My Three Pronged Attack On The Student Loan Crisis

Recently, the amount of money owed on student loan debt surpassed that owed on both automobiles and credit cards, to a daunting number approaching a trillion dollars. That’s right, the amount of money owed personally by current or former American students is more than 75% of the amount that the United States owes China. It’s pretty scary when you consider all of the attention that the Chinese debt garners compared to that of our students. When you think that these individuals signed up for this money with only the best of intentions, it is really kind of sad. Banks and homeowners involved themselves in the mortgage meltdown motivated purely by the idea of gaining equity and profit through rampant appreciation. Detroit foundered based on antiquated pensions brought about by Unions and the peddling of influence. What of our students? Those who entered into the marketplace relatively naive and seeking nothing more than to better their situation through education may be the most unfairly punished of all. Unfortunately, the tolerance for bailouts has come to an end, and those perhaps most deserving appear destined to be a casualty brought on by a lack of political influence.

Unlike most debt in the US, student loan debt is exempt from being discharged via bankruptcy, and approximately 14.4% of borrowers have missed one or more payment in the last twelve months. Pretty scary when one walked into school with high hopes for their future only to find the jobs for which they sought educational enrichment were no longer available to them upon graduation. In fact, it may be that the time they took away from the work force put them in a position to have had to settle for a job that potentially paid less than the one they had prior to returning to or initially attending school. When I think of student loans, I probably picture the same thing that you do…twenty-something hipsters struggling to find their way. That, however, is not necessarily the way of things. More than 15% debt is owed by folks fifty years of age or older. From the kid who just obtained their associates degree to the grandmother trying to catch up on a neglected retirement plan, the American students affected by this economic orphanage span almost every generation. I went into Google Adwords to see just what kind of trouble this situation is creating. It turned out worse than I thought. There are currently approximately 30,000+ monthly searches for derivatives of “student loan debt bankruptcy”. Help is obviously needed…and needed urgently! As much as I hate the idea of bailing anyone out of a tough situation (I have actually received hate mail for my positions on home mortgages), students signed on for education after being promised jobs that were never delivered by their elected officials. That’s why I put my mind to work on some creative ways to assist our struggling students until our economy can get back on it’s feet.

For relatively younger folks, I would propose a modification the the GI bill. Similar to the Veteran’s Administration program that allows for a prospective student to join the military in exchange for funding their education, my plan reverses the concept. Rather than having the student go through military training, serve their tour and subsequently attend college, they calculated their debt and serve a corresponding term in the service of their choice. Having college graduates in our military gives added depth of knowledge and ability to our armed services. These officers can bring some of their valuable college experience to our fighting men and women aspiring to achieve their degree after their tour. Not only does this give our graduates the opportunity to pay off their debt, it also gives them a chance bide their time and be discharged into a better job market, debt free having learned the kind of discipline that is oh so lacking in our current workforce. Of course, when these individuals decided to seek financial assistance joining the military was probably not in their long term plans, but neither was exiting college carrying tens of thousands of dollars in debt with fewer, and less lucrative job prospects than when the pursuit began. As a graduate, they would be much more likely to find themselves in a skilled non-combat position than a standard enlisted service member.

For people over the age of fifty, I believe that my solution may be a great deal more simple than doing a stint in the military. The likelihood that a person approaching (Or indeed well into) middle age was seeking to further their education for anything other than financial gain seems like a very unrealistic possibility. If these folks were seeking a trophy degree, they probably had the financial means to make either paying for the education themselves or making the relatively small student loan payments a non-issue. For the vast majority of these borrowers, working past the social security eligibility age is a very reasonable prospect. With that in mind, I would propose that the Social Security Administration work with these struggling individuals to pay off their student loan debts directly from the Social Security trust fund in exchange for increasing the age at which they would become eligible to receive benefits. Once again, this would be a sacrifice for the borrower, but it would be far less painful to put off their retirement than it would be to struggle for the next decade or so to slowly pay down principle and compound interest!

The remaining students present a more interesting puzzle. Average rates paid on student loans differ pretty greatly. Based upon the time that the loan was made, the terms of repayment, fund source and other factors, rates can be anywhere as low as in the 2% interest only range to as much as over 9% amortized over ten years. So, payments can fluctuate from less than $2/$1000 financed per month to more $12 for the same amount. This means that some of these borrowers are in far greater trouble than others.  The largest student lender in America is Sallie Mae, a government sponsored entity (GSE) similar to Fannie Mae and Freddie Mac designed to control the interest rates paid by students when borrowing for education. Sallie could work with borrowers to allow existing loans to be refinanced to lower rates, and longer terms to ease some of the burden on these borrowers until their job prospects are looking up.

I would like to express that this is not a “bailout”. This would only be a situation where the very government that promised higher paying jobs with better education would be working to create an atmosphere to better allow borrowers to work toward their ultimate goal of a productive career. Not one tax dollar is given away under the false umbrella of “investment”, and the infrastructure is already in place to enact these changes without creating any additional bureaucracy. These students have no options other than repaying the debt in full. Collection efforts can include attachment and asset seizure. Bottom line…the risk of loss is virtually zero! Having these loans in collection potentially jeopardizes borrower’s credit and has a negative impact on their ability to obtain certain financially sensitive careers in the future. This inhibits the rate at which they are able to repay the funds borrowed, which is counterproductive to all involved. The entire economic landscape of our country has changed, and every facet of the financial markets have had to adjust to accommodate those changes. There is absolutely no reason that the same government that promised futures to these students should be the one that hampers their ability to manifest it!