Generation Debt

I hear these arguments time and time again.

However, here are the problems:

1. Many have so much student loan debt they cannot afford a house.

2. If you own a house, and refinance to pay off student loan debt you are converting unsecured debt into secured debt (which has a cost).

3. This doesn't address the problems with the system.

The current system is flawed, and for good or bad, everyone should be treated the same. Here are some arguments againts the one time consolidation rule:

1. Unequal and Arbitrary Treatment. There are no policy reasons that I can think of for allowing those who graduate now to have less of a financial burden then those who graduate only 4 or 5 years ago.

2. Consolidation with interest rate lock was never really a choice. Many students are forced to consolidate because with interest rate lock loan term was extended and, thus, loan payments were reduced (even if at very high interest rates).

In addition to the consolidation problems, one way to reduce the burden would be to fix the student loan interest deduction.

Specifically, the phase-out rules should account for the relationship of INCOME to Student Loan Debt outstanding and/or monthly student loan payments. A student who makes 50K a year can deduct 3K of student loan interest on 20K of loans. A student who makes 60K cannot deduct any interest even if they have 200K of student loans and 1500 monthly student loan payments.

Will any of this be fixed? Probably not - we are generation debt - you could pay off your student loans with refinancing, credit cards, lines of credit and then file bankruptcy... Probably not ethical though.

Diana,

In reference to the post on August 5 2005, one of the options MSN gave was to refinance with a private education loan. Do you know what this would be? My husbands education ended 11 years ago. Also, how do you take out a new student loan if not still in school? Someone suggested to us that we look for a private source through and investment firm, that is looking for a better return on their investment. For example, a loan of 100,000 with an interest rate of 8% gets paid off buy the private investor and in return he gets 4 or 5% on his investment As security the debtor takes a life policy on the debt. A good deal for both deptor and investor bu seems a little far fetched to me. I was told it is done often by private investors usually through their investment broker who makes the arrangement. Would love to know if you've heard of this. One last thought, has anyone ever thought of the possibility of a class action suit against the government AND the student loan lenders such as sallie mae(ours) for monopoly and/or unfair/unethical businsess practices? We were discussing this and thought that a lawyer might stand to do pretty well with a suit like this. Virginia

David - I was just passing along the article...I don't know that any of those options will actually work for anyone. They won't for me.

Virginia - I'm really not sure what the deal would be as far as a private education loan. Maybe call your lender? As for taking out a new student loan, that option assumes you're heading back to school or even just taking another class. As for the investment broker option, I'm clueless. Gerry - can you weigh in on this one? Finally, as far as a class action suit, it's suggested quite a bit. But I personally still think legislation is our best bet. I'm a lawyer and I've talked with other lawyers about the possibility of a suit. But if you sue the lenders, their defense will be that they are following the law. Right now, the HEA allows them to do what they are doing. A suit based on public policy grounds is much, much harder to make stick. I'll keep looking into the idea with my collegues (I don't practice in the class action area, myself, but I know some lawyers who do), but I still think that the best solution is to try and get the law changed.

Something to think about - if student loan interest 100% tax deductable one could pay down 100K of student loans (8.25% interest) with the same payment in about 18.5 years as opposed to 30 years...

If I had graduated when student loan rates were 3.5% and if interest was 100% tax deductible I could pay down that 100K of loans in about 13 years.

This was back of the envelope so please let me know if my calcs are wrong - I assumed a 25% tax rate.

Maybe the direction we should be going would be instead of trying the seemingly impossible task of enacting a new law for re-consolidation of student loans we instead might push for a short-term temporary AMNESTY period for all graduates stuck at the higher interest rates of 8.25% to give them a fair chance at the lower rates. This may get faster results. After graduating in 1998 in my late 40's I will be well past retirement before my loans are paid off. We need help now.

Sincerely,

Marie L. Robinson