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Why hippies cannot serve as economists
Loan forgiveness is not a good scenario for banks
Published 12/6/2011
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With fat tuition bills about to appear in mailboxes across the country, student debt and the cost of college are again at the forefront of everyone’s mind. A particular plan currying favor with the Occupy Wall Street crowd is loan forgiveness, which serves to undermine the integrity of the financial system in return for the fluff that it professes.

Loan forgiveness is a concept where loans, after a certain period of time or if a certain set of circumstances are met, will be forgiven or wiped clean. The program can mean many different things. In this case, loan forgiveness is where student loans are forgiven without any real cause.

Loan forgiveness can also involve payment by a third party. Given the level of government debt, this is unwise and unlikely. A program such as this would be little more than a backdoor tax looking to pay for education without talking about realities.

This is a pipe dream by a bunch of hippies who fail to understand how loans work.

Student loans are given by institutions on the concept of a principle plus interest to be amortized during many years. The interest is reflective of many factors, a key one being the risk a student will default on his or her loans.

Loan forgiveness is a default, minus the hit to a student’s credit that would happen otherwise. It basically wipes the slate clean.

The student gains, the bank loses.

By the bank losing money, the institution is forced to make it up somehow because there is no such thing as a free lunch. A loan forgiveness program is asking the bank to take a hit unless the federal government pays the bank back.

Occupy Wall Street would prefer it if banks were the ones taking the check.

In order to make up for forgiveness, banks will be forced to increase interest rates. Banks have to break even in order to operate. These rates will be high enough to harm many students who had every intention of paying off their debt.

These rates might also be too high for a loan whatsoever.

This is where another person without a background in common sense would step in and make a comment on how banks are evil. They would then follow up with the idea of a government-enforced ceiling on interest rates.

This idea would also fail to gain traction.

By setting a government ceiling, rates would not be allowed to exceed a certain amount. Students would pay the lower rate regardless of the actual risk they might default. This would be great except banks would most likely lose money at the rate acceptable to Occupy Wall Street.

Loan forgiveness strikes at the very core of responsibility. The idea that it is acceptable to shirk a responsibility that someone gave their word to do is just a sign of the unfortunate times we live in. College is expensive. No one denies that point, but banks should not have to take a loss for your education.

The art of appealing to constituents is often a disgusting one. In this case, a bunch of hippies under the influence are pushing a program further disseminated by propaganda from the Far Left.

Here is the rebuttal: loans should not be forgiven except under extraordinary circumstances. If college is too expensive, schools should consider letting in more students rather than continuing to boast about their student-teacher ratios and how many kids they reject each year.

Colleges could also cut down on the cost of books and supplies.

Ultimately, loan forgiveness does little to change the cost of education, it only serves to scapegoat major banks. For this reason, we must pass.

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