Sunday, September 23, 2018

Simple Math could solve the Student Loan Debt Crisis in the United States.

Welcome to the world of Simple Math. There aren't that many out there that advocate solving problems with simple math because anyone who is respected or has a respectable job has to have a solid foundation in complicated math. 

One key to solving the Student Loan crisis is to understand why change is not happening. Change and resolution in the Student Loan crisis is not happening because of two relatively simple rules that control what politicians will and won't do.

Rule Number one is "The Promise to Pay". These four little words protect the money world from all kinds of tricksters and people who otherwise would not pay. Rule Number two is a bit more heartless but probably exists because "The Promise to Pay" exists.

Rule Number two is, "No Debt shall be modified unless a Default is Declared First". Please take a moment and let that sink in. "No Debt shall be modified unless a Default is Declared First". In case one wants to disagree and say, what about a home, people refi all the time. Sure, the equity in the home allows for interested parties to pay off the first debt, and then come up with a new debt plan. Whereas debt that has no equity backing it has no way to be paid off so the only way to come up with a new debt plan is to declare a default on the first debt.

However, The Simple Math Detective believes there are ways to peacefully coexist with the both the Promise to Pay and Restructuring a Debt without Declaring a Default, but it will require politicians writing new and passing new laws.

Simply put, Simple Math Detective believes that certain rules and guidelines could be incorporated into existing Loan laws that would help emancipate millions of student loan debtors without giving them instant freedom, but rather freedom from their debt earned over time.

Here are exclusions that would allow the Restructuring of a Debt without having to declare a Default.
Exclusion Number 1. Cap all student loan interest rate charges at 100% of the value of the actual loan. If a Student borrows 50,000 dollars, the most they can be charged in interest is 50,000 dollars. Once that figure is reached, the remaining debt is paid off with no more interest being charged.
Exclusion Number 2. Eliminate all future Interest Rate Charges once a Student Loan has aged a certain amount (to be determined by a think tank).
Exclusion Number 3. Eliminate all future Interest Rate Charges after a certain amount of time if a Student maintained a C Average, or had excellent attendance, or had a major medical issue for themselves or had to commit to taking care of a family member. 
Even with these incentives added in, it would be important to not penalize students by making the monthly repayment terms so high that they default on the freezing of interest rate charges going forward.

While these Exclusions could result in less money available for Student Loans, or perhaps the Interest Rates on new Student Loans might go up, the Interest Rate caps ultimately serve the same purpose, they prevent scenarios where Students keep making monthly payments to their Student Loans but the Loan debt actually increases.

Lets keep in mind that this concept is a compromise to Student Loan Debt Forgiveness, and doing nothing.

1 comment: