Fri 28 Oct 2011
What happens in a world where you borrow X and promise to pay it back
Then change the rules, say, ‘the rules have changed’ and pay back ‘X-Y’
It causes a shortfall, the lack or repayment coming from either loss or some sort of additional compensation
In the private sector, this sinks companies and is known as a delinquency rate
X = Principal
Y = Payments
Z = Shortfall
A delinquency rate is calculated into the rates charged
So those who do repay are paying a premium to make sure that the company stays in business
This is why cash advance places charge such high interest, low elasticity of demand, high delinquency rate
It is also why we pay more as customers to Wal-Mart, Target, and the like
The delinquency rate for retail locations being shoplifting
So what happens if delinquency rates rise?
Rates must also rise or cash flow risks going negative with a rise in liabilities
If delinquency rates are based on an arbitrary number that is low enough,
Inflation kicks in and eventually negates this level of income
/Entrance, stage left
Obama’s Student-Loan Order Saves the Average Grad Less Than $10 a Month
“You can see that student loans have grown by 511% since 1999. Meanwhile, disposable income has grown by just 73%. As this chart also shows, most outstanding student loan debt (82%!) was accrued by students over just the past decade.”
“The president seeks to make the situation a little bit easier for some of those graduates. He will create an executive order that has three components.
He will clear the way for borrowers with direct government loans and government-backed private loans to consolidate their balances. The White House estimates that this will cut the effective interest rate on student loans by up to 0.5%.
He will limit the amount of student loan payments to 10% of a graduate’s income. (Currently, the limit is 15%.)
He will allow debt still outstanding after 20 years to be forgiven. (Currently, forgiveness occurs after 25 years.)”
Cutting interest rates on FEDERAL loans
Changing payment agreements to reduce against company’s favor
Wiping all debt regardless of level at an arbitrary date which can be changed through further legislation
Personally, changing it to one year and removing all student loan payment requirements sounds like a GREAT short term solution
It IS a great solution, for the CURRENT loan holders
But what about the next round of borrowers
There isn’t enough money in the pot for them to borrow to go to college at even current rates, much less higher rates
So the current generation kicks the can down the line
The next generation hopes that more companies enter into the loan industry
Potentially, they can’t get loans and must rely on either their parents or the generation that got the 1st round advantage
But will they continue contributing 10% of their income towards the college education of others?
Personally, when my college loans are paid off, I greatly look forward to being able to contribute to the college I went to
It won’t be on the same levels of my college payments, but it will add up
I’ll have met my obligations and then CHOOSE to support
But if the system was going under, would I have that choice or would it be made for me?
Which schools would be supported?
These are genuine questions that need to be asked.
“As mentioned, the government already has a program for borrowers to reduce their student loan payments to a ceiling of 15% of their income. At this time, just 450,000 borrowers are participating. How many others would benefit from the 10% cap?
The White House estimate is 1.6 million borrowers could participate.”
Decreasing income requirements by 33%
Triple the number of participants
What effect does that have on delinquency rate?
It might reduce it since the requirements are less, but we’re expanding the customer base
“Of all these parts of Obama’s executive order, the loan forgiveness aspect will have the least impact. By moving the timeline from 25 to 20 years, it could be significant in the long run — but it won’t be felt for decades. Remember, 82% of the current student loan debt outstanding was accrued in just the past decade. So it will be at least another 10 years before any of those borrowers have hit the 20-year mark in their student loan payments.”
We’ll worry about it in 20 years, what is the worst that can happen when money is still owed and people are allowed to walk?
I’m remembering something about this and I think it had something to do with houses and jobs being lost, but it was so long ago.
“Don’t let anything stand in the way of you claiming and manifesting the life that you choose rather than the life you have by default.” -Joy Page
Read more: http://www.brainyquote.com/quotes/keywords/default.html#ixzz1c4cafvCc
Let the dance build
There are more movements than before but I’m doing my best to keep up!