Wednesday, July 25, 2012

Mandated Loan Forgiveness

The Obama Administration policy of forcing loan foregiveness on private market lenders began in the mortgage market and is now being extended into the student loan market. Such loan foregivess essentially rips up legitimate contracts and replaces them with the arbitrary whims of government, deciding who should pay up and who needn't bother.

 Lenders aren't stupid and they have memories. It is incredibly difficult now for middle America to get mortgages thanks to Obama Administration loan foregiveness policies. Why? Because lenders know that politicians can, at their pleasure, rip up the contracts and deny the lenders the payments they are entitled to.

So, why lend to the class of Americans that the Obama Administration seems to want to provide loan foregiveness for? No reason I can think of. The next group that will find themselves out of luck when seeking loans will be students, especially the demographic now escaping their obligations thanks to the President.

2 comments:

Samantha Brooke said...

I find this extremely disconcerting, especially when I see friends share enthusiasm about student loan forgiveness without thinking about its consequences. Furthermore, at a fundamental level, [MANY] people need financial discipline. If you can't afford something (and I'm NOT talking about necessities such as food, a place to live, etc.), don't buy it. Don't take out a loan. Don't live beyond your means. If that means not buying the latest iPad or drinking at a bar on the weekend, so be it. I was fortunate enough to have my parents provide for me as an undergraduate (school and living). Their generosity didn't prevent me from holding a part-time job to save for the future (against their wishes). After graduation, I spent two years working as a consultant/project manager to save for a down payment on a house and graduate school. Two years of financial discipline and part-time employment as a consultant will allow me to pay graduate school in full, living expenses AND still have a modest down payment for a condo after school. Now, what is the incentive to pay 32K in tuition in full? A little patience and discipline goes a long way and many in our society are lacking it.

Samantha Brooke said...

Just to clarify - I'm not saying never take out a loan, but be smart about it and budget appropriately. I have several best friends who had to pay their way through undergrad and have worked their BUTT off to pay everything off within a few years of graduation (making below 30k).