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Punishing a Good Deed With Bad Debt

05/15/2014

Back when dinosaurs roamed the beach where I live, young financial planners were taught that debt is bad. That’s it — debt is bad, period.  If you had to get a mortgage that was understandable, but it was still bad and should be paid off as soon as possible.

By the turn of this century, everybody had a mortgage, and there was almost an infinite variety of mortgages. Software programmers became wealthy designing new and improved software for new and “improved” mortgage types.  Eventually, mortgage consultants became a successful career alternative.

Proving that “no good deed goes unpunished,” in 1965 Congress enabled loans to students attending college. Obviously, the intent was to create more college graduates — a noble objective, indeed.  Each year, it became easier to borrow more and more to attend a wider variety of schools.  Often called “failure factories,” private, for-profit colleges became widespread, encouraging students to borrow all the money they needed to pay high tuition expenses.   Over 30 million people have some kind of college debt, totaling over a trillion dollars.  With high debt payments, young borrowers cannot qualify for home mortgages.  It is estimated that 50 thousand homes are not sold each year, because of student debt burdens, hurting the critical homebuilding industry.  It has become a huge problem and is getting worse!

I attended a class on this yesterday and was startled to realize that there are so many different types of student loans and at least nine types of complicated debt workout plans for troubled borrowers, mostly regulated by the government.  Software programmers are beginning to fill the void.  There is now another type of debt so complicated that specialists are required and another good career opportunity for some people.

Congress rushed in with various programs to help deal with the mortgage crisis.  If they don’t plan now to defuse this pending student loan time-bomb, it will only get worse.

Do you think Congress can make more timely decisions than dinosaurs?

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