Made the news

April 28th, 2006 Stewart Posted in Uncategorized |

Bloggers Bank On Mom And Dad - CBS News

Thanks to Melissa McNamara for linking to me from her Blogophile column on CBS News!

I get where We Interrupt This Broadcast is coming from when he posts:

The problem may be that most adult kids today don’t know that they can’t afford the lifestyle they want, and “paying their dues” isn’t in their vocabulary.

He’s got a point — Many Mils are unwilling to wait to earn the things they desire, whether it’s the plasma TV, the nice car, the mocha latte, or the better job that they don’t really deserve. Many of them compound their problems by adding to their debts after college by making purchases they cannot reasonably afford. And many parents aren’t really helping their kids when they keep sending them money to keep them in the “lifestyle” to which they are accustomed.

That said, I still think that a significant number of these kids, a majority I think, are trapped in spiralling debt, caused primarily by the brutally high cost of tuition and student loans that are basically mortgages.

What would help these kids more than anything would be a cap on the amount of interest that any guaranteed student loan can generate. Because of compounded interest, $40K worth of student loans ends up costing $70-80K in payoff, which is insane. How about instead treating student loans like reverse Certificates of Deposit? A $40K loan will cap at $45K, but must be paid off within, say, five years of graduation. This would make a far more managable debt situation for recent grads, still earn the banks a fair return on their investment, and allow new workers to shift their priorities from “paying off debts” to “saving and investing,” which would be better for the economy overall.

Obviously, it will never happen. If banks can get 100% ROI compared with 10% or 20%, then they’ll obviously go with the greedier option. It is well past time for the federal gov’t to step into this and start finding solutions that allow kids to graduate from college, get good jobs, and start investing for the future.