If you’ve been following the news over the past few weeks, you know that Congress and the President have been locked in a bitter debate about the nation’s debt ceiling. The debate boils down to this: the U.S. government spends more money that it receives in revenue, and has been doing so since the country had a surplus in the late 1990’s (government spending particularly skyrocketed following the beginning of the wars in Afghanistan and Iraq in the early 2000’s). We’re about to hit the upper limit of what the U.S. government can borrow under Congressional authorization; in other words, we’re about to “max out” the country’s credit card. If the debt limit isn’t raised by August 2, 2011, and we max out this national credit card, the government will not be able to meet all of its financial obligations. Economists warn this could have a serious impact on the national and global economy. A divided Congress and the President have been negotiating for weeks, trying to reach a deal to avoid a national default. Both sides propose massive spending cuts, but there has been impasse over how high to raise the debt limit, and whether there should also be a corresponding revenue increase by raising taxes on the wealthy. As of today, there are few signs that a deal is near.
So what happens if our government cannot come up with a solution by August 2? Everyone is talking about dire economic consequences, but few are talking about specifics. Here are some potential consequences for student loan borrowers: