Can America Afford To Allow Student Loan Defaults?
By Ilene Davis, CFP // March 17, 2015
Student debt has doubled in the past 8 years
Talk about a slap in the face of every decent, honest, taxpayer in America? Is this REALLY the kind of country we want to have? A nation where a person’s “word” has absolutely no value at all and where signing a contract has no meaning?
According to the information I read, total student debt has doubled in the past 8 years, and the federal government (ie: we the taxpayers) is the lender of 90 percent of all student debt. While only 3 percent of private student loans are in financial distress, 25 percent of all student loan borrowers are behind on payments.
The Bankruptcy Abuse Prevention and Consumer Protection Act makes discharging student loans through bankruptcy extremely difficult. However, I recently have read that President Obama is proposing to allow people with student debt to file for bankruptcy, essentially sticking taxpayers with their debt. This proposal brings to mind the following quotes:
“When government interferes with the work of the market economy it tends to reduce the moral and physical strength of the nation; that when it (government) takes from one man to bestow on another it diminishes the incentive of the first, the integrity of the second, and the moral autonomy of both.” -– M. Stanton Evans (from the Sharon Statement, 9/11/ 1960)
“Ill fortune pursues every man who thinks more of borrowing than of repaying.”
“Ill fortune pursues every man who thinks more of borrowing than of repaying.” –George Clason (from “The Richest Man in Babylon”)
Maybe it’s just me, but it seems that any person who would voluntarily and knowingly incur debts, and then refuse to pay those debts, is not the kind of person most businesses would want to hire, or that a bank would want to loan money to, or that someone who was honest would want to marry.
I found it interesting that the default rate on privately issued student debt was much less than that on those provided by “the government.”
Could the logical consequence, should Obama make this a law by “executive action,” be to actually destroy any chance these student loan defaulters might have to get a job, a house, a car, or even a sensible person as a spouse?
If millions of student defaulters cannot get jobs because they just can’t be trusted to honor agreements, where will the money come to pay the social security benefits that are a primary source of income for many Americans in retirement?
Also, why would anyone take a chance and do work for them? Can you imagine being a plumber or roofer who does work for one of these defaulters, only to be told that they aren’t going to get paid? Would a credit card bank or service really want to issue a credit card to someone who was so totally selfish and irresponsible?
What is particularly offensive to me is that many of those students who are choosing not to repay the loans that enabled them to get a college degree seem to be able to find the money to go out partying, to take vacations, and to buy cars that cost as much as the student debt they owe.
I think the law that SHOULD be passed is that anyone who gets a student loan that is ultimately backed by tax dollars should: a) not be allowed to borrow ANY money for ANYTHING if they are behind on their student debt; b) a default after buying a car or house should result in a sell-off of that property to pay their delinquent debt; and c) anyone receiving any sort of tax funded grant or tax backed loan who drops out should be required to pay not just the loan amount, but any cost of their education that was paid to a school using tax dollars.
Maybe I’m just a mean person, but I was taught that if you make a promise, you should do your absolute best to honor it. If we become a nation where promises and contracts have no real value, can our economy, and our lifestyle truly survive?
ABOUT THE AUTHOR
Ilene Davis, a resident of Brevard County since 1971, is a Certified Financial Planner with a bachelors degree in Mathematics from the University of Michigan, a bachelors degree in Accounting from Rollins College, and a Masters in Business Administration from Webster University. Ms. Davis became a stockbroker in 1982, earned her designation as a Certified Financial Planner in 1984, and with a desire to serve clients more on her own terms, opened her own financial consultant office in Cocoa Village in 1986. She is committed to helping each client create their own “Financial Freedom Fund,” and believes strongly in free market capitalism and a “hand up rather than a hand-out” as the best path to prosperity.