Yesterday President Obama made an announcement that a good federal student loan repayment program would be expanded to allow up to five million more people to take advantage of Pay As You Earn (PAYE).
Certainly on face value it seems like a grand advancement and it is a small step in the right direction but in reality it’s more like that half step you take and your foot catches and makes that squeak sound in the mall.
The problem is the announcement still leaves stranded the most pained borrowers, those with private student loans. Not a damn thing has been done for private student loan borrowers since the ability to discharge that debt in bankruptcy was taken away in 2005.
Now granted, some private student loans are eligible to be instantly discharged in bankruptcy but most people and attorneys are not aware of this and never take advantage of it. It might as well not exist.
Not a single forward step has been taken for people stuck in private student loan debt that can’t be adjusted, have no real permanent forgiveness programs, and leaves lives broken.
Private student loans are a scourge on the futures of a generation or more of students. People are drawn in by the allure of expensive education and sign on the line for these private student loans. But simply blaming the student is like saying a heroin problem only exists because of addicts. It takes both pushers and addicts to complete the loop.
In the drug world we spend hundreds of millions or billions of dollars to hunt down and stop drug producers and distributors but in America we do absolutely nothing to force private student loan lenders to offer fair and reasonable repayment plans or lend based on ability to repay. They pass out loans like sugar water and people drink it up.
Private student loan lenders will lend hundreds of thousands to people pursuing degrees in fields they will clearly never be able to earn enough to repay the loans. Instead, the lenders ask parents and grandparent to cosign and extend the carnage.
I’ve had people come to me for help with over $200,000 in private student loan debt to earn a degree as a social workers making $30,000 a year. And this is not a rare example.
As smart as lenders are, they need to do the math better than this.
So half a golf clap for President Obama and congratulations to the people who will now become eligible for this small token gesture of a real fix. But until all students are eligible for real solutions the exploding amount of student loan debt in America today will continue to slow and stagnate economic growth.
If we were shooting for a standing ovation and real solutions we need to see:
- some underwriting standards to make sure loans can be repaid on degrees sought;
- the return of bankruptcy to discharge unmanageable student loans to allow people a way out of permanent financial slavery;
- restrictions on cosigning to prevent parents and grandparents from financial loss in their later years;
- income based repayment plans for all loans;
- efforts made to lower the cost of higher education;
- full disclosures for students agreeing to student loans including graduation rates since the majority of people with student loans never graduate; and,
- a shift of responsibility back on the schools to not just sell butts in seats but to use their educational abilities to not put students in blatant harm.
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I think a federally backed refi for private loans is sorely needed. Some of the lenders seem willing to settle, but it’s not predictable and case by case.