Congress is getting the idea....maybe. The Wall Street Journal’s article “Trying
to Shed Student Debt” inspired this blog.
The article states that Senator Dick Durban is proposing a bill that
would allow forgiveness of "private" student loans in bankruptcy so
that private lenders will become more cautious about making student loans.
Federal student loans would not be forgiven.
I have two problems with this legislation: 1) it is an
uneven playing field. Why should private lenders have different standards than
government lenders? 2: this is treating the symptoms, not the cause. The
causes, as I see them, are many and complicated but the top three are the high
cost of education, lack of financial literacy, and lack of personal
responsibility.
1. The high cost of education. Reduced government support
and increased college cost, along with a recession has left college more
expensive and students with less in savings. We also need to ask if a college
education is a benefit only to the student or to society as well. If we determine that society benefits from a well-educated
workforce and community, then we, as part of this community, need to make a commitment
of help keep the cost of higher education affordable to everyone. This means
increasing government financial support to education.
2. Financial literacy or lack thereof. We need a financially literate society, where
individuals know how to make wise financial decisions. This starts with parents teaching and
involving their children in decisions about money. We all need to be reminded that money is it a
limited resource with opportunity cost, that you have to make tough choices about
needs and wants, and that every investment has risks and rewards. A college education is an investment with
risk and rewards, and the calculated pay-back, return on investment (ROI), should
be considered when choosing a major and/or career. Will my ROI be greater if I attend a two-year
technical or community college, attend a private college or university, or
attend a public college or university?
One has to be realistic about future income potential when taking out
student loans. Even with the best major
and the best education, no job or future income is guaranteed. You have to work hard to get the job, salary,
and career that you want.
3. Personal responsibility.
If you borrow money, you need to be responsible and pay back your
loan. This needs to be communicated to
students at the time they take out a loan.
Just like the CARD act, where your credit card statement tells you how
long it will take to pay off your credit card, students need to be aware of
their future payments, the time it will take to repay the loan, and the total
cost of interest on the student loan.
When they sign their student loan documentation, they are signing away part
of their future income for a minimum of 10 years! They need to be fully aware of the cost of
repayment, and the opportunity cost for the next 10 years of repayments; the
opportunity of buying a house, car, or going on vacation.
As I stated in the beginning, there are a lot of
causes to high student loan debt and hopefully these three ideas can be
implemented to treat the cause, not the symptoms. If you like this idea and want to work for
solutions to the problem, not reacting to the symptoms, please forward it on to
your congressional representative and/or the White House. The e-mail for the House of Representative can
be found at http://www.house.gov/representatives/
, your Senator’s at http://www.senate.gov/general/contact_information/senators_cfm.cfm
