The Government’s Stupid and Half-Assed Attempt at Student Loan Reform

Five Democrat senators are planning to introduce two bills to address the $1 trillion economic clusterfuck known as the student loan bubble: The Know Before You Owe Act of 2013 (KBYOA) and the Fairness for Struggling Students Act of 2013 (FSSA).

The article provides the following information about KBYOA and FSSA:

[KBYOA] would require schools to counsel students before they sign on to expensive, even unnecessary, private student loan debt and inform them if they have any untapped federal student aid eligibility. It would also require the prospective borrower’s school to confirm the student’s enrollment status, cost of attendance and estimated federal financial aid assistance before the private student loan is approved.

[FSSA]  aims to restore fairness in student lending by treating privately issued student loans in bankruptcy the same as other types of private debt.

I had no idea that schools had a say in approving the disbursement of private loans. I thought the lender had the sole discretion. Anyway, I think most of the mandated “counseling” will be useless to students – especially if the student is fresh out of high school. Students need to submit their tuition checks, make their dorm rental deposit and get their refund checks so they can buy those overpriced textbooks and maybe something to eat. They are not going to care where the money comes from because the repayment period is far, far away.

If FSSA becomes law and private student loans become dischargeable, it may have the unintended effect of encouraging the use of private loans – particularly for law and some graduate students. Think about it. In this day and age where it is common knowledge that most law schools lie about post graduate salaries and employment statistics, potential 1Ls should be hedging their bet. Why would a 1L sign up for a nondischargeable federal student loan debt when he can take a dischargeable private loan and file bankruptcy if he cannot get a job within a reasonable period of time? Private lenders are likely to see this scenario and take various protective actions – like requiring a co-signer or collateral (both I do NOT recommend). But I would expect to see a number of students gunning to maximizing their private student loans while minimizing or eliminating federal loans, especially law students if they do not make the coveted top 10% of their class.

One ancillary effect of KBYOA and FSSA is to take another step at killing the private student loan business. While I personally have no problem with this, it does not address the core problem of why we are in this mess in the first place: massive increases in college tuition coupled with massive decreases in entry level jobs.

Advertisements

One thought on “The Government’s Stupid and Half-Assed Attempt at Student Loan Reform

  1. Pingback: Solution student loan consolidation · MyInfoBlogg.COM

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s