Steve Bannon is absolutely wrong on Student Loans

Over half of the 45 million borrowers are republican or independent, and 80% of them were underwater on their loans before the pandemic.

Steve Bannon has demonstrated that his Economic Populism is to be taken very seriously. However, the only instance where Bannon has even uttered the words, “student loans”, that I’m aware of, is a couple of recent rants from him saying that student loan borrowers should be forced to “repay every cent”. Bannon- who spent years as a banker at Goldman Sachs, has obviously not looked closely- if at all- at the student loan problem. He wouldn’t be doing the “get off my lawn” schtick if he knew the ACTUAL voters he is attacking, disparaging and alienating with comments like these.

A slight majority of people with “some college” identify as being politically independent (12%) or republican (43%). 40% never graduated, millions went to trades schools. Borrowers in historically “red states” are being hurt significantly worse than those in “blue states”. This is the largest emerging voting block in American politics today. This is part of Bannon’s base.

I seriously doubt that Bannon knows that Founding Fathers George Washington and Thomas Jefferson were in debt up to their eyeballs to British banks and merchants, and that they made it a point to require bankruptcy rights ahead of the power to raise an army, and even the power to declare war in Article I, Section 8 of the U.S. Constitution. Not the Bill of Rights- the Constitution itself.

I don’t think Bannon knows that this right, along with statutes of limitations, and a host of other fundamental consumer protections have been stripped, uniquely, from student loans. I also doubt that Bannon has noticed the predatory, hyper-inflationary, big-government monstrosity that has resulted, or the tens of millions of people — both democrats and republicans — who are being crushed by it.

Bannon may know that as a country, we now owe an astonishing $1.8 Trillion in student loan debt, but I doubt he realizes that before the pandemic, the federal government was profiting well in excess of $50 Billion per year on the program. I know he doesn’t know that the government is actually turning a profit on defaulted student loans- a defining hallmark of a predatory lending system, and the government sits atop the hornet’s nest.

Bannon definitely doesn’t know that student loan debt in more than a third of U.S. States now exceeds their entire state budgets. The majority of these states are “red states”, and 87% of this debt is owed directly to the federal government. According to Wayne Johnson, who ran the federal lending system under President Trump, 80% of the 45.4 million borrowers were never going to be able to repay their student loans even before the pandemic (around half were unable to pay at all, the rest were paying, but their loan balances were increasing). Johnson now argues for widespread loan cancellation and also the return of bankruptcy protections to the loans.

Bannon surely doesn’t know that the default rate for 2004 students is 40%, but these people were borrowing less than a third of what is borrowed by today’s students. The sub-prime home mortgage default rate, by comparison, was a mere 20%.

States where student loan debt exceeds the state budget.

Federal Student Loans Only (Source: US Department of Education Q4)

Interestingly, Georgia is the worst, owing $81.5 Billion in student loan debt vs. a $48 Billion state budget. On November 3rd, there were 1.8 million “student loan voters” in the state- . Trump and the republicans offered them nothing, while Biden and the democrats called for both widespread loan cancellation and the return of bankruptcy protections to the loans (even if insincerely). The student loan issue certainly provided the democrats with the margin necessary to win the Georgia elections, and is likely why the races in the state were even close to begin with.

While Georgia is the worst student loan debtor-state in the country (as a percentage of the state budget), Texas, North Carolina, South Carolina, Florida, Ohio, Alabama, Indiana, Tennessee, and Missouri aren’t far behind. This will only get worse for Bannon and the republicans. He’d better get wise to it.

Make no mistake: the federal student loan system has become something that no conservative- particularly Steve Bannon- should support. In the absence of constitutionally enshrined bankruptcy protections, statutes of limitations, and other fundamental consumer protections (removed by Congress), The entire lending industry- especially the Department of Education- has essentially been given a license to steal from the citizens. The Department has been booking upwards of $50 Billion per year in profits annually from the lending system, and interestingly, some of these profits are earmarked to pay for Obamacare. What is most disturbing: White House Budget data going back decades show that the government has managed to make a profit, even, on defaulted loans- a claim that no other lender can make, and a defining characteristic of a predatory lending system.

