Outstanding loans for college attendees are in excess of $1 trillion and probably will reach $2 trillion by 2020. Thus, the already big problem is going to become a huge one.
The government improperly counts these loans as 'taxpayer assets' by using the erroneous and intentionally misleading assumption that all loans outstanding in due course will be repaid by the borrowers.
We already know about the plight of the indebted dropouts, the graduates who can't get jobs and the graduates who can't get good jobs. But that's not all.
Let's get to know Alice, a college teacher who is deeply in debt, and learn how she is scamming the system and plans to leave taxpayers with even more debt than the principal amount of the loans she incurred while receiving her 'education.' Her story is sickening but worth knowing.
Alice's story informs us about the much bigger developing financial problem for taxpayers concerning who ultimately will be repaying these debts.
It won't be Alice. It will be We the People. All of us.
Doubt what I say? Well, read on and decide for yourself.
Student-Loan Debt: A Federal Toxic Asset is subtitled 'Only about 56% of borrowers are making payments. At the peak of the mortgage crisis, 10% fell behind on payments'. The story is about Alice, a heavily indebted and morally bankrupt college professor:
"Let's call her Alice. . . . She earned her Ph.D. in the mid-1990s when academic jobs were scarce, and she wound up an academic gypsy. She . . . found herself cobbling together part-time teaching jobs at different community colleges in a large metropolitan area, earning a couple of thousand dollars for each course she teaches. She is a dedicated teacher, but her annual income is between $30,000 and $40,000.
Alice owes $270,000 in student loans. She only borrowed about $70,000 to pay for grad school, but she's never been able to afford much in the way of payments, and after consolidating her loans and accumulating interest charges for years, she's watched her debt roughly quadruple.... there is no federal program to help established part-time community-college faculty discharge their old student-loan debts.
In fact, the federal government is quite content with Alice's situation. The $270,000 she owes is carried on the government's books as an asset. The government reasons that, since it is nearly impossible to discharge student loans through bankruptcy, it will eventually collect all of the more than $1 trillion in federal student loan debt that Alice—and millions of other student borrowers—owe.
Not likely. Because Alice has figured out how to avoid repaying and still stay in the government's good graces. She is able to defer her loans without accruing additional interest by enrolling in two community-college courses per term while she works toward a business degree that she hopes will lead to a new career. Meanwhile, her $270,000 balance remains on the books, growing all the time.
She doesn't think of herself as a deadbeat, but making a $1,200 monthly payment for the next 30 years is daunting. Within a few years, she'll be of an age to collect Social Security, and at that point she expects the government to begin withholding about $30 from each monthly check to pay her student loans. That will hardly offset the hundreds of dollars of interest charges that accrue each month. . . .
But it is Alice's place in the larger picture that is the more important story. The federal government assumes that almost all student-loan debt can be treated as an asset because federal loans are not dischargeable under normal circumstances. So it really is not a problem if the total debt exceeds $1 trillion ($2 trillion around 2020 on current trend), since all that money is sure to be repaid.
But that assumption looks more and more fanciful. Studies . . . show that only about 56% of borrowers are making payments. Among those under 30 and in repayment—that is, they have not received permission to postpone payments—more than a third are delinquent. That's a lot: At the peak of the recent housing crisis, only about 10% of borrowers fell behind on their mortgage payments. But Alice is part of the 44% of borrowers who are not repaying student loans for various reasons.
Why isn't this high percentage of borrowers who are excused from making payments alarming federal policy makers and most of the analysts who study student loans? There is really no prospect that Alice is going to be able to cough up more than a quarter-million dollars and pay off what she owes.
At some point, the government is going to have to reclassify billions in loans and interest as losses. Meanwhile, as college costs rise and more students pursue higher education, student borrowing grows. According to the Department of Education, students borrow over $100 billion annually, and the figure rises with each new academic year.
This is a big problem. Unexpected write-offs of billions of unpaid student loans will confront Americans with a set of ugly choices: Will we raise taxes to cover the losses—which is impossible to imagine in today's political climate? Do we cut other federal spending—which is nearly as unlikely since we're talking about substantial sums? Or do we significantly increase the national debt. This will be a continuing crisis; each year's increased borrowing will require confronting the same choices in future years. . . .
A larger issue, so far ignored, is that unless college costs are brought under control, things will only get worse, and the federal government will continue to accumulate Alice-like "assets" in the federal direct-loan portfolio."
Summing Up
Kicking the debt can down the road and hiding the real story from We the People is a favorite game which has long been played by government 'leaders.'
And borrowers like Alice have definitely learned how to play the game of fleece the taxpayers.
Too bad the duly elected representatives of the taxpayers are willing to let the game go on uninterrupted.
Here's my take. College costs are too high. Over 50% of the 'students' who enter college are unprepared to do the work. Student loans are too easy to get. Loans won't be repaid if students don't get good jobs. Neither will they be repaid if borrowers aren't 'taught' that they have a moral as well as a legal obligation to pay their debts. Nor will colleges make a serious effort to reduce their bloated cost structures and make college more affordable. Meanwhile, our fearless and feckless big spending elected and college 'leaders' won't be acting in the best interests of We the People. Not at all.
As too many borrowers find ways not to repay these loans, government scorekeepers willingly pretend that the taxpayers have a solid asset which will be repaid in due course, on time and with interest. Not a chance.
As a result, the already huge problem of outstanding student loans will become bigger with each passing day.
That's my take.
Thanks. Bob.
Very nice and great information on student loan financial analysis
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