Cancel Student Loans to Stimulate Economy? (paychecks, buy, interest, tax)

[wheelsup]

Originally Posted by luzianne

Student loans have a low interest rate.

A lot of student loans these days are by private companies who charge prime + %, before the large interest rate cuts my wife had 17k @ over 10% interest. Fortunately the other half of her loans and mine are at 2.5%. But we refi'd the federal loans right when interest rates were low, I talked to a friend who graduated a few years prior to me who refi'd (only allowed to do once) at 9%, and he's got over 100k. So $9k in interest alone per year. He's an airline pilot but lives in an RV and drives a 15 year old car so he can pay those things off!

[ColoWeb]

Then will you refund me the loan payment that I have made to pay off my student loan?

So you are punishing me, who can worked hard and saved to pay off the student loans while you get a "get out of jail free card"?

....By the way, can you cancel my home mortgage loan as well?

[Woof Woof Woof!]

Originally Posted by AsymptoticFaery

A friend of mine mentioned that a great idea for stimulating the economy would be to cancel all students loans, that way most people definitely get an edge up in the economy and can claim more of their paper net worth.

How do you personally feel this would effect the economy (including possibly your own financial standing) if student loans were canceled?

Do you feel this is a good viable solution or is it an unethical and ineffective idea?

Right now there is too much debt in the system. The best idea is to write down debt to people's ability to repay. Actually, it's really the only solution.

Debt accumulates interest and continues to grow and suck more money out of the economy. As the debt continues to mount, there is absolutely no way it can be paid off. Some of it must be wiped off the books.

[IonRedline08]

Originally Posted by wheelsup

If you were able to clear student loans in bankruptcy court every college grad would have a bankruptcy on their record. Seriously. They are essentially unsecured loans that the Government "secured" by not letting them be discharged. Otherwise the rates would be 20%-30% APR!

That is exactly right. Pretty much everyone would get a degree also, which would dilute what a college degree is good for, if that is even possible at this point. Everyone would go for the prestigious law degrees, medical, etc, which in turn would drive down wages, as so many people would have degrees that they could lower the starting wages.

Could you imagine the stampede of people that would enroll into pricey colleges if you were able to bankrupt those loans. This, in turn, would drive up the price of tuition, as well as the rates on the loans, which would put even more people into bankruptcy. It would just become a viscious cycle, and would tremendously worsen the economy.

I would admit, right here, to the world, that, if you were ever able to bankrupt those loans, that I would quit my job, get all of the private and public student loans I could get, live high on the hog going to school, and the second I graduated I would file bankruptcy, as would a vast percentage of students.

But, just imagine the college partys then! No more Milwaukee Light and El Toro tequila. Hello Patron and Heineken!

[killer2021]

Originally Posted by wheelsup

If you were able to clear student loans in bankruptcy court every college grad would have a bankruptcy on their record. Seriously. They are essentially unsecured loans that the Government "secured" by not letting them be discharged. Otherwise the rates would be 20%-30% APR!

You are exactly right! However, you are only looking at it from one point of view. If the APR was 20-30% then less college students would borrow money. If the students couldn't borrow the money they couldn't go to college. That means that colleges would be FORCED to cut their tuitions, otherwise their college would go bust or need to be heavily subsidized.

Colleges can only charge what the market can bear. Supply/demand. The only reason colleges can charge 40k/year is because, well, idiot students are borrowing the money!

Could you imagine the stampede of people that would enroll into pricey colleges if you were able to bankrupt those loans. This, in turn, would drive up the price of tuition, as well as the rates on the loans, which would put even more people into bankruptcy. It would just become a viscious cycle, and would tremendously worsen the economy.

Honestly, I don't think that would happen. What the banks would say is, "Sign up for your student loan here *requires parents to co-sign*" If everyone bankrupted their student loans the banks would not be in the business of student loans.

[wheelsup]

Originally Posted by killer2021

If the students couldn't borrow the money they couldn't go to college. That means that colleges would be FORCED to cut their tuitions, otherwise their college would go bust or need to be heavily subsidized.

