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Thoughts on student debt…

I was watching Suze Orman this AM while getting ready for work and in the last segment some chick describes how she signed off on a student loan for a boyfriend that is now an ex-boyfriend. It turns out that with him being a nimrod and non-dismissable loan rules, she has penalties growing and now owes about $150K and the numbers are growing fast. She has spoken with legal counsel and asked Suze, “What do I do?” The answer was, “I am so sorry but you are so totally hosed” (a little literary license taken in that one.) For the first time ever, Suze offered no advice except to “never sign off on somebody else’s loan.”

So I understand why they made student loans non-dismissable even in bankruptcy: kids were constantly welching on their debts at a point in their life wherein they had no assets to forfeit. These rules would be OK if the loans were some Federal program in which the rates represented some below-market-rate stimulus for education. I believe, however, that the system is completely disastrous in that non-dismissable debt also has onerous interest rates and penalties. We are creating a generation without hope of ever getting on their feet. This will create both social and economic damage of unimaginable proportions. I suspect that it will hit the headlines when it somehow leads to violence.

How do we get out of this? My guess is there will be a loan forgiveness program at some point and, of course, it will be paid for by the tax payers with no skin coming from the usurers. If I were King, I might modify that by swapping principle with some subsidized (low interest) loan and tell the banks to stuff their penalties. If we don’t do something, we will pay dearly in other ways.

NB-Taking out a different loan, paying off the student loan, and then defaulting on that loan might work, but it’s not obvious how you get that other loan.

NB-In case you think I am being a hypocrite, I am keenly aware of the role played and exploitation by the universities in this disastrous situation.

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