Saturday, November 5, 2011

Borrowing Without Collateral

The country is running up against the whole college loan things again. There's a website that claims the trillion dollars of student loan debt should all be forgiven because that'll stimulate the economy.

Intelligent people ask that those loans get deferred a couple years so that the loan payments can be made when the borrowers are a little more solvent. I'm okay with that as it acknowledges that the borrowers are accepting their debts and making the books right.

Others want all college loans wiped off the slate so that graduates can get on with their lives. WTF?

Why adults should get $100,000 loans wiped clean is beyond me. They took out loans as adults to pay for adult things and now they all get off free? What's next? Should we give them a home loan and then excuse the loan when the first few mortgage payments are due?

Which begs a question: What's the collateral in a student loan?
NYT Sob Story

Future earnings, of course.

At what point are the banks and loan-makers going to ask for that collateral? Why should a bank finance a degree in women's studies or in some other navel-gazing, narcissistic puffery which has ZERO value in the future marketplace?

I'll say it again. If you're using your own money, or you're putting up Daddy's business as collateral for this loan, then feel free to get any degree you'd like.

If your state is willing to give a free college education (not including fees), then you are free to accept the offer and take any degree the college will offer you.

If you're borrowing money with no other collateral than your future earnings, you shouldn't be surprised if the lender asks for a degree with better prospects than Burger King or trophy wife.

If you're "conned" into borrowing what you can't afford, yet you still "need" a degree in women's studies at very expensive college like NYC, don't expect much sympathy.  Pay your damn loans.

"Do you want fries with that degree?"

It's high time the federal government college loan programs start demanding valuable degrees as "collateral" for their loans.  Otherwise, taking out a loan with no thought of paying it back is fraud.

1 comment:

  1. You miss some things here, I think.

    First, you assume that the reason to go to college is to facilitate acquisition of a job. For some this is true, but college has other value.

    Second, what real choice do people have? The entire system tells people to go to college. The opportunities for those without a degree stink, and this is borne out by the employment data. Heck, right now PhD chemists are having trouble finding jobs (I know some).

    Third, not everyone has the stuff to get an engineering degree. You know this. You teach many of them.

    The system is broken. Don't pin all of this on people trying to play by the rules.

    P.S. - Loans can't all be repaid unless people keep taking out loans. It's a Ponzi scheme - a game of musical chairs. It's the way our monetary system works. The money have to come from somewhere, and it comes from ... more loans. Take a look at this chart from the Fed and you'll see pretty clearly that the system is broken. Don't heap it all on the girl with the bike.