The Student Loan Solution

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The daughter of a very close friend of mine finished graduate school with $60,000 in student loans. Her first thought was, “I’ll never be able to pay this off.” Her second thought was, “If I continue to live the way I lived in college instead of moving into a nicer place with a nicer car, despite my higher income, I can put all of my surplus into paying off my debt.” And she did, in less than ten years, to my very great pride.

Her husband graduated with the same amount of debt. He secured a higher paying job with better benefits, including medical insurance and a matching retirement fund. He has paid down about 10% of his student loans.

When I asked the young woman how she feels about Biden’s plan to cancel student loan debt, she responded without hesitation, “I’m in favor of it.” This, despite the fact that she worked and sacrificed to pay off her loans while others will get a “free ride.” She said, “I’m doing fine. Too many of my friends are not. They need help.”

Many of these “students” are well into middle age now, their debt doubled or trebled through interest accrual, with little hope of ever paying it off.

Taxpayers are less charitable about the prospect of cancelling the 1.5 trillion dollars owed by nearly 45 million Americans — at the taxpayers’ expense. Many are kicking and screaming at the idea of rewarding sloth.

Yet something clearly must be done. Many of these “students” are well into middle age now, their debt doubled or trebled through interest accrual, with little hope of ever paying it off. In fact, student loans are the only debt that cannot be discharged through bankruptcy, and if the loans aren’t paid when Social Security kicks in, payments to Sallie Mae (Student Loan Marketing Association) will be deducted off the top of Social Security income — meaning you get nothing. So add student loans to the inevitability of death and taxes — and don’t plan to leave that fancy engagement ring to your heirs, either, because Sallie Mae will be first in line when your will is probated.

Taxpayers did not create this mess; easy access to money combined with an inability to discharge the loan through bankruptcy did. So here are my two solutions.

First, put the blame where it really belongs: take the colleges to court. I would love to see a class action suit against the financial aid offices and guidance counselors of educational facilities across the country. Most entering freshmen are minors when they sign on the dotted line, much too young to be accepting that kind of lifelong legal commitment. Moreover, I’ve seen firsthand how counselors push financial “aid” packages on students, encouraging them to accept the most money available. The very word “aid” is a misrepresentation at best, a lie at worst. Since when does “aid” mean “debt” instead of “help”? Only since colleges discovered that they could double their tuition rates if students didn’t feel the bite in their personal bank accounts until after graduation. Why wouldn’t these young students, most of whom have never taken a personal finance course in high school, think that “Congratulations — you have $30,000 this semester!” means, “We’re giving this money to you!” Anecdotal evidence supports this position; many of my students have been shocked to learn that they have to pay that money back.

Don’t plan to leave that fancy engagement ring to your heirs, either, because Sallie Mae will be first in line when your will is probated.

Student loans should be called loans, not aid. And just as homebuyers are told the full amount they will pay over the lifetime of a mortgage, students should know how much that sweatshirt purchased impulsively at the college bookstore is going to cost after 20 years.

A second solution would be to remove the restriction against bankruptcy. This would put the onus back on lenders to consider whether a potential student’s career goals present a reasonable credit risk. It would also place a penalty on those who decide to discharge their debt this way, in the form of a lower credit score and severely limited ability to borrow money in the ensuing seven years. On the other hand, those who want to protect their credit rating would continue to chip away at their loans, and only those who genuinely need a way out of this debt will take advantage of bankruptcy.

Government bailouts are not free money. They simply transfer the payment from the user to the taxpayer — and to future taxpayers who haven’t even been born. My plan would place a lid on rising tuition costs, restore accountability to lenders, and encourage students to think more clearly about their choices before signing their financial lives away.

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