Colleges can only charge what the market can bear. Supply/demand. The only reason colleges can charge 40k/year is because, well, idiot students are borrowing the money!

I can tell you what my college did when it faced reduced enrollment: it raised tuition. It raised it so much that it is now double what it was 4 years ago, and 4 years ago it was double what it was 4 years prior to that!

Honestly, I don't think that would happen. What the banks would say is, "Sign up for your student loan here *requires parents to co-sign*" If everyone bankrupted their student loans the banks would not be in the business of student loans.

Yes banks wouldn't be in the business of student loans. The Government would. It's just that they wouldn't be in the business of giving out loans, they'd essentially be in the business of giving free college education (not a bad thing, per se, if everyone got the same opportunities).

[wheelsup]

Originally Posted by IonRedline08

That is exactly right. Pretty much everyone would get a degree also, which would dilute what a college degree is good for, if that is even possible at this point. Everyone would go for the prestigious law degrees, medical, etc, which in turn would drive down wages, as so many people would have degrees that they could lower the starting wages.

Well if you think about it, if we had a much higher educated work force, we might be able to advance technology faster than any other country, thus we might be able to export things once again. That would be good for the economy.

[wheelsup]

Originally Posted by Woof Woof Woof!

Right now there is too much debt in the system. The best idea is to write down debt to people's ability to repay. Actually, it's really the only solution.

Not even close. It won't solve the problem. It simply transfers it to those that did/do repay.

I think you need to sit down and think about what effect that will have on future Americans.

An example. When my wife and I graduated college we had around $45k in student loan debt between the two of us. Combined our income was around $30,000/yr (we both earned around $15/yr). We made paying our student loans a priority.

5 years later, a combined income in the 6 figures, we still lived in an apartment, still drove the same cars we had out of college (10-15 year old cars), still didn't eat out, and still made paying our student loans a priority. Now we've taken a $70k/yr paycut but guess what? We are still paying our student loans.

Contrast that with my wife's sister. $80k in debt, $50k a year out of college, goes and buys a $700/month car, massages every couple days, lives on a condo on the beach in South Florida, etc. Now she's making $30k/yr, car might get repo'd, student loan payments have stopped and balances continue to grow because she has no money. She was flat out irresponsible.

And you want to wipe her debt away? You want to encourage that behavior? She will just go out and get herself into debt again!!!

I can tell you what future American students will do. They won't pay a cent on their loans, because they know the Government will bail them out!

NO! Enough is enough. The more we bail people out, the more we encourage irresponsible behavior. This will bite us in the future, mark my words.

[Dd714]

Originally Posted by IonRedline08

That is exactly right. Pretty much everyone would get a degree also, which would dilute what a college degree is good for, if that is even possible at this point. Everyone would go for the prestigious law degrees, medical, etc, which in turn would drive down wages, as so many people would have degrees that they could lower the starting wages.

Everyone may go for a college degree, but 90% will or should wash out. You don't earn a degree by simply attending school, you earn a degree by passing courses, completing thesis, etc. By working for it! Multiply that considerably for degrees such as law and medical and engineering. Even business and computer science, I saw a 25% failure rate by the time they took their first calculus class.

Of course, it seems like the new trend is to receive something without working for it or earning it. Just look at the new stimulus package - reward those who don't earn. Welcome to the entitlement generation.

[oscottscotto]

Originally Posted by killer2021

Student loans these days are the biggest scam. It is legalized slavery. I am not kidding. Especially since you cannot bankrupt them. This type of slavery is called indentured servant. Which is just a fancy term for someone who gets to be free but has to pay the vast majority of their earnings from labor to their master (in the form of student loan payments of course). The only different is that instead of it being for a specific period of time it is for a specific amount of money with interest. That could, technically, be forever. Sure hope going to that ivy league was worth it!

Well, in all fairness, in a worst case scenario, you could always pay your student loans off with a high-balance credit card and then claim bankruptcy.

Tongue in cheeck, of course.