Armed Marshals Arrest Student Loan Debtors; Is the Bubble About to Burst?

Could the student loan bubble be on the verge of popping?

If desperate government actions serve as any indication, it may well be.

Last week, seven US Marshals armed with automatic weapons came to Paul Aker’s home in Houston to arrest him for a $1,500 student loan debt dating back to 1987. According to the Guardian, Acker isn’t alone facing the barrel of a gun over outstanding student loans:

Aker is unlikely to be the only person to be surprised by marshals collecting on student loans. A source at the marshal’s office told Fox 26 that it is planning to serve warrants on 1,200 to 1,500 people over student loan debts.”

Total student loan debt currently stands at more than $1.3 trillion and continues to increase at an estimated rate of $2,726.27 every single second.

As we’ve reported, according to figures released by the White House, about 27% of student loans are currently not being repaid. Some 7.5 million people with student loans are now severely behind in paying back their debt. In fact, the $1.3 trillion student loan bill ranks as the largest source of consumer debt only behind mortgages. Analysts expect the number to more than double in the next 10 years.

Clearly this is unsustainable. This pile of student loan debt not only hangs an economic millstone around the neck of millions of Americans, now it appears it can even land them in jail.

But while armed cops try to collect three-decade-old student loans, the feds are forgiving billions of dollars in student debt through a program that illustrates the ineptitude of government planning and foreshadows bigger problems down the road. The Public Service Loan Forgiveness Program was designed to incentivize college graduates to go into relatively low-paying public service jobs such as public defender, social worker, and public health provider. But a loophole in the program will allow thousands of high-paid workers to dump their student loan debt. This ill-conceived program will forgive some 600,000 student loan debtors.

That pales in comparison to the number of people who could potentially walk away from their student loans if a federal court decides to allow for the discharge of student loan debt through bankruptcy.

All of this points to a system that is completely broken and on the verge of collapse. The federal government is simultaneously trying to relieve the debt burden, or collect on it, depending on which hand you happen to look at.

Of course, the US government was largely responsible for the student loan debacle in the first place. As Addison Quale pointed out in an article last year, the dynamics of the student loan bubble are similar to the housing bubble that led to the Great Recession.

It seems to now be happening all over again. This time politicians claim that a college education is part of the American Dream and is a right of all Americans – regardless of their credit rating and SAT scores. Spurred on by even lower interest rates and the implicit promise that John Q. Taxpayer will once again come to the rescue should anyone happen to default, we now have a growing student loan bubble on our hands.”

And ultimately, the US taxpayer is on the hook.

Not only do student loans add significantly to the nation’s already massive debt burden, it is emblematic of the bigger problem. As we reported last week, US government debt, along with consumer and corporate debt, is a huge elephant in the room that’s eventually going to go on a rampage.

Sooner or later, the student debt bubble will pop, and it will impact US markets, along with average Americans. You can learn more, and how to prepare yourself, in SchiffGold’s white paper The Student Loan Bubble: Gambling with America’s Future. Get the free download HERE.

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