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A Solution to the Current and Future Financial Problems of Young Americans

Okay, my fellow Americans.  I was doing some thinking about my post from yesterday, and I really do not want the USA to become divided like I think it will (in terms of today's youths exacting revenge on tomorrow's retirees).  So, I decided to stop whining and start thinking of solutions.
I think I have come up with a plan to pay off our student loan debts, save our retirements, and (mostly) preserve our government's obligations to our seniors.  This idea is a student loan quasi-forgiveness plan that no one has thought of yet: I call it the "graduate retirement program" (GRP). 

Before I explain how the GRP should work, let me quickly review the facts.  Today's college graduate will leave school with over $24,000 in student loan debt; the total outstanding student loan debt today is over $900 billion (see: http://www.nytimes.com/2011/04/12/education/12college.html?_r=3&hp).  

Compounding graduates' student loan troubles is their inability to find work (as noted here: http://eaynuf.blogspot.com/2011/04/brief-look-at-our-countrys-political.html).

Furthermore, we young Americans have the prospects of funding 76 million Baby Boomers through retirement, paying off the nation's $15 trillion debt, dealing with rising healthcare costs, raising families in a comparatively expensive world, and funding our own retirements (this all is discussed here: http://eaynuf.blogspot.com/p/young-and-screwed-americas-youths.html).  That is a ton of responsibility.

The GRP will serve the purposes of getting money back into the economy, paying off our student loans, and starting our retirement programs early so we can take advantage of the miracle that is compounding interest.  

Essentially, the GRP will work like this: for every $1 college graduates with student loan debt deposit in a  GRP retirement account, the government will pay $1 towards the graduates' student loan monthly payments.  For example, if someone has a $300 monthly payment for 10 years, the government will pay $300 every month for 10 years to the student loan company if (and only if) the student pays an equal amount of $300 into his or her GRP account.  If that same student only deposits $200 into his GRP account, the government will only pay $200 to the student loan lender; the student will have to cover the remaining $100 on his monthly student loan payment. (Obviously, this policy gives graduates strong incentives to make the full monthly payment into their retirement accounts).    

This plan has several upsides.  First, it helps to reduce graduate anxiety over their loan debt.  Second, it allows graduates to use their money to start saving for their retirements early (which allows them to take advantage of compounding interest); this is crucial because today's young people (as I have documented here: http://eaynuf.blogspot.com/p/young-and-screwed-americas-youths.html) will not have Social Security to rely upon during retirement.  Third, the potential future political problems that we will face in terms of workers versus retirees will be mitigated: essentially, today's graduates will not have as much of a reason to be pissed off in the future because they will have their own retirement accounts, their student loan debt burdens will be alleviated, and they will have more secure futures. 

Notice that all three parties (graduates, governments, and loan lenders) benefit here.  Graduates benefit in two ways.  First, their student loans are being paid down. Second, the money that would have gone to student loan repayments is going to retirement accounts (which they were going to need anyways).  Under this plan, graduates just get to start their retirement accounts sooner, which is much, much better. 

The student loan companies benefit because their receipts will become more certain.  Basically, because graduates are greatly and directly benefiting (in terms of starting necessary retirement accounts) from this program, they are more likely to participate fully in it; full participation in this program is strongly in their self-interest, after all.  That means, for the student loan companies, that they will be more likely to get their payments on time and in full (since the government will be paying on behalf of the graduates who have made their full monthly payments into their respective GRP accounts).  

Finally, the government wins in a couple ways.  Officials will not have to deal with as many tough questions in terms of Social Security, student loan, and Medicare reforms.  Additionally, the government will gain financially in the long run because young people were allowed to start retirement accounts early (which means these accounts will grow fantastically due to compounding interest); this substantial increase in the size of young people's retirement accounts means that the government will have less need to worry about Social Security in the future (they will still need to reform it, but the changes should be far less brutal).  Lastly, the government will gain by having a more-educated workforce (which usually translates in to economic growth); because there will be a great opportunity for people to get a good deal for college in terms of repayment programs, they are more likely to go to college and finish their degrees.

I know of a couple problems people will raise with this program.  For example, students who get full rides (and therefore don't have student loans to pay back) will be pissed.  However, to combat this argument, students with full-rides will get the same amount from the government that the average (mathematically) graduate from the same year will be expected to pay into his or her GRP account; this government payment will have to be deposited into the full-ride student's GRP.  For instance, let's say the average graduate in 2012 will have to pay $350 a month for 10 years in student loan payments; that means the full-ride student who also graduates in 2012 will receive $350 a month for 10 years directly deposited into his GRP account.  A similar treatment will be applied to students who graduate with no debt (because they worked through college or parents helped them pay for school).  

As for students who leave school before graduating, they will not be eligible for this program.  However, to help them out, student loan reforms will need to be made in terms of bankruptcy protections (for both federal and private loans).  

In terms of graduates of technical schools, they will be eligible if they took out student loans.  And, they will be eligible for the full-ride treatment I explained above (in terms of receiving payments in their GRP accounts for the same length and amount that the "average" technical school graduate will pay into his or her GRP account).  

Graduates of graduate and professional programs will only be eligible for this program up to 50% of their loans.  

The other crucial issue is funding this program.  I should have more on this issue tomorrow.  

Obviously, this program is not perfect (as I explained above).  But, this program will work wonders for many of today's and tomorrow's graduates struggling with student loan debt.  It will help alleviate many financial and socio-political problems this country will face.  

Of course, instead of doing this program, the government could just greatly subsidize higher-education (like many Westernized countries do) so their students do not graduate with so much debt.  But, that would be too socialist.  (Never mind the fact that governments already subsidize education up to  and including the 12th grade. I really do not see what is so special about those grades; I mean, exactly why the government has singled out kindergarten through 12th grade for funding is beyond me. Higher-education is where most Americans do most of their learning, so, higher-ed should be funded the best). 

At the end of the day, something needs to be done, and I think this plan is a pretty good start.  If you like this idea, or believe it needs some work, please feel free to comment and tell your friends about it.  Or, you can just respond with your own completely new ideas.  Just, please, spread the word about this issue. 

BB