The newly formed Consumer Financial Protection Bureau estimates that student loan debt has hit a staggering new high of one trillion dollars. How did we get here? Given the recent bailouts of the financial sector and auto industry, should the government take steps to bail out student loan borrowers before the bubble has a chance to burst and wreak havoc on an already ailing economy? What would it mean to the future of student loans if a bailout were to happen? What would it say about personal responsibility if the government were to let millions of people off the hook for these loans?
The New Job Market
Student loans have helped millions of people successfully finance their college education. As the economy has slowed, more people have found that they cannot find work in their field of study, or any job at all, thus leaving them vulnerable to default. For generations who enjoyed high employment, the job market has now become an unfriendly place that favors science based or technically-skilled employees.This has left a lot of college graduates out in the cold. How do borrowers repay loans based on what they thought they could earn when the new job market has them competing for jobs that are barely higher than the minimum wage? Also, there are for-profit colleges that have made hundreds of millions of dollars from student loans that left students with nothing more than a certificate to show for it.
Student loan payments can be equal to the size of a mortgage in some cases. If students have to pay these loans for years to come, who will buy up the glut of houses sitting on the market, or raise the future workers needed to maintain the entitlement programs Americans love?
On the other hand, the New York Times reports that a college education is the most solid path to upward income mobility over the course of a person’s lifetime, and that “most college students in the United States manage to eventually pay back their student loans.” So what would a bailout accomplish? Wouldn’t it just encourage more risky behavior?
If there is just one lesson learned by the massive bailouts of the financial industry, it is that bailouts rarely lead to true reform or an increased sense of responsibility. Will future students be more careful about their borrowing if they think that a bailout might eventually happen for them too?
A student-loan bailout would have to be tied to real reform if there is any hope of avoiding the same situation down the road. If we take away moral hazard, there are no real incentives for students to limit borrowing in the future. Also, there is a school of thought that student loans are subsidizing unsustainable increases in academic costs. Colleges would be forced to lower costs if fewer students could not afford to attend due to a loss of financial aid.
There is no doubt that this conversation will continue well into the future. The chance of a bailout is slim given the current mood of the electorate and their distaste for bailouts, and the lack of cooperation in Washington will likely mean the status quo will prevail. Of course, there are reforms that would benefit the student borrowers, but those ideas are usually drown out by special interest groups looking to protect the broken system from which they profit.
For those facing foreclosure or possible bankruptcy, the thought that their student loans will remain can seem like a slap in the face. Already they face a bleak and unknown future, but what is known is that the student debt will remain, at least under current law. There are options to foreclosure that should be explored and an experienced foreclosure lawyer (such as an Orlando foreclosure lawyer with the Kramer Law Firm) can help you to navigate the waters.
No related posts.