There is a lot of discussion about how to handle student debt these days. When I came online this morning, I received the screenshot of the above tweet along with a question (abbreviated for clarity):
“I have $XX,XXX in student debt from a college that forced me to leave when I became pregnant. Despite the fact that they refused to allow me to attain my degree, they still charged me. I cannot complete my education until my debt is paid in full because my original college refuses to release my transcripts, and I cannot find a job that pays enough to eliminate the debt without that degree. What can I do?”
I don’t know. I volunteered to write this post in hopes of finding someone who does.
Debt is growing ever more common in our society. In the second quarter of 2019, consumer debt was listed at $13.86 trillion. While I refuse to get into the reasons behind this massive number, today I would like to ask you a question:
Can we fix this? And if we can, HOW?
I think we can all agree that the debt situation has become a problem. Student debt alone has reached the point where politicians are using it as a weapon to gain more votes.
The book Plutocrats even discusses how people in the finance industry have profited from this debt. In an earlier post, I even discussed the multi-million dollar paycheck that a single CEO in the credit card industry has attained.
Back in the age that the Old Testament of the Bible was written, Israelites were ordered to cancel all debts of their fellow man every seven years. The text excludes foreigners, but Deuteronomy 15:1-6 is a fascinating solution to the issue of debt at hand. Here is a direct quote from the start of the passage:
“At the end of every seven years you must cancel debts.” – Deuteronomy 13:17, NIV
For the record, I do not have debt. Therefore, I feel that I have no right to contribute to this discussion. That said, the massive amounts of debt that our populace has incurred warrants attention.
If you could propose a solution to the massive amount of debt our nation’s populace is facing, what would you propose and why? Please share your answers in the comments below.
It is hypocritical to run a website about buying and living on less while begging your readers to buy your crap so I refuse to do it. That said, I live on the money I receive from book sales, so if you can find it in your heart to pitch in I would be immensely grateful.
I’ve written a lot of books sharing my odd view of life in hopes of helping others. My most notorious book is titled The Shoestring Girl: How I Live on Practically Nothing and You Can Too, but The Minimalist Cleaning Method is pretty popular as well. You can find them at the following places:
Barnes and Noble
Apple iBooks
Smashwords (non-DRM)
Many people, if they knew their debt would be cancelled every seven years, would buy more knowing they would not have to pay for it. Banks, if they knew their loans would be forgiven every seven years, would be less likely to loan money to those who truly need it. What I think we need to do is establish free colleges (and trade schools) so those institutions that make so much money off our kids would not be able to do so.
You raised a VERY valid point, Linda. As I stated, I don’t feel I have the right to contribute to this discussion, but I do believe that we are overdue for a conversation on this subject. Thank you for your comment.
Well, interest rates of about 14% actually mean that your debt more than doubles in 7 years, so if they could just get you to just pay interest on a 14% loan than I think they would still lend even if it was “all” forgiven after 7 years.
Very valid point, Josh. There might be a practical way to accomplish that version of debt forgiveness in a fair manner with that presented as an option. Thank you!
OxFam has an excellent publication Even it Up: Time to End Extreme Inequality. https://www-cdn.oxfam.org/s3fs-public/file_attachments/cr-even-it-up-extreme-inequality-291014-en.pdf
We need to even the playing field. Getting into consumer debt is easy, it is encouraged. And look at our country’s debt. Great example for its citizens. It send the message that debt is the way to power and success.
Want to get ahead? Go to college, get a degree. Can’t afford it? Here, we’ll lend you the money. Graduated? Congratulations, here, celebrate with a new car- we’ll lend you the money for that, too. Oh, hey, time to buy a house- here’s a 30 year mortgage.
Oh, no, got cancer? Darn, your insurance doesn’t cover that and you’ve gone bankrupt trying to save your life? Sorry, we need to take your car, your house. Too bad we can’t forgive those student loans. though. You will have to pay on those until the day you die.
I know, right, Essie? Thanks for the link. I’ll check it out. Hopefully others will see your comment and do the same.