By every reasonable metric, this is a catastrophically failed lending system. Most borrowers were unable to make payments before Covid, almost no one is paying currently, and very few will resume when the current payment suspension expires.

Bannon obviously doesn’t know that of the 45.4 million student loan borrowers in the country, more than 40% never graduated. All were determined to be financially needy as a precondition for getting the loans. Many attended community colleges, and even vocational schools to learn a trade. Despite popular misconceptions, there are more people over 35 years old with student loans than there are people under the age of 35, and they owe what the younger generation owes.Even before the pandemic, about 39 million of these people were losing sleep over their student loans, and they span the political spectrum.

In 2016, the democrats got this. Candidates like Bernie Sanders, Elizabeth Warren, and others not only included the return of bankruptcy protections in their presidential platforms, they went a step further and called for broad student loan cancellation. Biden endorsed Elizabeth Warren’s bankruptcy agenda, and by the time the election happened, was pledging to “eliminate” student loans for public college students who earn less than $125,000.

The “liberal elitists” that are so often associated with student loan cancellation- and probably the image conjured in Steve Bannon’s mind when he thinks of student loans- don’t exist. By definition, liberal elites don’t get student loans. Also, the most successful federal student loan borrowers tend to refinance their loans at lower interest rates outside of the federal program, so they will not benefit from federal loan cancellation.

Trump, Bannon, and the republicans, meanwhile, had nothing in 2916. In fact, the republican response to all of this was essentially to wag their fingers at the borrowers, and declare loan cancellation to be unfair to those who had paid off their student loans, or who had paid for college without loans. By demonizing the 45 million people being wrecked by these loans, instead of the big-government lending beast and the colleges who are benefiting from them, they sealed their fate in Georgia, and nationally.

In one fell swoop, the republicans- including Bannon- have managed to both abandon tens of millions of their constituents, and betray their conservative principles. This is the height of elitism, arrogance, hypocrisy, and stupidity.

During the first year of the pandemic, President Trump could have stood up to big-government and the colleges, cancelled all federally owned student loans, and called on Congress to return bankruptcy protections to the loans he couldn’t cancel. Unlike the trillions in PPP loans (that don’t need to be repaid), and other stimulus measures taken, this could have been done without congressional approval, appropriation, and without adding a penny to the national debt. He could have taken the lending system “to the bath, and drowned it in the tub” (Grover Norquist’s words, not mine).

Trump would have massively stimulated the economy, jettisoned a broken and threatening lending scam, and paved the way for a complete re-build of higher education financing in this country. The republicans would have won both the presidential election, and also the two close Senate races in Georgia.

He didn’t. They lost. The republican party is now falling apart because they chose to defend (by omission) a lending system that is vanishing into a mist of illegitimacy as we speak. If the republicans wish to avoid vanishing along with it, they had better figure this one out, including Bannon and his growing wing of the party.

Being a Harvard educated, Goldman Sachs millionaire, I wouldn’t expect Bannon to have deep or detailed knowledge about this big-government lending scam, but as the leader of an “Economic Populism” movement, I would expect that he would take the time to learn. That he hasn’t to this point makes me think that he may be just another republican, swamp-aligned operative. Hope I am wrong.

Bannon and Trump should use this out-of-power time to take advantage of Biden’s reversal on this issue, and (at a minimum) fight for the return of standard bankruptcy protections to all student loans.

If they want to go big, they could literally steal this entire issue from the democrats, and fight to cancel the loans (call it stimulus), end the lending system, defund the colleges (or at least put them on a major diet), and come up with a cheaper, more state-friendly way to fund higher education in this country.

Until one or both of those things happen, Bannon looks increasingly suspicious and disingenuous. More broadly, republicans will have an increasingly tough time winning statewide races in places like Georgia.