Student Loan forgiveness is a hot topic at the moment. Some people are all for it, and some are definitely against it. The most common arguments against being that people shouldn’t borrow if they don’t intend to pay, and you should always pay your debts. But having been on the teller line of a financial institution for over four years, I’ve found that there are a lot of fundamental differences in how loans are conducted for students by the government, and how loans are done by banks and regulated under the Federal Reserve (ironically a government institution made to protect the consumer and regulate banks).
It starts at the very beginning of the loan process. Unlike banks who run credit scores, ask for employment information, and even find an asset for collateral in some instances, all to minimize the risk of a consumer not paying a loan back, student loans have a very different process. They do hardly any risk minimization at all. In fact, a parent that could not qualify for any normal bank loan due to their financial situation could easily qualify for a Parent Plus loan from student aid. Same goes for students who are barely 18. Though they have no credit score or any credit/payment history to speak of, that doesn’t seem to be a problem at all for FAFSA, as many students get saddled with tens of thousands of dollars in debt just in Undergrad. And that number only doubles, triples and quadruples in grad school. Some college grads owing close to half a million dollars when they graduate.
Now, unlike bank loans that can be requested to be wiped from your debt if you get snowed completely under and have to file bankruptcy… With the exception of specific qualifications such as 10 years of government employment, student loans don’t ever actually go away unless you somehow manage to actually pay them off. And that’s much easier said than done.
Where there’s a real dent in the argument of “just pay your debt” is when you actually look at the interest of what’s owed. Student Loans aren’t just one loan. Unless you consolidate, student loans are a different loan for every school semester. For four years of college, that’s at least eight different loans, all of which must be paid every single month. And many of those loans having monthly interest rates from 3%-14% and each one being anywhere from $1000 to $4000. Sure you could consolidate, but say 6% on $30k (for example) is still $1800 every year, which may be more than it would be if you didn’t consolidate. What’s more, if you file for IBR, it doesn’t actually take into account the cost of living in your area.
But here’s the big kicker. Student loans are actually a factor in the economy declining, but not in the way you think. A lot of people tend to think of the lack of paying on student loans to be what’s hurting the economy, when in fact it’s because college graduates are paying off student loans with such steep interest that they aren’t putting money back into other businesses. In some extreme cases where people haven’t been able to pay, the government even garnishes their wages, plunging them further into poverty.
All the while, institutions like Harvard University pay full room, board, and tuition for any student under a certain income bracket. Which begs the question, if Harvard can do it, why can’t everyone else?
The simple fact is this. It’s not that former students haven’t been paying or that they don’t want to pay. It’s that paying seems to barely make a dent in the debt. Even after paying regularly at their income bracket, many students now owe thousands more than they originally started with. So to say that college graduates should “just pay back what they owe,” seems a bit ignorant, as no bank loan in history has ever been setup to make a paying party owe more in ten years than the original principal loan amount. Though, the idea of FAFSA may have originally had good intentions, there is no denying it’s malicious and predatory nature for students today and even those who graduated 50 years ago.
Furthermore, unlike people who were guaranteed a job straight out of college 50 years ago, those graduating today with a Bachelor’s barely have a chance at employment in their field without grad school. Which means more time in school and even more debt. Add a couple recessions to that, a pandemic, and raise the retirement age, and you have the job market within the last ten years–literally tens of thousands of people who need work and mostly don’t qualify. Jobs stay open or even close without hiring anyone rather than lowering requirements or training a candidate that could qualify.
What it comes down to is that people can’t afford the predatory practices of student loans anymore. We’re living in a world where if we adjusted minimum wage for inflation of today’s economy, we would all be making over $24/hr. The price of gas, food, rent, healthcare–aka living… Is far too high. It’s time the government actually pays for education rather than profiting off of it.
Celia Mitchell Writes 