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  • Writer's pictureWes Moore

Falsified Government Student Loan Losses & Their Impact on the National Debt

An article in today's Wall Street Journal provided some insight into how our government hides its losses and debts [1].

According to the report, J. P. Morgan was asked in 2018 by the then U. S. education secretary Betsy DeVos to help determine why "repayments on federal student loans had come in persistently below projections." Apparently, loans were not being repaid at the rate the Department of Education expected, and it wasn't sure why.

J. P. Morgan sent Jeff Courtney, an executive with the bank at the time, to Washington to conduct an investigation. When all was said and done, Courtney produced a 144-page report on his findings. What Courtney uncovered was a skillful means of hiding the fact that billions of dollars of federal student loans were not being repaid, and, in fact, would never be repaid.

Here's how it worked: When someone defaulted on a loan, instead of writing off the losses as required by standard accounting practices and the law, the Education Department simply created new loans for those students. These loans "paid back" the defaulted loans.

There was only one problem: These loans were defaulted on, too. The whole enterprise was a scam to hide the losses. Here's how the Journal article described the result in financial terms:

The result, [Courtney] found, was a growing gap between what the books said and what the loans were actually worth, requiring cash infusions from the Treasury to the Education Department long after budgets had been approved and fiscal years had ended, and potentially hundreds of billions in losses.

Mrs. DeVos, J. P. Morgan's chairman at the time, said in an interview regarding the scam, "If you accounted this way in the private sector, you wouldn’t be in business anymore. You’d probably be behind bars.”

Why this is even more important

The fact that government officials are committing fraud to cover up financial losses is bad enough. But this plays into a much larger problem with much greater consequences: the ballooning national debt and our coming financial collapse.

If the losses were reported correctly, they would add to the government's yearly budget deficits. This, in turn, would add to the national debt numbers reported to the American people. But they aren't being reported correctly, so we don't even know they are there. The Journal article points this out expressly:

Were [Courtney's] model [of counting losses properly] to be adopted, watchdogs such as the Congressional Budget Office could force the federal government to recognize the losses, deepening deficits and adding hundreds of billions of dollars to the national debt.

The point? We are actually in far greater debt than we are told. How many other government departments are doing this?[2] If all of those losses were tabulated, how much more would our national debt be: $2 trillion, $5 trillion, $10 trillion?

When the collapse finally comes, and our government and governments all over the world investigate how it happened, do not be surprised if fraud of a gargantuan scale is discovered in our government's financial practices.

The problem is, it will be too late to do anything about it. We will have sunk the entire world into a depression the likes of which has never been seen and our own nation into abject poverty that will take generations to overcome.


[1] Josh Mitchell, "Is the U.S. Student Loan Program Facing a $500 Billion Hole? One Banker Thinks So." The Wall Street Journal. 29 April 2021.

[2] In a similar vein, in my book Collapse, I noted how the Congressional Budget Office (CBO) reported that interest payments were only $375 billion in 2019, but the Federal Reserve reported the total at $582 billion. Why the difference? The CBO was only reporting on "debt held by the public," not total debt. Total debt includes that held by internal government departments, like the Social Security Trust Fund. While these "internal debts" are true debts requiring real interest payments, the government leaves them out to underreport the impact of its massive borrowing.

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