First the problem. Young people are coming out of college with huge student loans with little hope of paying them back. The work they prepared for, the majors they got are without value. Underwater basket weaving quality.
Second, the result. Many fewer young people are getting married, buying houses, having children and making any kind of upward mobility in a difficult time. They see themselves as unable because of these huge loans. Potential spouses are put off by becoming signatory to this.
Third. Business' are not being formed in the young person's twenties when most people form their first business. I had already 3 by the time I was 30. This lack of business formation has the potential to cripple out economy.
Fourth, Jobs are not there. The idea that a graduate might get a GOOD job and pay for their student loan is a myth. I almost never happens.
So, what do we do with this? The problem really is the effect this will have on our economy, nation and culture in the future. This delay in household formation, sound marriages with children and a lack of entrepreneurship is going to bury us as a country. It is in the interest of the Nation to find a way, not to pay off or forgive these loans but to let the loans liquidate themselves. I am not proposing forgiveness, I am not proposing non payment. I'm not proposing bankruptcy. I am proposing a solution that covers all these bases.
Any solution must have the capacity of creating incentive for people to want to deal with the loans and be a social driver for desired results that will help our nation's future security. Household Formations, Marriage, Children, New Business and productivity are the desired goals. The current situation as I pointed out above has the exact opposite effect.
The key to this is attaching the student loan to an appreciating asset for eventual retirement. Using a life insurance instrument to secure the loan for the principle payable to the loan holder. In exchange all interest must be paid simple only. No compounding. The loans become essentially bonds. Bonds that can be traded, monetized and invested in. High yield bonds. Bonds with some level of government backing. Not guarantees, but close.
Here's how it works:
IF a person who has student debt buys a house, takes out a mortgage on that property, his student loan becomes an immediate second mortgage. It is still not able to be discharged by bankruptcy, but it is not rolled into the first mortgage. IF that person buys the house or apartment complex or condo and the value appreciates, the loan is paid off either by the eventual sale of the house, or a second mortgage that pays OFF the student loan. Typically these seconds are much less interest. In the current housing market it is reasonable to assume that values have some upward potential. The loan as a second would remain unserviced to principle. It acts now as a debenture, a bond. No more accruing interest except simple interest which must be paid per year. That at the rate of the loan plus 2% (this funds the life insurance component). No principle reduction unless the loan is refinanced as a second or when the house is sold or move up takes place. The incentive is the high interest rate.
If a person in student load debt decides to buy or start a business, it becomes part of the loan portfolio it takes to start the business. The business carries the debt on it's balance sheet, but it is retired as if or when the business grows. At some point when that person is able, it is paid off by superior financing, revenues or capital growth. The incentive to take that chance is great. It doesn't affect the nature of the loan, only the interest need be paid at a 2% premium. Insurance.
A person with a student loan if he or she marries will receive an accelerated tax credit on the dependent spouse. Currently $3600 per person. That would accelerate to $10,000 per person. We are encouraging household formation. This functions as a tax credit that accrues back against the student loan principal. The interest plus 2% will still have to be paid. As long as they stay married they get the payment. The same applies for any children they have. Instead of Aid to Dependant Children, the amount that reduces the principle is generated by the number of Children. Using children and marriage to reduce the student loan has to do with the benefit the culture has by this. This pattern in time will retire the student loan. Divorce stops the process. It reverts.
If a person chooses to remain single, live in his parents basement, works a minimum wage job he has no hope of getting out of this. I would propose that he or she has payment responsibilities, interest only (no compounding), and it remains until he or she dies.He or she still has the insurance policy, pays 2% over on the simple interest. A better job, a business, a house, a wedding and children help them out of this. All income tax refunds if any are used to retire this debt. He has a section 8 type responsibility to pay a percentage, no matter how small to retire this. The incentive is to get him into property, marriage with children and a business.
Once these bond quality instruments with Insurance and equity cash out are in place, the could be consolidated, traded and sold as a high yield instrument to investors. While that did not work well in the Mortgage business, this has a better potential.
The reality is under the current situation, we are on a collision course to collapse. There is not getting out of this without shutting down the deleterious effects of the student loan burden in our culture.
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