STUDENT LOAN REFORM

When a house is on fire, you put the fire out and look for the source afterwards.  Contrarily, when the fire has yet to break, but smoke can be seen, you look for and extinguish the cause to prevent a massive spread of flames.  This country has just gone through a fire that spread from coast to coast, and it seems apparent that we will be surrounded by smoke for some time to come.  The problem is that government and politicians all too often ignore the smoke and wait for a fire before deciding to act, leaving countless people left to burn.  While this fire is, arguably, temporarily extinguished, let us find the source of the next major outburst and stop it from igniting.  Student loans are this country’s next domestic albatross, and unless actions are taken soon we will find ourselves back in the same place we have been in over these past two years.

President Obama has made some great strides this year in reforming the current process of government student lending, unfortunately that is only one half of the picture (not to mention that his changes will not have any affect until 2014).  College tuition is constantly increasing, and more students are forced to take out private loans that fall outside the scope of the recent changes enacted by this administration.  Private loans, due to limits on federal borrowing, help students achieve college degrees by providing the additional funds necessary.  At a high cost.  Private student loans are mutually exclusive from the government, and they have been given free reign.  Our government allows more flexibility for those with massive consumer loans, those with mortgage issues, and those buried deep by credit card debt.  Most people do not want to go into bankruptcy, and it is certainly not good for our society, but that option exists for significant financial problems, except for one: student loans.  Yes, there is Chapter 13, but that will only apply to the most extreme of cases when it is near impossible to foresee how the borrower will ever have enough income to cover the loans.  It will not help the majority of struggling borrowers, barely able to make payments to the detriment of society.

Looking at this most recent financial mess, we know more Americans have lower levels of savings and are relying more and more on credit.  Acknowledging the smoke around us, with anemic growth and all but frozen credit lines, we are relying on liquid spending to help bolster our economy back to the successes of yesteryears.  In order to have that excess cash, one will have to have little or no debt and a decent paying job.  To have a decent paying job one will have needed to attend college.  To attend college one will, presumably, need assistance, such as a loan.  Student loans are a perpetual debt, eliminating the amount of excess cash from one’s budget.  A strapped budget prevents spending on goods and services that would help strengthen our country’s economy.  Around, around, and around it goes.

Not just for excess spending, either.  People’s level of savings will not increase, helping to prevent a future generation of homebuyers.  People will continue to live off of credit rather than cash, continuing a culture of debt.  In other words we will not leave this “worst financial disaster since the Great Depression” behind us, rather we will relive it every few years.  It is like a wave crashing on the shore, just when we think we have landed we are sucked back into the cycle.

One alternative that has become much more prominent and talked about is whether it makes financial sense to attend college.  This is a personal choice, and like many before it may be the best choice for various individuals.  The problem, however, is that when more and more people decide to take this path we will have a shrinking educated workforce.  Like most things in this world, a workforce needs to be balanced to ensure growth in all areas.  I do not believe it is accidental that one of the greatest expansions in our country’s history coincided with the GI Bill.  A college education is essential to industrial and economic expansion.  If people decide they do not want to attend college, they are free to do so.  This, however, does not address the problem that college attendees will face by mortgaging their lives in exchange for a greater education.

For starters, we need a shift in our financial thinking that understands it is almost always better for someone to be indebted to student loans than to credit cards or car loans.  We cannot allow for a nation that reprieves foolish spending, yet shackles those who are working hard to make themselves, their community, and society as a whole a better place.  We must recognize that this is all intertwined, and that if we ever hope to leave the past behind us we must address the problem head on.  Relief has already been given to those in other financial needs during the past couple of years, but those buried by student loan debt have seen no change.  They are dealing with the government loans on one phone call, and on the other they are dealing with private lenders.  The government and private lenders have no communication, so even if each are only taking a percentage of the borrower’s salary, it is significantly more than each realize.  This double-dipping of a student loan holder’s salary seriously impacts, not only the borrower himself, but society as a whole when people are barely able to keep their head above water.

My proposal is that the Department of Education allow for the refinancing of all loans – public and private – into one loan.  This can be done solely through the Department of Education, or it can be achieved through private lenders assuming they are under the watchful eye of the Department of Education. Should the latter path be chosen and non-government banks be allowed to fully consolidate student loans, the political right will rest easy knowing that this is not another “government take-over” that they so greatly despise. The political right will also be happy knowing that the free market will still be able to regulate itself with regard to college tuition and fees.  Ultimately, no matter how it is achieved the government must move on this issue and enact a framework that allows deeply indebted current and past students relief that they so desperately need.  Working with one lender, rather than numerous lenders, will instantly allow for a light at the end of the tunnel with all loans now being on one page.  Additionally, with government oversight and a repayment cap at 15% of a borrower’s discretionary income, we will quickly see movement within the economy.  Houses will be selling faster, savings will increase, and goods and services will continue to be bought and sold in the same manner that made our economy so prosperous those many years ago.

Acknowledging that there is an ever-growing cloud of smoke, ready to burst into flames around us, will be one of the best choices we as a nation have made, and the solution is one that can appease those on both sides of the political aisle.

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