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AS I SEE IT

Posted 8/01/17 (Tue)

By Neal A. Shipman
Farmer Editor

Many people probably remember all too well when the housing market bubble burst across the nation in the 1980s as homeowners walked away from their mortgages. While North Dakota was immune from the collapse in the housing market, the same could not be said in other parts of the country, when tens of thousands of home-owners defaulted on their loans.
What happened then was that people, the vast majority of whom should never have received a loan in the first place because of poor credit, couldn’t make their mortgage payments and walked away. In the wake of those defaults, home prices tumbled. And worse, thousands of people wrecked their credit ratings and subsequently couldn’t obtain loans to buy vehicles or get credit cards.
In many ways, the United States is now risking another major loan default. Only this time it is from college students, and their parents, who have overextended themselves to go to college.
According to news reports, there are currently over 7 million Americans already in default on their student loans. And there are over 20 million more Americans who have little or no hope of ever paying down their student loans.
The cost of attending college has grown exponentially. Years ago, summer jobs helped pay a big portion of a student’s college expenses. But that is no longer the case as students can often incur debts of more than $75,000 just to attend four years of undergraduate school.
So the only option for students, and their parents, has been to turn to the federal government for loans. And those student loans, for most students, don’t come cheap as they carry a statutory eight percent interest rate.
And the payback seems to be what most people are forgetting when they make their college plans. And they don’t take into consideration what their salary is going to be once they receive their college diploma.
Assuming a $75,000 student loan at 8 percent for 15 years, the average college graduate, who can expect an average starting salary of roughly $50,000 a year, is going to be looking at a $716 monthly payment. It’s a staggering sum of money when you also have to consider the new graduate’s other living expenses.
Something has to give in that equation. Which is why over 7 million students have chosen to default on their college loans and ruin their credit rating.
There is no easy answer to this looming default problem as over one million Americans are choosing to ignore their student loan debt each year. And as more American students continue to pile up student debt without a thought as to how they are going to repay those loans, the problem will only continue to grow until it implodes.
Having the federal government forgive all student loans is not the answer. The American taxpayer can’t afford it. And for the same taxpayer reason, the solution can’t be to make college education free.
As with so many things, Congress in its infinite wisdom created the mess. Was it logical to have a statutory interest rate more than double what banks loan for a house or a car? Was it wise for Congress to put a college loan program into place with no assurances that the person taking out the loan could ever repay it?
As usual, Congress created a financial mess that the rest of America is ultimately going to inherit.