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Creative Solution to the Student Loan Crisis

We have a huge problem brewing in the U.S. and the details should outrage any fair minded American. There are two facets to the problem that must be addressed and fortunately, I have a solution that helps solve both while benefiting all citizens, even if they do not have a student loan.

First, as unbelievable as this may sound, student loan debt has surpassed credit card debt in the U.S. with an open balance of around $1 trillion dollars. It is hard to quantify the devastating impact that this is having on the lives of many as the debt level soars while the availability of jobs and expected pay is shrinking.

Forbes magazine ran a story about two college sweethearts, Joel Kellum and Jennifer Coultas; they fell in love and married to combine a total of around $194,000 in student loan debt. After they divorced the couple cited the crushing burden of law school debt as a key factor in ruining their marriage as Kellum explained that “Two people this much in debt just shouldn’t be together.” --Link

And these are not just your garden variety loans as the terms are onerous. For example, unlike any other debt that people incur, there is no bankruptcy protection. After the real estate crash, there were many who found that they owed a lot more than their house was worth and many of these people walked away and allowed the foreclosure process to begin. Yes, their credit was greatly damaged, but it was the price they paid to keep their sanity and family. Students have no such opportunity; they cannot walk away from these loans even if they find that their education has little value as the real unemployment rate is over 20%. --Link

And it gets worse. For example, wages and tax returns may be garnished, professional licenses may be suspended. The insidious part is that many of these loans are more profitable in default giving lenders an incentive to refuse extensions or allowances. --Link

The United States, through Congress, should directly issue debt free money in order to buy the loans (the money would not be added to the national debt nor require any taxpayer contributions). The interest rate on the existing loans could be set at 0% to make the payments more affordable. Under the new terms, borrowers should be afforded bankruptcy protection and more generous terms. For example, payments could be suspended if the borrower becomes unemployed or disabled.

The payments received could be forwarded to the Social Security and Medicaid Trust Funds so that every American would benefit from the program and not just the victimized borrowers. If 90% of the current balance is collected, the trust funds would receive a $900 billion windfall! If a borrower defaults, the loan may be written off by the government so that tax payers are not left holding the bag. Of course, the credit of the borrower would be damaged in this case.

There are seldom such opportunities to resolve a problem to the benefit of all, let’s not miss this one!

Larry




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Bleeding the Wealth out of the Middle Class

Keep you money. Start businesses. Or help your kids buy homes instead. Some kids owe $ 40k and more!

Good alternative

Agreed, there are good alternatives for indoctrination (education)

END the FED before it ENDS US

Bleeding the Wealth out of the Middle Class

Keep you money. Start businesses. Or help your kids buy homes instead. Some kids owe $ 40k and more!

Congress should most

Congress should most certainly not issue "debt free" money, i.e print. That devalues the money of everyone in the country, making them pay for it.

Just remove the nonsense about student loans being treated differently than other debt in bankruptcy, and: problem solved!

Then, to avoid hitting taxpayers with the cost of defaults resulting from personal bankruptcies, stick it to Federal bondholders by defaulting on all sovereign debt. As opposed to tax payers, who had no choice, bondholders specifically elected to do business with the Great Satan, aka the Federal Government. They should reap what they sowed, then perhaps they will display more wisdom in the future.

Thanks for the opportunity to respond to your concern...

Hello stuki,

The net effect would be that no additional money would actually be added to the system as the money would be destroyed in principal debt repayment with the new money. There would be no change in the money supply as essentially the debt is simply transferred.

END the FED before it ENDS US

If you were foolish enough to incur a lot of student loan debt

then you should pay it. You NEED the financial @sswhoopin' to make you wiser with money. Until then, you will stay a fool.

The ONLY thing I'd be willing to support is a wide-spread reduction of credit/student loan interest rates to 9%. Loan shark rates used to be illegal and immoral...we need to bring back those laws and those morals.

BTW: There should not be such a thing as bankruptcy. Paying off one's debt is the primary way to really get people to not get into debt. Let people wiggle out and usually they'll get right back into debt...because they haven't learned.

"Neither a borrower, nor lender be"

Your analogy applies to the stupid lenders as well. Only an idiot would lend to a fool.

"I support the Declaration of Independence and I interpret the Constitution."

I agree somewhat

In personal finance, you never lend money...especially to family and friends (just give them a gift).

But for financial institutions, if you can lend money to some fool, make a quick buck, and then sell that loan (as part of a bundle of loans) to some other organization, then I can see why they did/do this.

The bundling is like diversification...it reduces risk. And the larger organizations can make monster bundles...even further reducing the risk. Thus, gobs of bad borrowers could get loans.

I believe that during all the bail outs and new banking and credit legislation, the government did absolutely nothing to regulate this bundling (please correct me if I'm wrong). Thus, this *will* happen again. It just needs to build up steam again.

And frankly, it's a win-win-win. The borrowers get a chance to fulfill a dream, the original lenders make a quick buck (down payment, closing fees, and initial payments), and the big orgs buy the loan as part of profitable bundles.

Yeah, it's sad when a family can't make their payments have to leave, but at least they had a chance. Some bad borrowers actually make it.

Guess who pays upon student debt defaults?

Yup....taxpayers like you Road Runner

The United States consistently makes the same mistake, we guarantee debt (e.g. mortgages, sudent loans, bank bail-outs).

Guaranteeing the debt of others is unconstitutional (I think) and the U.S> needs to stop issuing guarantees and start issuing money instead!

Hope this helps sway your opinion...

END the FED before it ENDS US

Oh, I'm with you on this

I definitely do not like the government guaranteeing other people's loans (with my money).

Of course there should be

Of course there should be bankruptcy. If you've got nothing, then there's nothing there to get. Pretending things aren't so, in no way fixes that.

As long as the bankruptcy rules are stable, lenders know what they are getting in on when lending, hence won't lend more than is prudent. And if bankruptcy rules are not stable, lenders know they live in a tinpotocracy too, and should make lending decisions accordingly.

Bankruptcy Protection is Human Rights Isuue

And... bankruptcy protection helps keep lenders more vigilant, without bankruptcy protection, why not lend to anyone regardless of creditability?

END the FED before it ENDS US

Like so many of the Country's problems,

solutions abound, it's just that our pig headed Congress won't see anything through until they have their nests lined with money. These creeps in Congress are our real problem. If we had people with 1/2 of Ron Paul's integrity, we'd be so much better off. All of 'em are whores.

alan laney

Well said alaney

I have to agree, you're right

END the FED before it ENDS US

A Less Creative Solution to Student Debt

I have a less creative suggestion ... let the markets solve the problem and save the Federal Government the expense and trouble of fixing this problem. Put the Maes into receivership, make debt dischargable in bankruptcy (like other debt), sell their portfolio to the banks and institutions offering the highest price. This recreates a market in this services that can work though the portfolio in the most efficient manner possible, creating private jobs. Removal of the government guarantee will drive up the cost of lending to market rates and promote efficient competition between universities ... Unless our solutions do not work towards restoring limited government, we are doomed to perpetuate the problem.

Rights belong to individuals, not groups; they derive from our nature and can neither be granted nor taken away by government. Ron Paul

Less Creative...but not bad

The availability of student loans has driven up education costs so in that respect what you say would be a help.

No offense, but my idea is better, but I will have to thinbk of a way to make the debt more afforadble without jacking prices up.

END the FED before it ENDS US