TAMMY DUCKWORTH’S “ROUNDTABLE” ON STUDENT LOANS: AIN’T THAT A KICK IN THE HEAD?

5/5/13

Congressman Tammy Duckworth (D, IL) held a “Roundtable” on student loans at the College of DuPage last Thursday.   Ms. Duckworth’s focus was on a pending increase in the interest rate on federally subsidized Stafford loans from 3.4% to 6.8%.   (See my 4/28/12 post on the now defunct Rant Finance entitled “TEACH YOUR CHILDREN WELL…”, which is reproduced below for your convenience.)  Claiming that the doubling in interest rates would cost 7 million students an average of $1,000 per year, Ms. Duckworth touted her co-sponsorship of the Student Loan Relief Act of 2013 (“SLRA”), which would prevent that scheduled 7/1/13 increase.

The SLRA and other such efforts to make borrowing for college as cheap and easy as possible has some surface attraction for people who don’t think very deeply; who can argue with such anodyne sentiments as “making sure everyone gets a college education”? 

But, with only a glance beneath the surface, the pernicious effects of the SLRA become clear.   Leave aside for a moment the utter silliness, or worse, of the idea that “everyone needs a college education” and concentrate, for today’s purposes, on the SLRA’s, and its kindred efforts’, financial effects.

Such efforts can only exacerbate the impending student loan debacle, our next great debt crisis.   Perhaps more insidious, making borrowing for college easy and cheap sends a dangerous message to students, prospective students, and their parents:

Don’t be a chump.  Don’t save for college.   Don’t make any sacrifices or deny yourself in any way to pay for your, or your kids’, educations.   We, at the government, are here to help you.  We’ll make it easy and cheap to dig yourself, and your kids, into a debt hole that will envelop them for much of the rest of your lives.

But don’t even worry about that debt hole.   If the problem gets severe enough, and you wait long enough, we’ll take steps to reduce, or even eliminate, student debt.  If enough people get into enough trouble, we’ll just forgive the debt.   The taxpayers, and especially those stupid enough to actually pay for college themselves, will pick up the tab for your, or your kids’, educations!

The SLRA and similar efforts to “help students pay for the college education they need” will turn out to be yet another case in which the financially responsible get kicked in the teeth…and then presented with the bills of the financially irresponsible.

The politicians will then wonder why so few people are saving while so many are spending and why we consequently go from financial crisis to financial crisis.  Ironically, such puzzlement on the part of our lawmakers illustrates the weakness of the argument that a college education somehow makes one intelligent.

 PROMISED REPROCUCED POST

“TEACH YOUR CHILDREN WELL…”

4/28/12

Yesterday, we learned that both the Republicans and Democrats want to stop the scheduled doubling of the interest rate on one of the largest government student loan programs from 3.4% to 6.8%.  Even the higher rate doesn’t approximate market.   Would you loan money, unsecured, to a borrower with no job and, at the time the loan was made, few or no job skills, and who will not begin repaying you for at least for years?  The only disagreement between the GOP and the Dems on this issue is how to pay for it, and “paying for it” has never kept our pols from spending any of your money that they had the faintest desire to spend.

We also learned yesterday that Congress is considering making private student loans (i.e., loans made by privates sector entities rather than by the government and not backed by the government) dischargeable in bankruptcy, reversing a 2005 law that made student loans not subject to the bankruptcy laws.   The obvious problem with this latest effort on the part of government to help us is that it will discourage private lenders from making student loans and will force those that choose to keep doing so to tighten the terms and increase the cost of those loans.   So this effort will turn out to be yet another example of the government’s efforts to address a perceived problem making that problem both real and more acute.

The larger, and perhaps less obvious, problem with both keeping interest rates low on government student loans and making private student loans dischargeable is that these “initiative” are, given the typical pol’s enthusiasm for handing out your money to just about anyone capable of concocting a sob story and/or writing a campaign check, just steps on the roads to forgiving student debt.   So those parents who saved and sacrificed to send their kids to school with no, or as little as possible, student debt, those students who worked full or part time to finance their educations, and both students and parents who chose financially sensible schools and marketable majors rather than studying Public Advocacy or Modern Hip-Hop at the “the school of my dreams” will be made to be chumps.   Why, parents, did you bother forsaking the nicer cars, home, or vacations in order to put money aside to fulfill one of your responsibilities as parents by financing, or helping to finance, your kids’ education?   Why, students, did you bust your hindquarters working at McDonald’s or Starbuck’s 20 or 40 hours a week while carrying an 18 hour class load in, say, Engineering or even a solid liberal arts course of study that would have taught you to write and think and fulfill your role as a responsible, self-governing citizen when you could have been drinking yourself stupid at the bars or hanging out in your dorm room or at the coffee shop (perhaps the coffee shop at which you work) contemplating your navel and cursing the injustices of the capitalist system while pursuing a major in, say, Modern Grievance Nurturing?   The federal government will show responsible parents the error of their ways by forgiving the debts of those who would not help their kids with college because, after all, those parents could not bear the ignominy of living in, say, Naperville or Oak Lawn, driving a Ford or Chevy, or having to tell their neighbors in Hinsdale or Kenilworth that little Ogelthorpe goes to the U of I, ISU, or the local community college for a few years when those neighbors’ children go to the highly exclusive Snuffy SnotNose U.   You students who worked both inside and outside the classroom to graduate with a meaningful degree will also be shown how silly you were when the government rewards those students who chose having a good time over working; why bother earning money when you can just borrow it cheaply and discharge it altogether due to “inability to pay” (while paying for the expensive apartment and the BMW, of course)?

I can hear the objections already:   “Why, not everybody who takes out student loans so that he can use his fungible (probably too big a word for those who would make such an argument, but I digress) funds to buy a Lexus and a place on the lake while sending his kids to UpScale U.   Some of these families really need the loans to send their kids to reasonably priced schools.”   I agree.  Not every borrower is using student loans as yet another means to finance a lifestyle he or she could otherwise not afford.   Surely, those who will argue for debt forgiveness will trot out the most pitiable cases when making their pleas for “economic justice.”   But I would wager that a very large proportion of those who do take out student loans would not have to do so if their parents would make even the smallest sacrifice, they and their parents chose a lower priced college or university, and/or the student borrower put enough value on his or her education to work at least part time to finance that education.   Further, if we want to help those who genuinely cannot afford college, any college, we could more effectively employ mechanisms such as Pell Grants.

As it is, though, we are headed toward forgiving the loans of those parents and students who decided to borrow, and perhaps bet on some kind of forgiveness scheme, rather than make the sacrifices necessary to finance their education on their own dimes.   And we will slap those who financed their, or their kids’, educations in the face by, ultimately, forcing them to pick up the tab not only for their own educations but for those of their neighbors who, in many cases, live better than they do.   This is how we treat those who work hard, sacrifice, and save in this country.   And then we wonder why we get so little hard work, sacrifice, and, especially, saving in this country.