Student Financial Aid Crisis- Trickling down?

Thursday, February 21, 2013
I'm not an economist. I'm not sure I even always understand them. And I am not a proponent of the trickle down economics theory the Republicans are so fond of dragging out every few years as the solution to all that ails us.

What I do know is that the student financial aid crisis is going to come back and bite our economy in the very near future. We thought the mortgage crisis was scary? The banks who held all those mortgages had to be bailed out by the American people because they were 'too big to fail'? Wait until the student financial aid crisis sinks.

Recently the Federal Reserve Bank of New York stated that student loan debt had hit $956 Billion, more than credit card or auto debt. Increasing numbers of student loan holders are delinquent in their payments, and more than half of recent college graduates are unemployed or underemployed.

Bottom line is- these kids are on the hook for debt they may never be able to pay back. And as the default rate on these federally guaranteed loans grows, who will be paying for them? Taxpayers. The government underwrites 93% of student loans given out each year- and the requirements for getting them are that you register for college. While all schools are required to do loan debt counseling, no one discourages these kids from taking loans out, or counsels them on their potential ability to repay them depending on their majors.

Since you cannot discharge these debts short of dying- our young people are forced to make other economic decisions that are affecting our economy: they are delaying marriage, children, home ownership and even delaying becoming conspicuous consumers in order to meet their student loan debts. Many of them are moving back home with their parents. All of this creates a future economy where the primary buying group is unable to buy, and that is going to effect the bottom line of our national economy.

I'm not advocating that students be let off the hook for this debt. My kids want to pay their debts back, but asking them to pay 30% of their monthly income on student loan payments is unreasonable, and if they request reduced payments (which they can, under Obama's rules) they will extend the life of their debt to 25 years.

Obama's plan is a good first step, but more needs to be done. Colleges need to stop accepting all who apply and pushing them into majors with no future employment opportunities, banks and the federal government need to be a little more careful about over-lending; and most importantly someone needs to find a solution for these young people that does not saddle them with monthly payments that will outlast their mortgages, should they be so fortunate as to get a mortgage in the first place.

To read more about Obama's student loan you can read here.


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