

The remedy of student loans as belongings on the federal authorities’s steadiness sheet is curious for just a few causes. Back in 2014, I wrote an article for Truth in Accounting titled “A good investment? Or just buying their silence?” The article raised questions on federal authorities expectations for the long-run profitability of its lending packages, expectations which have since fallen sharply. And current developments recommend vital write-downs in lots of billions of {dollars} are actually doable.

Consider, nonetheless, what this implies for the logic of treating student loans as belongings, whereas not reporting the large unfunded obligations for Social Security and Medicare as liabilities on the federal authorities’s steadiness sheet.

The Social Security “Trust Fund” doesn’t have money, or gold bars. It holds distinctive, non-marketable securities issued by the U.S. Treasury. And the annual “Analytical Perspectives” part of the President’s finances commonly tells Americans that the securities issued to the Social Security belief fund characterize obligations of 1 authorities account to a different, not obligations to Social Security contributors as people.

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This is according to the federal authorities’s accounting remedy of the large unfunded current worth obligations in Social Security (and Medicare). Those obligations are not reported as money owed on the federal authorities’s steadiness sheet. How does the federal government justify this? The reasoning is that the federal government controls the regulation (and the advantages), and might change the regulation at any time.

But the federal government controls the regulation governing how authorities supplies loans to students, and it may change that regulation at any time, too.

That doesn’t seem to cease the federal government from reporting greater than $1 trillion in student loan belongings. Maybe it ought to begin reporting tens of trillions of {dollars} in unfunded Social Security and Medicare obligations, too.

 

 


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