Posted: August 3, 2012
As I waited my turn in the financial aid office at UW-Eau Claire this week, I overheard a few reminders about the various private loans that are available to incoming students. Of course, the interest rates on loans that aren't backed by the federal government run at just under seven percent. So it wasn't surprising that the two sets of parents who were receiving cousel elected to find other methods to pay for their child's education.
The Obama Administration would have us believe that it's the private sector that is causing so many college students to not have the ability to pay back their loans, when in fact, 90 percent of the defaults are occurring on loans backed by taxpayers. So it only makes sense in this day and age of wiping the slate clean and making hard-working taxpayers foot the bill that our President is proposing to forgive all outstanding student debt.
Granted, I probably would be all for the loan forgiveness if the teenager-bound-for-college who has lived with me the past three years was up to her ears in debt. On the other hand, I have a hard time "forgiving " debt, when the cost of doing business will be paid for by all taxpayers - including those who eventually graduate from college and find gainful employment.
Last year, college students borrowed more than $150 billion to finance their education through private loans. The total amount of outstanding student debt is now at the $1 trillion mark. Meanwhile, the proportion of borrowers in default has increased to 8.8 percent as of 2009.
There's no question that the private sector is partly to blame for the high rate of student loan default. Private lenders gave out money to college-bound students without any regard for their ability to repay, then bundled and resold the loans to investors to avoid losing money when students defaulted. That sounds an awful lot like the subprime mortgage loan mess that inflated the housing bubble and spurred the 2008 financial crisis.
Students who wish to attain a four-year degree know the consequences of taking out loans. In fact, the average graduate enters the workforce with about $27,000 in debt. As President Obama caters to the younger generation of voters in this election year, he is sure to gain favor if he forgives all student debt.
But I wish President Obama would focus more on how to help graduates find jobs so they can afford the taxes they will be forced to pay to cover their delinquent loans.