Creative Solution to the Student Loan CrisisSubmitted by DrKrbyLuv on Wed, 10/26/2011 - 11:24
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!