| Background: In brief, student loan payees are a demographic in their late '20s, '30s, and early '40s, who would normally be expected to drive the economy through purchases of big-ticket items such as houses, condos, furniture, and automobiles, as well as the wide range of expenses (such as food and clothing) that are associated with starting families and having children. Naturally, this economic activity also boosts local and state tax revenues, through the increase in payments for property and sales taxes. Due to the current environment of job insecurity, deflation, and the past several years of rising costs in education, many payees are struggling with these payments, foregoing big-ticket purchases, and thus a major piston in the economy's engine lies still.
Moreover, as a payee myself, I have noticed that the banking institutions that hold my loans-such as JP Morgan Chase-are the exact same banks that have been the recipient of hundreds of billions of dollars in government loans, and trillions of dollars in Treasury agencies and special credit facilities. Since the banks, in the infallible wisdom of the marketplace, simply choose to "sit" on both my payments, as well as the government loans, there is no gain experienced by the payee, the government, or the economy.
That's why I strongly believe that, instead of the federal government loaning $700 billion to banks such as JP Morgan Chase, it should instead use a portion of that loan money to immediately pay the full amount of ALL student loans (regardless of type, level of study, public or private) owed to these banks. In my estimation, the amount of such a payoff would be roughly $178 billion. This $178 billion could then be subtracted from the $700 billion in loans that have been aside for the banks via TARP, etc.
Summary: When the federal government pays the entire amount of all outstanding student loans, this
· Boosts the economy, as payees would then be able to purchase big-ticket items
· Boosts state and local revenues, through increased property and sales tax payments
· Converts a portion of the TARP loan money into "hard" cash that banks will not be obligated to repay, and
· Accomplishes all of this without any net increase in the government's current "obligation" to these banks
Lastly, I should point out that this is not an appeal to charity or goodwill, as after all, student loan payees did sign their promissory notes. Today's payees do not "deserve" federal repayment of loans on their behalf, just as the banks did not "deserve" a dime from TARP. Rather, my proposal is clearly necessary to boost the economy... which was also the reason for the federal intervention on behalf of the banking system.
However, if we do want to consider goodwill-and sound economic policy for the future-this measure could certainly be used as a springboard for a permanent policy of government-funded education, which is common throughout much of the developed world.
Addendum:
-As of September 30th, 2008 Sallie Mae's total portfolio of managed student loans was $178 billion (source: pdf entitled Goldman Sachs U.S. Financial Services Conference, December 10th, 2008 (found on Sallie Mae's web site)).
-For the 2008/2009 Academic Year, there is an estimated forecast of:
# Student Borrowers 8,373,000
# Parent Borrowers 684,000
# Consolidated Borrowers 1,365,000
# Total Unduplicated Borrowers 10,124,000
Aggregate Amount of Loans $126,370,000,000 ($126.4bn)
(Source: pdf entitled PB 2009 Loan Volumes-Baseline-Gross Commits by Academic Year (found on ed.gov)).
NOTE: this particular source is an estimated forecast of loans issued within that Academic Year (not all loans outstanding across all years). Moreover, it does not appear to include private loans.
Feel free to dispute these numbers on unique indivuduals, as I am not highly familiar with these sources; but even in the face of an adjustment, the underlying idea holds true and strong. |
