Here we go again with the most regressive redistribution of wealth that we can imagine. We are going to transfer money from those who have already paid their student loans off and those who never got a chance to go to college to those who made poor choices, wasted their time in college most likely lounging and partying and either didn’t finish or couldn’t leverage their worthless degree into a decent job.
Stupid quote #1
But policymakers and pundits from both parties are currently ignoring a much more fundamental point: The majority of student loans were never going to be paid back in the first place. The government should not treat all borrowers equally. Policymakers should forgive the debt of borrowers who will never be able to pay it back.
So when you encourage something, you get more of the same. This is what is called “moral hazard”. It is privatizing profit and socializing risk. Go for that “Gender Studies” degree. If you can’t find a job perpetrating this fraud as a professor and you end up serving lattes at Starbuck’s, you can always get you loan forgiven.
This is why banks take immoral risks with your money. If they win, they win big. If they lose, they don’t lose, you lose*.
Basic notions of fairness indicate that we should be able to reach a bipartisan solution. Most everyone agrees that Beverly Hills plastic surgeons or Wall Street bankers making seven figures can easily pay back their student loans, while all but a heartless few think the person working two low-paying jobs to just get by should be forced to repay. Fortunately, total forgiveness or the status quo aren’t the only options.
Count me among the “heartless few” who believe when you borrow money, spend the money, and get the advantages of the money you ought to pay back the money. Call me provincial.
If there is a lot of pain, these people might learn from their mistakes. More importantly, their children or others watching will learn from their mistakes. It’s pour encourager les autres.
But government has become a mommy who bails out their misbehaving children at every turn and as a result creates monsters.
Even in “good” times, most borrowers were not paying down their loans. According to the most recent data from the New York Fed, over 50% of loans are in some form of negative amortization where borrowers are not paying enough each month to cover the interest due on their loans, let alone reduce the principal.
So whose fault is this? Let me ‘splain it to you loozy. Listen closely:
IT’S THE GOVERNMENT’S FAULT
In conjunction with lending institutions that jumped on the gravy train, giving loans to anyone with a pulse because if they got paid back, they made money. If they didn’t get paid back, THE GOVERNMENT BAILED THEM OUT!!! Sound familiar.Let’s
The federal government is subjecting tens of millions of borrowers to a fate worse than the worst bank repossessors of the 2008 mortgage crisis. So the policy question is not should we be writing off student loans. The right question is how to immediately write off student loans for the 30 to 50 percent of Americans who clearly have no chance of paying off their debt, and for whom student loans have become a financial albatross that is destroying any hope of a normal financial life.
No, the proper solution is to put it firmly on the backs of the lenders. If they can collect, let them collect. If they can’t collect, let them offer some sort of deal in the PRIVATE SECTOR. Get government out of the loan business altogether.
Then these lending institution will have to make a decision when a student comes to them asking for a loan.
- Do they have a co-signer with assets (someone to sponsor the loan)
- Do they have a track record of good grades and civic engagement in their schools?
- Are they planning on a degree program which has a reasonable chance of allowing them to pay their loan back in a timely manner?
- Is the learning institution reputable?
Stop giving loans to anyone with a pulse for whatever foolish degree program they want.
* When the government bails them out with your tax dollars.