If you think your loans are going to be forgiven, why not stop paying on them? In fact, it's stupid to keep paying them. If I still had student loans, I'd consider the same.
In all honesty, I doubt there's going to be a serious re-evaluation of these programs until the system breaks. There are many degrees that people here consider absurd but there is inertia and programs and efforts to make sure that those are the best protected.
Can you imagine the headlines if a university canceled the "women's studies" degree and shifted the money to something resembling vocational training?
I'm not a fan of the financial sector but let's keep the facts straight here
PNC bought National City for free, using tax payers money. TARP was not a loan. It backed every bank debt 100% (when it should have been pennies on the dollar) and allowed the strong banks to kill all the weaker ones, literally for free.
Had TARP not gone though, the banks would have had to sell mortgages back to debtors at a fraction of the price. Instead, they continued to collect loans on debtors, feed the rich and destroy the savings of the middle class.
https://en.wikipedia.org/wiki/Moral_hazard
It's one way that an economy can break down...
While true in theory, this may not be true in practice. There are several loopholes, one main one being that failure to pay fees and penalties assessed by the justice system itself can be a criminal offense. In some states a significant percentage (as high as 20%) of current prisoners are being held for failing to pay these LFO's (Legal Financial Obligations).
Here are a couple ACLU reports about the practice:
In for a Penny:
The Rise of America’s New Debtors’ Prisons
Modern Day Debtors Prisons:
The Ways Court-Imposed Debts Punish
People for Being Poor
Which doesn't have much of anything to do with the real estate market, right?
If you don't like FAFSA loans, you are perfectly willing to go to any bank (or maybe a rich uncle) and get another loan (or convince your rich uncle to bankroll you). But for the vast majority of people, FAFSA is the only way to pay for college.
And taking out 8% or 9%+ loans from NON-FAFSA institutions is a lot worse than taking a 6% to 7% FAFSA loan. I think funding the loans and keeping interest rates lower is a good thing.
/s
Just this morning Ray Dalio commented in an interview on problems with Fed controls via interest rates or injecting money via QE, vs times when the economy might respond better to 'helicopter money' or injecting money directly to the people.
http://www.marketplace.org/2016/04/06/world/economy-debt-cyc...
I'm reading further than the Dalio comments, but if one were to implement Basic income with some ratio of "helicopter" injection selectable by the Fed, it would give the Fed another control pedal to better manage the economy. In particular, when investment level injection is just circulating among the financial circles and not making it down to the main street economy which cycles money with buying and selling of more real goods.
I'm not a fan of the financial sector but let's keep the facts straight here
The banks got rich using that money (giving loans with that money at much higher interest of what they were paying the government, it was a bonanza for them), the taxpayers money at the expense of the middle class.
So yes, let's keep the facts straight here.
Yeah. There's also the marginal utility of money. The banks can piss away billions without really getting that hurt. Their debts are business agreements that can be broken under the profitable circumstances.
Student loan payments each month hurt people far more, yet defaulters are looked down on.
The solution is a mass debt strike, until there's a student loan bailout or other large concessions. Threatening to crash the economy further got the banks their trillions during the crisis, so why don't normal people team up and do the same?
There's also a small minority of people also savvy enough to pull off defaulting without the legal repercussions. Unless there is a coordinated effort, simply defaulting by one's self would be suicide.
There is also the risk/reward factor. Defaulting on 100-200k loans with no income? high risk, but also a high reward potential. Lawyers know you can extract blood from a stone. Defaulting on 5k worth of loans making 50-60k/year? High risk, low reward. Better to just make the payments for 1-3 years and be done with them.
This is not about TARP. It's not about taxpayer-funded bailouts of whatever industry the royal you happens to dislike today.
There are two completely separate obligations in play.
1. The legal (civil) obligation: There should be stiff penalties for people who decide not to pay back a student loan because "LOL TARP." Especially if it's a loan where the government ends up on the hook. Wage garnishments and sub-500 credit scores seem appropriate. Not to mention the fact that signing a prom
2. The moral obligation: You said you'd pay it back. Keep your word. Despite extenuating circumstances, you're just a plain old bad person otherwise.
None of this applies to people who can't pay back the loan because they're a barista with a law degree. I think we need to look at why they spent the money they did on a degree that is apparently doing nothing for them but regardless they don't have the ability.
But they're in for a world of hurt when the loan is forgiven and they have a 4 figure (or higher) tax bill from the IRS for the income.
That's exactly the problem. You are applying guilt and morality to people (and not just you, this is a popular PR technique) but when businesses choose to not pay the fines, loans, or choose to continuously violate a law (because paying a fine is cheaper than complying), for whatever business reason, then it is seen "as a business decision".
For example, during the housing crises years, there were a few articles warning about the second wave of housing crisis -- that where wealthy people who see their house under water, would stop paying even if they could. They would choose to mail the keys to the bank and walk away because 7 years of bad credit is better than paying an extra $200k over the value of their house. And that was scaring some economists -- that fact that people will start acting rationally and applying "normal business principles" to their own affairs.
> There should be stiff penalties for people who decide not to pay back a student loan because "LOL TARP."
Where are the stiff penalties for banks and insurance companies pissing away money on shady deals? People were not blind they saw what happened.
A lot of misunderstanding here. Education department doesn't have any enforcement arm as far as I'm aware. Understanding why students are defaulting on loans is 100% in the realm of what the education department SHOULD be doing.
The IRS will garnish wages for student loans.
On the other hand, a study conducted by the Department of Education, run by Education Secretary John King Jr, makes a lot of sense. and is hardly malicious at all. Department of Education wanting to know the effectiveness of their FAFSA loan program (and why or why not people are able to pay those loans back) is definitely a good thing.
Besides, all the loans are being handled by Sallie Mae (a private company with some Government support). So its Sallie Mae who is officially on the hook with regards to collections and such. The Department of Education is rather removed from the whole finances thing, as far as I'm aware.
So basically, you can assume a malicious force if the IRS or maybe even Sallie Mae began to conduct this sort of investigation. But the Department of Education? Collections isn't their thing. They're likely interested in the state of education, college readiness and the like.
https://en.wikipedia.org/wiki/Government-sponsored_enterpris...
It didn't become private until 2004, and wasn't expected to be private until 2008.
It is much more than a private company with some Government support.
Ha! There is a bit of a hypocrisy there -- if big banks / companies piss away money and choose to strategically default then (and some even get bail-outs), it is just business. If people do it for whatever reason, well clearly the are immoral, deficient somehow, their psychology needs to be studied by a special committee.
> Some borrowers aren’t repaying even when they can.
Yap, makes sense. They see banks get bailouts, why shouldn't they get bailouts. Now maybe they shouldn't have been allowed to borrow to start with. But maybe so shouldn't have banks and insurance companies been allowed to leverage to unsustainable levels.
> The singular goal of our student loan program is to help all students get a degree that sets them up for success
One a separate note, that needs to be reviewed and re-evaluated. There are deeper issues here. Simply handing out billions of dollars for degrees like Masters in Basket Weaving from Phoenix University cannot possibly be seen as solution to anything (except well, handing out tax payer money to Phoenix University...)