LA Times: How About a Student-Debtor Bailout?
Let me preface all this just a bit: I believe there is very little about student loan debt that is different from any other kind of debt: It too is a known claim against an unknown future.
It is not "good debt." It is not "bad debt." It is just debt.
Student loans are nefarious, though, in ways that other debts are not: Student-loan debt is typically issued so easily and in such large amounts that the people who take on its burden — young adults who, in the vast majority, have not yet created nor sustained a stream of reliable income — will find themselves facing five and six-digit liabilities at precisely the same time (no more Bank of Mom and Dad) that it is most important that they begin BUILDING SAVINGS.
No, I don't care about a college graduate's "earnings potential." Potential doesn't pay the electric bill. It isn't a PIN-based currency at Wal-Mart. Your landlord won't accept it as payment for rent. Those tens of thousands of dollars of racked-up student loan debt are certain, and inescapable. (Well, unless you're willing to flee the country.)
So here's how Lazarus' article begins:
Like many recent college grads, Los Angeles resident Steven Lee finds himself unemployed in one of the roughest job markets in decades and saddled with a big pile of debt. He owes about $84,000 in student loans for undergrad and grad-school costs.
But what Lee's angry about isn't the slings and arrows of an outrageous economy, and it isn't the idea that he owes a ton of money for all the schooling he's received.
It's the interest rates on his government-backed student loans, which range from 6.8% to a whopping 8.5%.
"That's just ridiculous," Lee, 35, told me. "The rate for a 30-year mortgage is around 5%. Why should anyone have to pay 8.5%?"
But what Lee's angry about isn't the slings and arrows of an outrageous economy, and it isn't the idea that he owes a ton of money for all the schooling he's received.
It's the interest rates on his government-backed student loans, which range from 6.8% to a whopping 8.5%.
"That's just ridiculous," Lee, 35, told me. "The rate for a 30-year mortgage is around 5%. Why should anyone have to pay 8.5%?"
I dunno. Because you were loaned over $80k on an uncollateralized basis, maybe?
Well, because a deal's a deal, and that's the rate Lee accepted when he received his loan.
"I disagree," he replied. "The government has bailed out homeowners. It's bailed out big businesses. Why can't it also help students?"
"I disagree," he replied. "The government has bailed out homeowners. It's bailed out big businesses. Why can't it also help students?"
They already "helped" you, Steve. They gave you $80k, no questions asked, with which you could pursue a higher education. All you had to do was sign your name. Presto! Eighty grand is yours!
What? Now that school's done, and you're out there in The Real World, you find that that repayment's a bitch? That the loan terms are "unfair?" That groups like mortgage bankers, real-estate pros, and Wall Street banks — groups with stuffed-pocket lobbyists, and groups who can effectively hold the economy hostage when their business plan puts them in the ditch — those guys get preferable deals?
Wow.
Sounds like you DID learn something after all! We're making progress!
Good question -- and one that's especially germane as tuition continues to soar at both public and private universities. The University of California is looking to raise its fees 32% next year to more than $10,000 a year.
Damn that easy credit, anyway. Who knew it would cause such problems?
Look: You want to put an end to those nasty annual tuition increases at State U? Here's how you do it:
Stop making student loans easily available to anyone with a pulse.
Complicated, I know.
Nix the "Just sign here!" loan programs. Stop presenting as a given that EVERYONE should be able to go to college, regardless of price and/or background. Cut off the "free money" for college, and see what happens to tuition, room and board, and all the other associated college expenses.
In the mid-2000s, we made mortgage money available to be borrowed by pretty much anyone who could write down at least twenty percent of our alphabet, and in no particular order. What happened? Home prices blew up, up, up.
We've long made college loans available on much the same basis. And yet people are surprised — nay, infuriated — when college tuition rises by double digits, year after year.
Huh. Weird.
The more money you make easily available for Product A, the more Product A's price will rise. This is basic economics. We just repeatedly ignore it. (And create newer, bigger government programs to "solve" it.)
Ah, but I digress. Back to the article:
For the next decade, Lee is obligated to send $445 to the federal government every month. That will pay down $37,000 in loans held by the Education Department, which acquired the debt from Edamerica and another lender, All Student Loans.
The interest rates on those loans range from 6.8% to 8.5%.
Lee owes nearly $14,000 more to Edamerica at a rate of 7.25%, plus $21,000 to All Student Loans at 6.8%. Then there's $12,000 owed to JPMorgan Chase & Co. at a more reasonable 5.2% rate.
In all, Lee is on the hook for about $1,000 a month in student-loan costs.
"I'm not saying I don't want to pay," he said. "I'm just saying I should pay a rate that's fair. If 30-year mortgage rates are near 5%, student loans should be close to that."
The interest rates on those loans range from 6.8% to 8.5%.
Lee owes nearly $14,000 more to Edamerica at a rate of 7.25%, plus $21,000 to All Student Loans at 6.8%. Then there's $12,000 owed to JPMorgan Chase & Co. at a more reasonable 5.2% rate.
In all, Lee is on the hook for about $1,000 a month in student-loan costs.
"I'm not saying I don't want to pay," he said. "I'm just saying I should pay a rate that's fair. If 30-year mortgage rates are near 5%, student loans should be close to that."
Yes, Steve, I know. Paying back five-digit uncollateralized loans, at the terms to which you agreed, is so damn unfair. (Note to the gallery: See how we've become so addicted to "low rate" credit? How, after so many years of watching "free" money get handed out, we're all so entitled to more of it? Isn't Steve just a shining example of this?)
But there is a bright side — something that would maybe help Steve forget about those, uh, "predatory" loan rates. From what I see — and I'm just talking here! — he might be a fantastic candidate for the government-subsidized, FHA-backed, first-time homebuyer program! He should look into that!
Because, as we all know, more low-rate debt is the answer.
Always the answer.
Bring it on. Bailouts for everyone.
Labels: Bailouts
