This imaginary home financing narrative takes place in an alternate world called “Absurdistan.” Our satire describes the devolution of the U.S. student loan system and how it is the "tail that wags the dog" of the U.S. Higher Education system. This story helps relate the hidden psychology of U.S. student loans called “availability bias,” hidden disclosures known as "sludge," and the many bizarre student loan program incentives. Our journey applies related Absurdistinian home loan rules to a pretend home-buying program—highlighting just how broken the U.S. student loan system has become.
About the Author: Jeff Hulett leads Personal Finance Reimagined, a decision-making and financial education platform. He teaches personal finance at James Madison University and provides personal finance seminars. Check out his book -- Making Choices, Making Money: Your Guide to Making Confident Financial Decisions.
Jeff is a career banker, data scientist, behavioral economist, and choice architect. Jeff has held banking and consulting leadership roles at Wells Fargo, Citibank, KPMG, and IBM.
This is a satire. Think of it like a play, where all the actors are playing a real-world organization or person. Please see our Playbill for a list of actors and their real-world counterparts.
Welcome to Absurdistan!
Ah, Absurdistan—a proud democratic nation, much like the United States, where the government is deeply committed to helping its citizens achieve wealth, happiness, and maybe even a backyard with a pool. Here in Absurdistan, no dream is too big, and no policy is too questionable, as long as it’s wrapped in good intentions.
Government leaders, brimming with optimism, believe they have found the golden ticket to prosperity: If rich people own houses, then helping everyone achieve homeownership will make everyone rich! It’s a simple plan—some might say too simple. But who needs economic nuance when you have a taxpayer-funded printing press and an unwavering belief in the magic of good intentions?
Of course, as history has shown, well-meaning plans have a funny way of careening off track like a shopping cart with one bad wheel. And as we will see, Absurdistan’s noble attempt to make homeownership universal has led to some… unintended consequences. But don’t worry—everything is totally fine! The government is here to help, so what could possibly go wrong?
Now, let’s take a closer look at how this well-intended plan unfolds…Imagine you are buying a house in Absurdistan, where the government has created a perfect loan program to make homeownership accessible for all. To help you understand just how wonderful this opportunity is, the Bureau of Lucrative Statistics has produced a well-researched study. It shows that people who own homes in Absurdistan are wealthier and more successful than those who do not.
The government’s home loan program officially communicates the benefits like this:
"Hey there, homeownership is important, and the Absurdistinian government is here to help you! We like you so much that we are not even going to check your credit. So whether you buy a less expensive starter home or a luxury mansion, we’ll provide the loan to get you into almost any home. You qualify for almost any property, except for a few found in highly selective neighborhoods. Pick the home you like the best!"
"Your parents and loved ones will also love this decision! After you choose your home, they can even buy cool neighborhood sweatshirts! Show off your pride! And the best part? You won’t have to make a single payment for 4.5 years! Or even longer if you have a good enough reason. You just have to promise that, at some point, you’ll get a good enough job to start repaying. No problem… we trust you to figure it out!"
But Wait… The “Regrettable Door” Awaits
Of course, the BoLS leaves out a few details. Their analysis only looks at people who have successfully paid off their homes and built wealth. They never mention those who struggle, default, or end up financially ruined. It is as if they are showing you a door that leads to millions in wealth—but neglecting to mention the nine other doors that could lead to decades of stress, financial ruin, or even foreclosure.
If the BoLS were to fully disclose the reality of home buying in Absurdistan, their story might sound more like this:
"Congratulations! You now own a home potentially worth millions in future wealth! But what we didn’t tell you is that this is only one of ten possible doors. Behind the other nine? A life filled with crushing debt, constant financial stress, and uncertainty about whether your job will cover your housing debt. But hey—unless you figure that out on your own, you might have just walked through the wrong door. Good luck!"
How the Department of Easy Money (DoEM) Fuels Financial Risk
But wait—there’s more! Not only does the BoLS misrepresent the financial reality, but the Department of Easy Money (DoEM) takes it a step further. The DoEM is responsible for making sure everyone can buy a home, regardless of cost. Their lending rules work like this:
Check out the DoEM's program to get you into a NEW HOME!
→ No price limits! If you want to buy a house that costs twice as much as another, the DoEM will simply increase your loan amount to match. We know most buyers do not really know the value of the stuff they buy, so we will help you pay as much as you want.
→ No credit checks! Traditional lenders verify if a borrower can actually repay a loan. The DoEM? Not so much. If you want the money, we will give it to you.
→ Interest payment delay! The government will cover your loan interest for the first 4 and a half years or so. After that? You will need to pay the loan back - that is only fair. But the Bureau of Lucrative Statistics says homebuying is a good deal, so you might as well!
