Wednesday, October 19, 2011
The Student Loan Industrial Complex
Student loans taken out last year exceeded $100 billion, pushing the total outstanding student-loan debt to nearly $1 trillion. Question: How is it helping the economy to have so many young people so deep in debt so early in their lives? Their spending power is dramatically reduced as they pay off these loans. There's no equity involved, so they can't borrow against them. They can't easily wriggle out of the loans, so they are legally anchored down by these debts, sometimes for decades. ...
Like the government's past housing policies, the government's student-loan policies have to be re-evaluated -- and the sooner the better.
After the housing-market crash, many lawmakers on the left and right conceded that the dream of every American owning a home had to be re-evaluated. The policy goal wasn't practical, safe or affordable. The same applies to student loans. The dream of sending every willing student to college also has to be re-evaluated, if it entails putting them into heavy long-term debt. ... Reader No. 1 and I got in a good conversation about the student-loan issue over the weekend. I mentioned to him how some young OWS protesters and sympathizers blamed Wall Street/bank bill collectors for their woes. They make a direct connection between Wall Street and their debt woes. And there is a connection. A big connection. Financial institutions are making big bucks by acting on behalf of the government. But the other culprits in this sad saga -- the government and the higher-education establishment -- are not getting the criticism they deserve.
P.S. -- Comparisons of student loans to last decade's subprime-mortgage frenzy are apt. The similarities are eerie. But because of federal laws, it's harder for borrowers to default on student-loans, reducing the sudden risks of a wide-ranging financial-system disruptions. But student loans still have a long-term effect on the economy. It's a policy desperately in need of review and immediate reform.
Student loans taken out last year exceeded $100 billion, pushing the total outstanding student-loan debt to nearly $1 trillion. Question: How is it helping the economy to have so many young people so deep in debt so early in their lives? Their spending power is dramatically reduced as they pay off these loans. There's no equity involved, so they can't borrow against them. They can't easily wriggle out of the loans, so they are legally anchored down by these debts, sometimes for decades. ...
Like the government's past housing policies, the government's student-loan policies have to be re-evaluated -- and the sooner the better.
After the housing-market crash, many lawmakers on the left and right conceded that the dream of every American owning a home had to be re-evaluated. The policy goal wasn't practical, safe or affordable. The same applies to student loans. The dream of sending every willing student to college also has to be re-evaluated, if it entails putting them into heavy long-term debt. ... Reader No. 1 and I got in a good conversation about the student-loan issue over the weekend. I mentioned to him how some young OWS protesters and sympathizers blamed Wall Street/bank bill collectors for their woes. They make a direct connection between Wall Street and their debt woes. And there is a connection. A big connection. Financial institutions are making big bucks by acting on behalf of the government. But the other culprits in this sad saga -- the government and the higher-education establishment -- are not getting the criticism they deserve.
P.S. -- Comparisons of student loans to last decade's subprime-mortgage frenzy are apt. The similarities are eerie. But because of federal laws, it's harder for borrowers to default on student-loans, reducing the sudden risks of a wide-ranging financial-system disruptions. But student loans still have a long-term effect on the economy. It's a policy desperately in need of review and immediate reform.
