04/23/2014 07:22 pm ET Updated Jun 23, 2014

The Big Dupe: What's the Truth About Student Loans?

Student debtors, you're being duped. The government isn't sitting on any student loan profit despite what Senator Warren says. She wants the government to stop taking advantage of you, but it's the other way around. You are taking advantage of the government every time you don't pay your student debts. You have already taken any profit the program ever had.

Perhaps the good senator is referring to the $41 billion the government reported as profit last November. No self respecting banker would call that profit because it takes no account of bad debt.

Everywhere in the world, except the federal government, a lender has to build reserves against bad debts. Those reserves are expenses that eat away at profits. But in the upside down world of student loans, the U.S. government marks every single loan in arrears for 270 days as a good loan.

Even if the government's optimistic accounting system is used, there is little profit to be had from undergraduates. Almost all of the "profit" comes from loans made to graduate students.

So, students, why aren't you re-paying your debts? Because you were duped. The government told you that it would lend you money without considering your credit, but a loan without credit is meaningless. Then the government told you that you can rely on a college degree. Try juggling your budget with that diploma. The $300 monthly payment on your $29,400 loan eats into your food, your rent, your life. And very likely, your partner has a loan too.

So why do colleges keep making it more expensive for you when you can't afford it now? Because they can. Whatever they charge, the government will cover the cost with more student loans. The proceeds go to the colleges and the bill to students. This has fanned a huge increase in tuition.

Colleges know loans scare you so they hide them well. They send you award letters mixing loans and grants, packaging it all up as "financial aid." They show what you will borrow for just one year instead of listing all the loans you will take over your four-year stay. They provide no information on the terms of the loan. They save the promissory notes you have to sign until after you've made your nonrefundable deposit. Yes student debtors, you are being duped.

But you are getting back at them. By not repaying your loans, you are converting them into grants. Think of it as building equity for your future.

Of course your civil disobedience makes trouble for the government. Remember, it never built any reserves against the possibility that $1.2 trillion might go bad. Politicians could pass even more laws to go after student debtors. But the 37 million debtors are also voters. And Senator Warren says the government's collection agents are already too hash on debtors.

Let's just call the whole thing off. Forgive the debts, pay back the Chinese who lent us the money for student loans, and send colleges to rehab for their addiction to these loans. We should promise ourselves to never again try to improve access to higher education with loans.