These rules reinforce what behavioral economists call availability bias. The Department of Easy Money preys on these naturally occurring cognitive imperfections. It is especially prevalent in young people under 25 years old and first-time homebuyer parents. (aka - first-generation families)
In reality, this setup doesn’t make homes more affordable—it inflates home prices and increases debt. The more money the DoEM makes available, the more home builders charge, knowing that the government will cover any cost increases with bigger loans.
This is why Absurdistan’s housing prices have skyrocketed. Competition between home builders should normally drive costs down—but not in Absurdistan! The laws of economics have been suspended - competition drives prices up! Instead of lowering costs, builders compete on luxury amenities, like gourmet food and luxury workout facilities. This pseudo-competition inflates housing prices even further. The builders even start football teams to attract more buyers! And of course, the football coaches earn millions, despite having nothing to do with the quality of the houses. These amenities are funded by the Absurdistinian loan program administered by the DoEM.
For example, the biggest homebuilder in Absurdistan recently made this announcement:
Press Release, Homebuilders News Wire: "We are proud to announce the hiring of Slick Siban, the winningest coach in Absurdistan history! We are confident Slick will lead our Homebuilder's football team to a big conference victory!"
But really, can you blame the home builders? They are simply following the environmental rules set by the Absurdistinian government. The DoEM has guaranteed that every price increase will be covered by matching loan increases. The Absurdistinian government hopes you enjoy that football game! You will be paying for it for the rest of your life.
Hidden Costs—Too Late to Turn Back
Of course, there is a catch—but it’s buried in the fine print—this is what behavioral economists call sludge. The Absurdistinian government is the master of sludge:
**** Warning, boring fine print below, no need to read *****
Once you start repayment, you must continue. It will take decades to climb out of debt.
Fear of losing income will reduce your job mobility—you can’t afford to take risks.
The long-term negative financial impact on your retirement is massive. All your free cash flow will get sucked up by debt service. As an example, for every $400 per month going to debt service instead of investing in a 401(k), causes an opportunity cost to your retirement of about $3.5 million!
Should you have a problem, Absurdistinian outsourced loan servicers have little incentive to help you. They make money by reducing service quality.
For protection from stress you can't even escape while you sleep, with every loan we provide a mouthguard. This will help protect from inevitable teeth-grinding.
But wait—it gets worse. If you stop making loan payments, your credit will be wrecked, collection agents will hound you mercilessly, and—worst of all—you cannot discharge the debt in bankruptcy. Unlike entrepreneurs - who have risk-taking protections - students are NOT shielded from higher education risk-taking.
**** Warning, boring fine print above, no need to read *****
How do we escape the Absurdistan nightmare??
If this sounds eerily similar to the U.S. student loan system, that’s because it is. In reality, student loans—much like Absurdistan’s home loan program—fuel runaway college price inflation, reckless lending, and long-term financial burdens for borrowers. Unlike homebuilding, where competition drives consumer value through quality price signaling, higher education operates in a zero-sum game of prestige. Without clear measures of educational outcomes, colleges use spending as a proxy for excellence, rather than allowing price signals from informed consumers to guide efficiency and quality. With virtually unlimited federal loan funding, institutions have no incentive to control costs—every additional dollar is absorbed into prestige signaling, inflating amenities, administrative bloat, and luxury facilities.
It’s like handing a limitless stack of credit cards to a group of competing shopaholics—no matter how much credit they have, they’ll keep spending without concern for the bill. They are being told to compete on something their nature compels them to do anyway! What fun! Colleges, given virtually unlimited federal loan funding, are compelled to spend every dollar to maintain their competitive prestige, rather than focusing on cost control or efficiency. The result? A system where 9 out of 10 students leave with some form of life impairment—whether it’s crushing debt, no degree, loan default, or a job that did not require college in the first place. It’s a Lose-Lose scenario—crippling for many borrowers and disastrous for U.S. taxpayers underwriting the program.
The current version of this program took shape about 15 years ago when the U.S. transitioned to a "Direct Lending" model. This shift happened because the cost of involving private banks had become too high. Now, pause and consider this: The market mechanism—the natural pricing signals of private enterprise—indicated that the government's approach to student lending was unsustainable. Instead of heeding those signals and adjusting course, policymakers ignored them, opting to take full control and expand the program even further. Rather than fixing the underlying issues, they doubled down, deepening the financial hole with no clear way out. What does that say about the government’s priorities?
The U.S. student loan system has morphed into an albatross, weighed down by the law of unintended consequences. Like most bureaucratic systems, its trajectory is shaped by predictable incentives—self-preservation and program perpetuation. Even well-meaning administrators operate within a framework that prioritizes maintaining the status quo over meaningful reform. Their reflexive response to any challenge? "Because we’ve always done it this way." And when pressed for real answers, they often lose sight of the original question altogether.
