As I drive through Any College Town, USA I notice an above average amount of urban sprawl, which has occured in the last 5 to 7 years. Ever wonder where the revenue streams come from to service all this debt? Everywhere I look; new car dealerships, retail stores, restaurants, college buildings, banks and everything consumption related. I wonder how is this debt serviced? Last time I checked we were in a recession, and many would argue a depression! So how is all this funded?
Here is a conspiracy theory! This is a massive redistribution of wealth. Taxpayers (by way of Federal Student Loan Subsides) to Students (now with some cash in their pockets) to merchants (with tax incentives). We are a nation of consumption!
According to Finaid.com “Among graduating 4-year undergraduate students who applied for federal student aid, 86.3% borrowed to pay for their education and the average cumulative debt was $24,651. If so many college kids are borrowing their way through college then, most likely, they have expendable income to consume products and services. Look around, college age kids seem to have the latest fashions, the newest Apple product, and frequently eat out, so why is the government funding this life of Riley? To Perpetuate a Nation of Dependence!
Did you know that, deep within the bowels of the Heath Care Law, there was a provision that ended the education subsidies to banks. By doing this, it made the Department of Education the financier for all college educations, thus creating a huge moral hazard! How you say? It increased taxpayer subsidies for student debt, by putting the onus of repayment on the taxpayer. Graduates will never be forced to pay more than 10 percent of their discretionary income in loan repayments. Discretionary income is how much your income exceeds 150% of the federal poverty level. For single individuals, that’s about $16,000.
The Health Care Law also included a new rule forgiving any remaining balance on a student loan after 20 years of payments.
Enter exhibit A, moral hazard…. Now all of the sudden it doesn’t matter how big your debt is because your repayment is based on your income, so why not borrow more? Think about it, if students were willing to borrow so much money when they “did” have to pay it back, imagine how much more they would be willing to borrow when they know that much of the debt will be forgiven! As highly indebted students become an even larger voting block, political pressure for even greater loan forgiveness will intensify. Is this the call for the Federal Student Loan Bailout? You decide!
“A man in debt is so far a slave.” Ralph Waldo Emerson
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