Is it time for a Student Loan March on washington?
I can still remember how easy it was for the 25 year old version of myself to sign on the dotted line and collect a check that had me living a carefree, and decidedly upper-middle class lifestyle, while in law school without thinking twice about the ramifications of passing on the bill to the older, married with three children, version of myself.
I'm sure Duke didn't think of it this way, but looking back I tend to think of my first disbursement of student loans as analogous to a drug dealer who got me hooked on debt by making it so easy on the front-end.
Flash-forward 15 years later and I can assure you that my law school debt has had a negative effect on my life. As a matter of fact, if there is one piece of advice I have given out consistently since I graduated from law school it has been to tell students: "Stay out of debt. The pain and sacrifices you will have to make once you are in debt are much worse than any pain and sacrifice you would have to make to avoid it." I hope some have listened.
Because debt has affected me (at one point in 1998 I was denied the right to lease a washer and dryer for my apartment...talk about humbling) I have thought a lot about the issue and have come up with three ideas that could be part of the solution:
1.) Put a hard cap on the amount of student loans that cannot be discharged in bankruptcy. Let's say we decide $90,000 is the most a person should be forced to carry when done with their education. Anything above that, the lender takes a risk. This would result in two things:
First, with less loans to pay for education, colleges and universities would be forced to lower costs. Instead of just passing on costs to students who have to spend the rest of their lives paying bills, the institutions would (guaranteed) find ways to lower the costs. Basic economics 101: If you subsidize something you get more of it. If you tax (or remove subsidies) you get less of something--in this instance the something is debt.
Second, a lot less people would graduate in a crippled state. This would benefit the economy in countless ways. Earlier household formation, more home purchases (why isn't the housing industry working to address this issue to gain more buyers) and a better allocation of resources as workers would become more mobile. Lenders could still make loans in amounts over $90,000, they would just not be federally guaranteed. In this situation, both lenders and borrowers would be much more careful in their transactions. (Question:What number do you you think loans that cannot be forgiven in bankruptcy should be capped at?)
2.) Allow borrowers with student loans to pay off the loans (or at least a portion of them) with pre-tax dollars. We allow pre-tax dollars to be used for medical bills, vision care, and for funding our retirement. As everyone agrees we are in a 1 Trillion dollar student loan crisis, why don't we help borrowers pay off debt sooner and more easily with pre-tax dollars. This would be a natural extension of 529 accounts. I guarantee any politician who gets this idea implemented (it's one that has been discussed by other in the past including Michael Lux on his blog student lost sherpa) will become a hero to millions of voters. And, because the lenders will still get paid under this plan, they don't have to fear the big-money lobbyist backlash.
3.) This idea dovetails with number 2: allow borrowers to pay off student loans with 401K retirement funds and/or the above referenced 529 accounts. If parents can pay for tuition with pre-tax dollars via 529s, why can't borrowers pay loans used to pay tuition off with pre-tax dollars?
To me this idea makes a lot of sense. The counter argument might be that retirement is much too important to borrow from retirement savings, however, by borrowing from it up-front and paying down debt it is likely that these now debt-free borrowers will end up having more money to save and invest for retirement over time. Ironically, using 401K money now to pay off student debt might free them up to make much bigger contributions in the future.
Also, by getting out of debt, the borrowers will likely spend more money as consumers, thus benefiting our economy. Allowing student loan debtors to pay off debt with money from 401Ks or 529 might thus allow them a better long-term future with a more secure and higher funded retirement in the long-run, while benefitting the economy in the short-term.
I imagine the big banks and retirement providers might want to fight this proposal (although not in public) because they would lose assets, but we, as borrowers or those who love borrowers, can have a much stronger voice.
Along those lines, should we call for a day of action? Should student borrowers "March" on Washington? Perhaps we should. I'm just blogging out loud here, but maybe that's what is needed to get some movement on this issue.
Maybe our elected leaders need to see the faces and hear the voices of the millions of Americans who are living under the burden of student loans.
What do you think? Should we have a Student Loan Relief March this Fall in DC......Maybe in late September before the mid-term elections? Is it time we speak with one loud voice and demand some solutions?
If the Big Banks on Wall Street can be bailed out and if we can send billions of dollars in foreign aid to countries (some of which don't even like us) can't we at least let student loan borrowers pay off some debt with pre-tax dollars or enact legislation putting a hard cap on loans that can't be forgiven so that another generation does not fall into the same debt trap we have?
Please let me know your thoughts and more importantly your ideas in the comment section. Hopefully someone, perhaps a Milleniall just starting out, has the bandwidth to take this idea and make it a reality.
I might sound overly optimistic, but the more we share, the more unified we become, the more quickly we can try to solve this problem.
Here's are links to 2 stories on the 1 Trillion Dollar student loan crisis one via ABC News and one via NPR. Take a look at the links and please consider getting on-board and helping to solve this crisis.
Once again, it will be up to the American people to lead the politicians to do the right thing.
$1 Trillion Student Loan Debt Widens US Wealth Gap
The student loan bubble.