Perception is Reality and Details Matter
OK- I am trying to let the dust settle from the recent Biden Administration announcement of college debt loan forgiveness of $10k, and $20k for those who had Pell Grants. With journalism today, everything reported is a mile wide and 2 inches deep. And there are more questions than we can find answers to.
The best thing so far, to me, is how I am seeing an opening of dialogue with details about the struggles to make headway on student loans. A good friend posted her story about her loan numbers on Facebook. With her kind permission, she is allowing me to share it with some background information.
She was an undergraduate/graduate student for 6 years. She qualified for Pell Grants due to family finances. She worked all during school, graduated in 2006, and has been paying for them ever since. She works full-time, does a superb job, and built side businesses to help her pay down these loans.
Here are the numbers. Remember, they were classified un-subsizdized (higher interest rate) and subsidized (lower interest rate) back in the day. And the government decides the length of your loan repayment cycle. Her’s are for 40 years. In spirte of a declared maximum of 25 years to repay the loans, less than 175 people have ever qualified. She’s been making payments for the past 16 years+. By my personal calculation, her payment is a mid-sized car payment that will NEVER end!
Unsubsidized: Original Amount- $32,512.86
Current Amount- $21,800.00
Subsidized Original Amount- $24,233.83
Current Amount- $11,800.00
Total paid from 2006-2022- $91,800.10
Total principal reduction- $23,146.69
Total still owed-$33,600 (out of roughly $66,750)
Loan length: 40 years as determined by the Federal Government. Loan interest varies each year.
So where am I on all this? I admit a bit of a shift. Here are my thoughts:
Change the terms of these loans to simple interest, with the ability to direct at least 50% of your payment after 5 years towards the principal amount borrowed. I remain committed to the idea of repaying the loans. However, people should be able to reduce their principal more quickly. Or, they should be able to target the principal with extra payment amounts. We can do that with car loans and home mortgages; why not here?
Automate, standardize & simplify loan forgiveness processes. A borrower should not have to apply for forgiveness as their record should speak for itself. All loans should have a standard, sunset date. Right now it’s either 20 or 25 years and almost no one has the perfect payment records required to meet the bar. Shame on the government.
The Federal Government should require standardized projections of the costs of the loans to date, every year, for every student who wants to borrow money. It’s required to borrow money for a car or a home. This should be included. And yes, it will have to include sections like; “If you borrow this same amount every year going forward, here’s what you will owe at the end of their fourth, fifth or sixth year.”
Where states have Community College pathways to State Universities which are less costly, the Financial Aid Office must provide detailed information about such options.
While we’re at it- require a full year of personal financial training for every high school student before they graduate. This includes training in loans, insurance, savings, investing, and personal budgeting. And they need to spend a month on the labyrinth of borrowing for higher education.
The taxpayer burden for this forgiveness will be felt by all who pay taxes. I’m not looking forward to it. That said, no one at the Department of Education wants to do the hard work of overhauling a horrid, usury system. THAT is the start of fixing this Money Pit.
As I always say, just stay away from the Money Pit.
Until Next Time,
All My Best,
Bonnie Burkett
