Philosophical Musings

Philosophical Musings

Sunday, November 27, 2011

Student loans & fannie mae lending

If there was a pure open market, then only the very wealthy could afford to send their kids to the plush schools with the high prices, unless they get a fat scholarship.  The rest of the schools would have to compete for the majority student dollar.  That is how it has been for most of the last century.  You could start at a juco, then finish at a decent state university & not be in debt for the rest of your life.

But the politicians/bankers/academians decided that was not good enough.  Why should only rich kids or smart scholarship kids get to go to the expensive schools?  Lets provide easy money for people to go to school anywhere they want!  It's not really a low interest loan, either.  Currently it is more than twice as much as a home loan.

I have no doubt that there have been a great number of students who partook of the program & managed it wisely.  For them, it has not been a problem.  Those responsible, financially sensible kids would have done fine with or without it.  But the problem is the great number of less sophisticated borrowers.  A great number of them racked up huge debt for fluffy degrees.  Yes, it can be argued that they shouldn't have taken out such huge loans for a degree that was unlikely to provide a return on their investment.  The same argument is directed toward the borrowers of housing loans.  All those poor people who bought high priced houses but did not have the means to pay it back.  THEY caused the housing crash.  THEY were irresponsible borrowers.  But a greater number of people see the predatory lenders as being the problem.  They packaged the loan in a pretty wrap with a nice ribbon.  Neither the poor house buyer nor the poor student could lose!  Why would they not want to take the loan?

But here is the main difference, & what makes the student loans much more insidious:  The house borrowers can just default on the loan.  Their credit will suffer for 7 years, and they can go on without the burden of the debt.  But the student cannot.  The student is saddled with the debt forever!  They cannot bankrupt out of it.  Only death will release them, & i'm sure the bankers are looking into how they can beat that & pass it on to someone else, like their other dark ages practices.

The socialistic house lending policies only put us into an economic tail spin for years, bankrupted thousands of people, leaving millions more upside down in their houses, & ended thousands of construction related businesses.  It will eventually turn around.  But the student loans stick to them like hot tar.  And the interest just continues to rise!  A french poetry major with $100k in student loan debt is accruing interest at the rate of $8-10k per year, and that is only if they got an extension & have the loan deferred.  If they are in default, the interest & penalties are more.  They cannot afford $2-300/month payment on a loan.. & that wouldn't even cover the interest.

Any solutions?  Here's some of mine:

1.  Stop the program.  Make it a regular loan like any other.  It may be harder to get for a while (tried to buy a house lately?), but lenders will make the loans to good risks.  Poor kids can get scholarships if they are smart, & they can work their way through school, too.  Smart, hard working people will find a way to get ahead in a free market system.  Lazy, spoiled, entitled people will continue to be a burden on society, as they always have been.  That is another topic.

2.  Let the banks & academia take some of the hit.  Let them cut back the amount owed.. do a 'making education affordable' plan that helps kids who are upside down in their student loans get out of them.  Or cancel the credits they have, & cancel the loans.  But demanding that all of these young (& some not so young) people repay the huge loans they have incurred, without any escape from them is a return to dark ages lending policies.  Our student loan borrowers have become modern day indentured servants.  They will have to work for years to make a dent in their loans, if they can even cover the interest.  The risk & consequences of these predatory loans was not adequately disclosed, & they should never have been allowed, anyway.  Our politicians & academians were not looking out for the students' interests, but only their own & the banks' profit.

A great number of the OWS crowd are college graduates with huge student loans.  They are blaming the bankers, who are greedy & predatory, to be sure.  But they should be protesting the govt & academia, who allowed the greedy money people to do this.  The money people are always greedy, & always want to screw us.  ..always have, always will.  We the people have had to regulate them to keep that from happening.. or at least reduce it.  Protesting the banks is misdirected.  We need to change the politicians.  We need financial regulations from politicians who are not in the pocket of the money people.

It was socialistic policies that caused this mess, & many think more socialism will get us out.  Can we not see the folly of that?  Do we think that protesting bankers will cause them to be generous?  Do we think that letting the govt control all of the financial sector will bring efficiency & lessen corruption?

Free markets.  Fair regulations.  Freedom.  This will work.

I believe that banking institutions are more dangerous to our liberties than standing armies. 
Thomas Jefferson 

"The money powers prey upon the nation in times of peace and conspire against it in times of adversity. The banking powers are more despotic than a monarchy, more insolent than autocracy, more selfish than bureaucracy. They denounce as public enemies all who question their methods or throw light upon their crimes. I have two great enemies, the Southern Army in front of me and the bankers in the rear. Of the two, the one at my rear is my greatest foe."
Abraham Lincoln

"A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves money from the Public Treasury. From that moment on the majority always votes for the candidates promising the most benefits from the Public Treasury with a result that a democracy always collapses over loose fiscal policy always followed by dictatorship. The average age of the world's greatest civilizations has been 200 years."
Sir Alexander Fraser Tyler

We contend that for a nation to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.
Winston Churchill

No comments:

Post a Comment