10/30/2005

School loans and Social Security

Retirees and others recieving social security checks are using a percentage of the check to pay off school loans. I read of a particular man who is trying to pay off his $80,000 school loan from 20 years ago via his social security funds. The problem he is running into, is that the law states that the loans cannot be older than 10 years. However, the Public Citizen Litigation Group is fighting to remove the "10 years old" clause. If they are successful in this battle, will this have a significant change on how quickly students pay back their loans? I mean if they do not have to pay back the loan immediately because they know they can rely on their social security check in the future, then why not just let the loan accumulate interest. Then by the time they start collecting the social security check, they have a huge loan to pay off. By allowing this to happen, we would really be hurting the loan industry, because if people hold off on paying their loans until they are in a condition to receive social security checks, they probably will not be able to pay off the entire loan (using a small percentage of the check each month) before passing away. Again we must remember the "Forgotten Man" concept, which is to take into account all those who will be affected both positively and negatively when making decisions.

17 comments:

Tyler said...

According to many analysts our generation is going to be very lucky if any social security funds are left for our use, personally I wouldn’t depend on a possible outcome of a government regulated program that is currently set up to fail. Besides that, I would hope that anyone with a small amount of common sense would not delay his or her student loans for forty years while it accumulated interest.

Logan said...

Tyler is exactly right; it would not be wise to bank on social security in the future. Students should make paying off their student loans top priority once engaged in their careers.

Alex said...

I agree with Tyler and Logan. Why would you want to be in debt forever? I would do like Logan said and make paying off my student loan top priority. You may as well get that taken care of and behind you, because in the future you will probably have a lot more loans your going to need that money for anyway.

Dr. Tufte said...

This is a rather bizarre story, isn't it? I really can't fathom it.

I have three short comments.

1) This guy was actually pretty old when he went to school, so there were other factors involved.
2) Many people try to avoid paying back student loans. There is a moral hazard here, since the banks default costs are partially covered, they can pass that hazard on to consumers.
3) Too many people don't view education as an investment that should have a rate or return that clears some hurdle (in this case, the rate of interest on student loans).

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