Education / Schools, Money, Student Loans

Student Loan Bailout: The Choice of a New Generation

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A couple of months ago, it occurred to me that if the government didn’t start tackling the student loan issue, people would simply stop paying off their loans:

The stick is this: nobody is really going to pay you back anyway. Where do you think loan payments rank on a priority list that includes: food, shelter, anti-depressants, and résumé paper?

According to USAToday, that is precisely what is starting to happen:

Student loan defaults are at their highest rate since 1998, and likely will go higher. And though federal student loans offer some payment modification options, private loans are far more onerous, because even filing for bankruptcy rarely wipes out the debt.
Congress might tackle bankruptcy law reform again this year, but it decided as recently as last year not to allow student loans to be easily discharged through bankruptcy filings.

Just to be clear, if you are a financial idiot and you rack up thousands of dollars in credit card debt on flat screens and rims, you can get that wiped out in bankruptcy. But if you take out loans to pay for your education, and you can’t get a job because the economy has stopped, the debt will follow you to the grave.
More horror stories that the baby boomers don’t want us to talk about after the jump.


Why can’t you easily discharge student debt in bankruptcy:

“If private student debt can be discharged in bankruptcy, that creates risk, and the result will increase the cost of tuition,” says Scott Talbott, chief lobbyist for the Financial Services Roundtable.

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Is there anything that doesn’t lead to an increase in the cost of tuition?
Regardless of what tuition is doing, the jobs (you know, the things that people go through all that school in order to get) just aren’t there to pay off the debt:

Kim Prewitt of Baltimore is in worse financial distress.
She graduated from law school with about $140,000 in student loan debt and no job offers. To get by, she started working at a bank. But she recently lost that job.
Prewitt is allowed to temporarily stop making payments on her federal loans, although the interest continues to pile up. About one-third of her debt is from private loans, so she must continue making payments.
“I do not know which way to turn,” she says. “Even once I have that full-time job so I can make the monthly payments, I am looking at 15 to 30 years to pay this off.”

Even people who don’t support bankruptcy freely admit that they are out of ideas:

“I don’t support it, but I don’t have a solution,” says Peter Mazareas, vice chairman of the College Savings Foundation, a non-profit advocacy group for college savings plans.
“It is going to be a generational challenge, in terms of the current students who are maxing out on their loan indebtedness now realizing that they will have to pay $1,500 to $2,000 a month for the next 10 to 15 years,” Mazareas says.

That is baby boomer speak for “Sorry about your little red bottom line bro. But let’s talk about something important, like Medicare benefits.”
Maybe everybody that has a crushing amount of educational debt to pay off was really, really stupid. Maybe they believed their parents and all the collective American wisdom that says education is the “silver bullet” that leads to upward mobility. Maybe our 19th century ancestors had it right: higher education is for landed elites, shop/home ec. is for everybody else.
But before we backtrack into antebellum ideals, can’t we at least try the student loan bailout thing?
Young people showed their political muscle in the last election. The Republican Party needs an issue that will appeal to young people, especially in the Northeast. Politics (and crushing amounts of debt) makes strange bedfellows.
College graduates struggle to repay student loans [USAToday]
Cancel Student Loan Debt to Stimulate the Economy [Facebook]
Earlier: Student Loan Bailout. Just Do It.

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