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.

6 comments:

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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