Annie, it is not as simple as being able to say that you do not have any debt and thus not having the right to contribute to the discussion on it. If you have either a savings account or even a checking account that pays any interest then you are profiting off of debt. Banks take the money from your deposits and loan it out to others at a much higher interest rate and then pay you a pathetically small share of their profits from the loans. The Bible also condemns the loaning of money at any interest rate. We are living in a society that our entire financial system is built upon loaning money out as interest, which is the core of almost all investing in the marketplace in some form or another. How long term hope is there for a money system built upon the foundation of something strongly condemned by the Bible? If we were to adapt the Bible’s principle of forgiving all debts at fixed intervals or the year of jubilee as the Bible calls it, then the banking industry would not be able to survive and it would be impossible to both borrow money (including having a credit card that you pay off every month) or earn interest on your savings and other investments. Or worse yet banks would only give out loans for which full payment is due before the next year of jubilee at best and then with a large enough of a buffer lest the person put off paying just long enough to get out of paying anything back. Regardless like it or not if you are in America you either having money milked out of you through your interest payments by the rich and debt free or making a profit however small for allowing the banks to use your money to loan out to others at a much higher interest rate then they are paying you.
Wow, John, I never connected the dots until I read your reply to this post. You have given me a lot to think about. Have you ever read Dan Suelo’s writings re: debt and the teachings of the Bible? Very interesting. I have read Dan’s writings but still did not connect the dots until now. Thank you!
I like Daniel Suelo. He does raise some valid points.
I wonder if there is a fair solution to the debt situation?
Essie, actually I have never heard of Daniel Suelo before but am going to look into him now. I am a seminary graduate. When I was in seminary I took an elective called “American Idol, the Bible and money” which covered both the Bible’s teachings and our current reality today. The professor was a former Investment banker who managed the profiles for some very rich clients who he got to see all of their personal financial details as part of his job. What ultimately drove the guy to seminary and then a PhD program was the question of money. He was always very active in his church and noticing that there was pretty much zero differences from his Christian clients and his secular clients, which got him going crazy wanting to know more about what the Bible had to say about money. So he took on a Masters of Divinity to dive deeper into the Bible and gain formal theological and Biblical scholarship training, but to his frustration there was pretty much nothing talked about money. So then he went on to get a PhD as soon as he was able to find a professor he could study under that would allow him to focus upon the Bible on money, and the teachings of the church on money throughout history and how it related to the surrounding culture of the time.
I noticed that too about the Bible, John. Even the Old Testament sends a mixed message. We are to avoid lending and borrowing, yet provisions were made for those who did borrow and lend. Combining that with the practices of both secular and Christian proponents, it left me rather confused.
You make a very good point, John. To be honest, I cannot see how ANY form of debt forgiveness would work on a practical or a fairness level. I mean, would we forgive the debt of normal people? What about the wealthy, who use debt in high amounts for their daily living expenses, only to pay it off? And what about the corporations? Do we forgive their debt as well? And what about the fallout from the financial institutions that fail as a result of a massive debt forgiveness? How can that be fair, when there are small as well as large lenders alike?
And as you said, I do earn a bit of interest from my savings, so yes, I am a part of it. I do believe there is an issue with the massive amount of debt, but I don’t have a clue about a peaceful resolution to the issue. I am openly suspicious of the politicians who even call for the forgiveness of student debt, because I cannot see it being instituted in a practical and fair way. To me, widespread loan forgiveness reminds me of the French Revolution, a time when people not only lost fortunes but their lives simply for being who they are.
The Bible condemns debt and money lending of any kind, as you stated. They did have rules and regulations regarding it when it did happen.
But what if incurring new debt was suspended for a time, across the board? Give people the opportunity to pay back their debts…I don’t know, maybe work things out so that payments on some things are more in line with income? Perhaps something like that would work.
Thank you for your thoughtful comment. I love when you call me out on things!
Things got a lot more complicated when it came to debt more recently (part of what led to the subprime mortgage scandal causing nation wide economic problems) is that banks no longer hold the loans that they make but sell them off to investors. So the banks had zero motivation to carefully screen borrowers when it came to their credit history and income to debt ratio and monthly income to monthly payments ratio; so a lot of people got loans that should not have or loans for a lot more house than they could afford. But the banks did not care as they were then immediately selling them off to investors who were the ones caught holding the loans when the borrower got in trouble. In some ways that is the problem as to forgive loans be it simple student loan debt or car loans will hurt innocent people as the money from that debt when it gets paid out might be where the money will come from to fund the bond payouts in somebody else’s retirement fund when they mature. So it would not be possible to forgive debts without also destroying the retirement funds of those that saved their money for retirement instead of living beyond their means through taking on consumer debt.