The reality is that the government is shielded from market-correcting mechanisms. They can continue suspect programs virtually indefinitely - that is - until the government runs out of money or the law shuts them down. The bond markets continue to buy student loan bonds - affectionately known as "SLABs" or Student loan asset-backed securities. The U.S. Government is hiding a broken program by extending the "full faith and credit"guarantee to student lending and their bonds. Who can blame the investors? They are simply following the environmental bond rules set by the government. The U.S. Government has committed the U.S. taxpayers to guarantee the loan credit performance of the student loan bonds.
As a relevant comparison, the 2008-2009 financial crisis was a very difficult time in American history. People lost jobs and homes. But its silver lining was that the mortgage market corrected. At the time, banks suffered massive losses. While larger banks received bailouts, this was done in trade for accepting more stringent laws, corrective actions, and borrower payouts directed by lawsuits. Today, mortgage lending is healthier because of this correction.
Student lending is different. The bureaucracy manages and the government guarantees the loan payments to the bondholders. There is no corrective mechanism. There is no incentive for the bureaucracy to change. As long as the U.S. Government can print money - with printing presses or quantitative easing - the Absurdistan nightmare can go on indefinitely.
Why changing public policy is so challenging
Students and their families are found at 2 very different stages along the higher education path. At each stage the student has very different "volumes of their voice:" at the beginning of the student loan process (the "in-the-door" population) and then after they enter repayment (the "regrettable door" population). Sadly, the asymmetry between each group's "volume of voice" makes policy change more difficult to identify and justify:
The in-the-door population High school seniors and their parents - want a path to college and higher-paying jobs. They are a bright, loud, cohesive group - supported by a cheerleading industry of college consultants, college marketing, and high school public servants - that expects a college path. They only know what they know, how the system works today - so they walked through the door. As a group, they actively make their "I want a college path" voice heard by politicians and policymakers.
The regrettable exit door population Those original in-the-door students are now adults and their support is mostly gone. These are the 90% that ultimately receive some life impairment - which includes the 20% of borrowers that default. As their impairments grow, those impacted are more likely to be silent, embarrassed, demoralized, and decentralized. When they came in the door, they did not know what they did not know, but the government said it was a good idea! So they took a path leading to regret in 9 out of 10 cases. Student loan servicers' approach is a divide-and-conquer method - enabling servicers to silence the impaired student loan clients by managing them one at a time. Fitting bureaucratic incentives -- impaired individuals have almost no voice with politicians and policymakers.
The student loan system exemplifies concepts found in public choice theory, where political incentives drive policy failures. Policymakers respond to the loud, organized in-the-door group—students, parents, and the education industry—who push for more funding and loan access. Meanwhile, the regrettable exit-door population, burdened by debt and questionable outcomes, remains fragmented, silent, and politically invisible.
With no accountability or price signals, the system expands unchecked, prioritizing bureaucratic interests over student success. The cost is massive. The human toll is tremendous - like not achieving educational outcomes and living a life of debt stress. Plus, we taxpayers share the financial toll. Doing back-of-the-envelope math: on the portfolio of federal student loans of about $1.5 Trillion, with interest paid to investors of about 5.5% and a long-term default rate of 20%, over the 20-year life of a stable portfolio, the U.S. taxpayers will pay almost $2 Trillion in interest and default guarantees. That is a big cost for questionable benefit!
This is a classic case of long-term policy failure, where well-intended interventions create compounding harm. The real challenge: How do we realign incentives to serve students, not the system?
To fix this, we must rethink the entire system. Instead of blindly issuing loans and bonds that inflate tuition and create lifelong debt, we need an education financing model that prioritizes student academic success over bureaucratic incentives.
To be clear, bureaucracies and bureaucratic incentives are not necessarily a bad thing. Bureaucracy is a necessary tool for implementing legislatively mandated programs, much the way a hammer is necessary for good things, like hammering in nails. But a hammer can be used for bad things, like bludgeoning someone to death. So, do not blame the tool for the bad thing, blame the user of the tool.
Just like any tool, properly used, the bureaucratic result will fit society's needs. In the case of student lending, the bureaucracy and the rules they enforce are no longer fit-for-purpose for society's higher education needs. It is time to make a change.
For a vision of a better future, see our article Higher Education Reimagined. This approach restores the academic mission of higher education while using technology, innovative teaching methods, and modern market efficiencies to drive down costs and increase student success. By reimagining higher education, this new approach achieves the "3 Ds" vision:
De-bundles academics from costly, non-essential college amenities.
De-leverages by significantly reducing student debt burdens.
Delivers high-quality, technology-driven, and affordable academic services.
It’s time to reimagine the system before more students walk through the wrong door.
Next are resources to help you achieve College ROI and walk through the RIGHT door:
The Bennett Hypothesis:
Gillen, Andrew. Introducing Bennett: Hypothesis 2.0. A Policy Paper from the Center for College Affordability and Productivity, February 2012.
Comments