Categories

Forgive Some Portion of Student Debt and Make Payments Affordable

New Orleans   According to a recent report from the credit bureau, TransUnion, covered in the Wall Street Journal, student debt is now knocking on the $1 trillion mark with $900 billion now on the books.  More than $300 billion of that debt is termed “subprime” student-loan debt, where the likelihood of repayment by once ambitious and hopeful young people are now older and broker with shoulders sagging under the burden is rated as next to zero.

What is “subprime” student debt anyway?   This is a sticky wicket!  At one level a student borrower becomes “subprime” after getting the loan based on the credit bureau’s ratings of her payment history, and of course that missing payments or falling behind also means higher interest rates and penalties.  Subprime also defines a category of borrowers with no job and limited assets, which pretty much defines the whole student population asking for a loan.  The more one looks for clarity, the clearer it becomes that this is a bit of political-financial alchemy to keep there from being widespread panic or a real solution to this vexing debt for people.  Whatever the name $900 billion in debt with significant parts, over nearly $400 million on the TransUnion numbers is more than 90 days in arrears, is a huge problem begging not for a payment, but for a solution.

Since most of this debt (93% of student loans are now made by the US Government) is either made by the government or will end up being covered by the government, we need to start applying the same solution that should have been undertaken in the face of the housing crisis and the mass of foreclosures.  We need to write down some portion of the debt, let people move forward with their lives, and make the payments affordable so that the loans are active again.

The cynicism of promising young, impressionable young people filled with hope and aspiration that their ticket to the big game for their future and their success is all premised on higher education is nothing but a big time racket.  The dual promises of the so-called “American Dream” premised on a stable and secure job thanks to education and then later home ownership because of the steady income from that same job is not simply mythical, it is an irresponsible scam in too many ways.  The level of the debt that is also foisted on these same homes by for profit training, degree mills is no different than the “liar’s loans” promoted by unscrupulous mortgage brokers, but, oh, right, they did get away with that too, didn’t they?

The recession has forced us to rethink housing, but education is still skating accountability.

Let’s restate the loans to market value, just as we have argued with underwater housing mortgages and rewrite the payments to affordability, which even the new federal consumer protection outfit has argued for in the housing sector.  Let’s give young people a chance at a future, even if we can no longer guarantee them a good one.