While a period to temporarily ban any new debt might sound like a good idea it would have disastrous side effects as it would block 99% of people from buying cars or houses. Not to mention it would also freeze the ability of people to earn any interest on their new savings as that would require the creation of new debt for them to be able to buy as in investment. Not to mention the little bit of irony that even if you were to completely stop all new debt, despite the problems that it would cause, it would still be impossible for all debts to be paid off simply because there is a lot more debt than money in the world, thanks to the reality of compound interest on debt. The whole money system is basically an insane juggling system, but the good news at least is that it is in the best interest of the governments of the world to do whatever it takes to prop things up to make sure they do not fail.
The French Revolution is simply one of many examples from history that there is a fixed limit of how bad wealth inequality can get before it reaches a tipping point and things adjust to correct that big time. The tipping point is 100% of the times in history that wealth inequality has reached the point that a critical mass of the common people in society have been unable to afford the cost of food, that things have ended very badly for those in power. This is simply because the most dangerous group of people are the ones that literally have nothing to lose. Regardless of how big of a tyrant the ruling class is, people refuse to simply go home and peacefully starve to death, instead they take matters into their own hands, which explains the mindset that led up to the mass executions of the rich elite during the French Revolution.
You make valid points about how industries such as housing and auto would be affected in the event of a moratorium. That said, from what I have uncovered, I suspect that the United States is quickly approaching a tipping point that may result in something similar to the French Revolution. I would like to avoid the carnage from that.
What happens when the poor and middle class just decide not to take the status quo any longer?
And do you feel (as some do) that our country has became a “kleptocracy?” I stumbled upon that term the other day, and the articles I found that referenced it left me with much to think about. Have you heard of that term before?
Look into Iceland I believe it was. That was a country that for practical purposes got completely wiped out by the cascading global financial crisis of bad bonds and other toxic assets. I probably don’t have the details 100% right but the generalized oversimplified version is basically unlike all the other nations they refused to do what the market demanded (bail out the banks with taxpayer money to keep the powerful investors happy). Instead the people pretty much rose up recalled their entire government and even constitution to be replaced with a completely new one. Instead of bailing out the banks like they were supposed to they let the banks failed and jailed all the bankers whose risky gambles had devastated the country’s economy. The only bailouts if they could even be called that was for their own citizens as in by the end they were repaid any losses due to the risks of the banks. The new government set up a new bank that pretty much took over the assets of the people but left the toxic assets and debt mess created by the previous corrupt bankers behind with the now dead banks. Despite other countries loudly shouting you can’t do that, that is not how the market works, they fell on deaf ears. At around this point the universal response of the worldwide media was a blackout on any more coverage, lest the people of other nations get similar ideas and decide to go and do so likewise.
Thank you, John and Annie. for the fascinating discussion and the information. I never knew that about Iceland. I have a lot of studying to do to try to understand it all.
I remember that, John! There was an outcry here in the US for us to do the same. Based upon what I remember from Economics class, allowing businesses to fail in that manner may disrupt things for a time, but is one of the best method of instituting “checks and balances” upon the capitalist system.
I remember during our last financial crisis, when the government bailed out the auto and finance industry, wondering about what would happen. How could anything be “too big to fail” when the ultimate principle of capitalism is that failing is an integral part of the capitalistic system? When I discovered through my last round of research that Warren Buffett was the one delegated by the finance industry (I believe it was the finance industry) to campaign for the bailout, it made me realize that even Warren Buffett had been corrupted to a degree that I found alarming. I suspect that the only reason that bailout went through was because the wealthy threatened our government with consequences if they did not obey the super rich.
Back during the financial crisis I suspected that corruption was involved in the US bailout plan, but they tossed all of us a cookie in the form of a small check and it was forgotten.
I am beginning to wonder if that bailout is about to bite us in the ass.
Tossing this into the ring for further conversation:
https://www.forbes.com/sites/timworstall/2015/10/14/credit-suisse-wealth-report-there-are-more-poor-people-in-america-than-china/?fbclid=IwAR2KN7Qa4qZeKU7Hs2xBnO1SNil1vKixmBlXNRJH2GaInp1lu8ewxFNuHLc#51d81ba37cf2
The TL;DR version can be summed up in the last sentence of the article: “So, the correct answer is that there’s simply no poor people in America or Europe, even though the way we measure wealth means that it appears that there’re more poor people in those two places than there are in China.”
My issue with that comment is that the author of the post discusses how so many Americans have a negative net worth due to college and other debt, and then refuses to factor that debt into the conversation on the grounds that it causes the numbers to skew, showing that people with a couple of dollars in their pocket and no access to debt are wealthier than those with high debt and no cash.
What is your opinion on their thought process?