The US Department of Education has hired a consulting firm McKinsey & Co. to assist them in evaluating the $1.45 trillion student loan portfolio, according to a report in Wall Street Journal, citing officials that were related to the matter. According to the Journal, a recent upsurge in the number of student loan defaulters triggered the government to carry out the evaluation. The government is liable to provide support to students who cannot repay the loan, meaning that the liability to pay back the loans will eventually fall on the taxpayers.
The White House is reportedly exploring numerous options to tackle the matter at hand, including selling a fragment of the portfolio, allowing the government to “raise money upfront and transfer the long-term risks to the investors”.
According to an estimate, almost 14 percent of the US population have taken student loans. The outstanding student loan debt hit $1.46 trillion in December last year, per the data collected by the Federal Reserve Bank of New York, second only to the mortgage debt, as the total share of debt burdens shared by Americans. The trump administration is looking for ways to relieve the taxpayers from the potential strain that could lead from their inability to pay back student loans.
Several experts and business leaders have warned the government that their role in subsidising the student loans will make it risky for the overall US economy. Billionaire hedge fund manager Ken Griffin on Tuesday said “areas, where the government is most heavily involved with subsidizations, is where we often see the economy break down the greatest.”
For the moment, lawmakers, too, are looking for ways to tackle the issue at hand. Massachusetts Democrat Elizabeth Warren – a 2020 presidential candidate – recently said that a $640 billion proposal was under consideration to eliminate the student debt burdens for some borrowers, with the aim of providing relief to almost 95 percent of borrowers.
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