SOLVE the Student Loan Fiasco For Good
Don’t Just Treat Symptoms. Forgiveness will have no impact.
Current Scenario
My friend: Loan $55,000. Payments 22 years. Balance today $175,000. The program as set up is a huge scam against unsuspecting students. It can be solved without forgiving any loans.
Current Setup
Normal loan process: Borrower shows sufficient income, low enough debt to make payments, and agrees to a specific term with specific payments. Lender makes money via the interest.
Student loan: Borrower shows grades high enough to graduate and progress towards graduation. There is no specific term with specific payments. Upon graduation, payments are based on the ability to pay. The payments may not be large enough to reduce the balance.
Lender makes money via interest AND the government makes much more via taxes on the increased income. For example, if the increased income averages $40,000 more per year, the taxes will be at least $120,000 more. In the example, the balance increased by $120,000 and extra taxes were still paid, thus double-dipping.
Permanent Solution & No Loan Forgiveness
How to fix: Pay the loan principal adjusted for inflation. The loan is paid, taxes are collected, and no double-dipping. It’s like a grant that needs to be repaid, not an ordinary loan.
Calculate the new inflation-adjustment balance on Jan 1 of each year. Add a paperwork handling fee of $100 per year. Adjust the fee for inflation every $50 with a $50 minimum if recalculating an existing loan. Payment would not adjust.
The example $200/mo would be repaid in 27 years, 11 years if payment were double, 21 years with $250 payment. No balance would exist upon recalculation.
Existing loans: Recalculate all loans using annual inflation rates and paperwork fees from time of issue. The government may also add a one-time setup fee for the first loan.
Of course, if the new balance is below zero, it will be reset to zero. There would be no rebates. I’m sure anybody with a lower remaining balance would still be grateful.
Summary
A great idea that was poorly implemented. This way, everybody comes out ahead except the loan sharks who set up the program to scam poor students.
- All loans would be recalculated.
- Borrowers would be less stressed.
- No loan would be forgiven.
- All loan amounts would be repaid in full with inflation-adjusted dollars.
- Government would reap huge rewards with increased taxes.
- Loan sharks would lose paper interest balances.
- Repayment keeps the loafers and cheats out.
Good programs work, bad ones don’t. Turn the student loan program from a bad one to a good one.