Theft
Student Loans — The Government Loan Shark Program
Worse than the thug on the street. Simple to fix but easy to misconstrue.
Synopsis
Good programs work, bad ones don’t. The student loan program was a great idea that was set up in the worst possible way. It turned Uncle Sam into a loan shark, turned students into his tortured victims, and made the rich even richer. Years later, it fooled the masses into believing that moochers were getting something for free. It can be fixed even though the unethical and ignorant will scream.
Reality
Based on an interview with a student loan recipient currently working as a professional in the mental health field, I discovered:
The student borrowed $55,000. The current balance is $170,000 after making 23 years of payments.
Another student has a similar experience after paying for 11 years.
Doctors may have half a million in student loans.
The Difference from Secured Loans
The numbers look like the total payments on a $55,000 home loan, but there is a big difference. The house balance starts at $55,000 and slowly decreases over the years. Also, the house may go up in value and can be sold to pay off the balance.
The student loan has no asset value that can be sold to support it. Nothing can be sold to pay it off and the balance keeps going up with the minimum payments.
In many cases, there is no way for the loan to be repaid. It is a lifetime of payments or may be forgiven by the government with its political ramifications.
What Went Wrong
People who wrote the law followed standard methodology without thinking. They saw it as a normal loan, like a credit card, instead of an investment with the potential of a huge return.
College graduates tend to make much more money than dishwashers, no matter the field of study. The difference is also taxed, sometimes at a higher rate.
The grad in the above example could easily pay $10,000 more per year in taxes or $230,000 so far. An investment of $55,000 with a 300% return to date. Therefore, it is a good investment with a high return.
How to Fix It
Simple. Repay the investment only. Change all existing balances and new loans from loans to investments based on the original amount. Apply all payments with adjustments based on published inflation percentages.
As an investment, there would be no interest, just adjustments based on published inflation percentages.
Here is how the $55,000 investment would work:
- Adjust the balance for inflation and additional investments while in school
- Allow up to 5 years after graduation to start making payments
- Divide the balance by 30 years for base payment
- Adjust payment amount and balance for inflation after each 12 months
If the investment was $55,000 in 1999, there was a 5-year deferment, and all payments were made as calculated:
- The balance in 2022 would be $23,212 (not $170,000)
- The starting monthly payment would be $210
- The payment in 2022 would be $306
This calculation can be done at any time, like tomorrow. It would not be a gift from the government since they received so much from taxes. The change in balances would not be taxable income since it is a correction of a mistake.
It even adjusts itself if someone was out of work and went 12 months without making a payment. Suppose that happened in the 5th year of payments. The 2022 balance would be $27,129.
No matter what happens, the total repaid would equal the original amount due to the inflation adjustment, not more and not less. The student would not pay a loan-shark interest amount and the government would not lose anything.
Of course, if a loan had already been paid off, this would not apply. There would be no refunds for the rich.
Potential cheats
The most likely cheat would be the permanent student that never graduates or goes for multiple degrees. There could be a time limit, like one for a bachelor's degree and another for doctors.
Rules would have to be written into the law to avoid such people, like requiring progression towards a degree and time limit. I would leave that to Congress and government investment administrators.
Summary
This would be a simple problem to fix. Investments could easily be recalculated with existing data.
Of course, the loan companies getting rich from loan shark interest and processing fees will scream. Also, the political party who does not introduce it will claim that it is just another plot.
The big thing, though, is that the government would no longer be doing something that would put an ordinary citizen in jail.
References
- Won’t impact many people by much
- The plan sounds good, but is a pittance and won’t work
- Excellent history of student loans
