Categories: Student Loans

Smart Money vs. Dumb Money, Comparing Federal Student Loans

There are times when the smart guys can be really, really stupid. The Federal Reserve Bank of New York posted its Household Debt and Credit Report and everyone immediately had a tizzy. Student loan debt came in just $8 billion below mortgage debt – $39 billion for mortgage debt and $31 billion for student loan debt respectively. Total debt for student loans stands at $1.6 trillion with riding delinquency and default rates, and is seen by economists as a key factor hindering the ability of millennials to form households and start families – two key drivers of the American economy – and may even be hindering the younger generation from buying and paying auto loans. Mortgage originations are abnormally low, and economists are worried. However, the inclusion of student loan debt in the report would lead one to believe that these types of loans are just the same as other household debts like mortgages, auto loans, and credit cards, when in fact they are not.

COMPARING FEDERAL STUDENT LOANS TO OTHER DEBT

Comparing federal student loans to credit card or auto loan debt is like taking an ice skate and a flip-flop, setting them side by side, then calling them the same thing because they go on the feet.

Federal student loans do not require a credit check. There are tests for creditworthiness for mortgages, auto loans, and credit cards. If you are not deemed a good risk, you have as much chance nowadays of getting a mortgage as you do of hitting the lottery – let’s leave aside the late lamentable housing bubble for now. Furthermore, when you use a student loan to fund your degree, you are buying an education – not a Toyota. A car is worth what you pay for it, and depreciates the more you drive it. A degree is supposed to increase in value as the graduate enters the workforce and gains experience. However with a stagnant workforce, loaded at the top with Boomers who won’t retire, and GenX’ers who can’t retire, Millennials who are taking any job they can get are in dire straits.

Solutions Are Few and Far Between

There are loan repayment schemes, loan consolidations, and loan forgiveness programs for teachers and healthcare workers, even volunteer programs that help to chip away debt $1,000 at a time, but a real antidote to the malaise of $1.6 trillion in debt is the subject of much bickering by people who probably do not have any. Moving away from the “carrot” some states apply the stick, suspending driving licenses and professional licenses for nonpayment, wages are garnished, and even social security checks might be tapped in your golden years to pay for the degree you were told you’d need to succeed.


Professionals can be a huge help in terms of experience and consulting with an attorney at Van Horn Law Group might be the best path to getting a grip on your debt and let you move forward with your life, instead of staying stuck in the mire of debt and frustration.

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Published by
Chad Van Horn

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