A Student Loan Is Like a Reverse Mortgage: The Borrower Decides Whether to Pay It Back

 Tom Selleck has been hawking reverse mortgages for years. As he patiently explains in television ads, a reverse mortgage is just a loan, except the borrower decides how to pay it back. 

All true, of course. Nevertheless, reverse mortgages can have drawbacks. The biggest drawback is that homeowners can lose all the equity in their homes, leaving less money for their heirs.

Thanks to the COVID pandemic, student loans have become much like reverse mortgages. President Trump put a pause on student-loan payments in 2020, allowing millions of borrowers to skip their monthly loan payments without accruing any interest or penalties. 

President Biden extended the pause several times so borrowers could avoid making loan payments for almost three years. The latest delay lasts until the end of December.

In August, President Biden issued an executive order forgiving $10,000 in student-loan debt to everyone with a student loan balance whose income is less than $125,000.

I think the Biden Administration hoped $10,000 in student-loan forgiveness would placate college borrowers who will have to resume making their monthly loan payments in about seven weeks.

Unfortunately for President Biden, the Eighth Circuit Court of Appeals enjoined him from implementing his loan-forgiveness plan. In addition, a federal court in Texas ruled that the program is unlawful.

This setback has prompted student-debtor advocates to call for Biden to extend the loan-payment pause until the legality of his loan-forgiveness scheme is settled in the courts. As Persis Yu, a spokesperson for the Student Borrower Protection Center, explained, "Until the administration can deliver on debt cancellation, it really cannot turn on payments."

Cody Hounanian, executive director of the Student Debt Crisis Center, argues that students should not be forced to begin repaying their student loans until the student-loan program is fixed. 

To restart student loan payments with all this disruption, without borrowers being put back into a system that's stable and settled, to me, is just another obstacle that borrowers really experienced and understand more than anyone else.

The legality of Biden's student-loan forgiveness scheme won't be resolved by the federal courts for months--perhaps years. In fact, the dispute may require a ruling by the U.S. Supreme Court.

Suppose Biden succumbs to arguments that borrowers should be allowed to skip payments until the loan forgiveness litigation is concluded. In that case, millions of borrowers will likely go five years without making any payments on their student loans.

And when the payment moratorium finally ends, student debtors can sign up for a generous income-based repayment plan that will allow them to make token loan payments so small that they will never pay off their loan balances.

Thus, as I said, federal student loans will essentially become reverse mortgages. The Department of Education will lend billions of dollars to millions of Americans, and the borrowers may never be required to pay it back. 

Student borrowers can skip their monthly loan payments- maybe for a long time.

It's Awful Quiet Out There in the American Economy: Is It Time for Americans to Circle the Wagons?

I grew up when western TV series dominated the airwaves: Gunsmoke, Have Gun Will Travel, Bonanza, etc. My childhood was one long cowboy show punctuated by irritating interruptions to eat and go to school.

How many times did I see that hackneyed scene of the settlers with their wagons in a circle, preparing to fend off an Indian attack?  Often the hero of the episode—Ward Bond maybe—would stand behind the wagon barricade staring into the darkness. He would hear a bird call—Native Americans signaling each other!

Then a trusted sidekick would say, "It's awful quiet out there." And the hero always responded laconically by saying, "Yeah, too quiet." And when dawn broke, all the Indians in Christendom would come howling down on the beleaguered settlers. Fortunately, the cavalry always galloped to the rescue just before the commercial break. "We're saved!"

Well, it's awful quiet out there in the American economy.  Life seems chaotic if you watch cable news—all those video clips of people rioting and burning down the cities. But who wants to watch that stuff? 

The stock market is doing fine, and millions of Americans are getting regular handouts from the government—payroll-protection checks, enhanced unemployment benefits, student loans. Tax breaks for the wealthy and food stamps for the poor. What could be lovelier?

But maybe it's too quiet. Why is gold drifting toward $2,000 an ounce while 10-year treasury notes earn only one-half of one percent interest? Why are people buying guns who never bought guns before? Why are people hoarding ammunition?  Why have Americans developed a sudden interest in growing their own food?

Even our television commercials are signaling that we have reason to worry. When we watch television, what do we see? William Devane at a country estate peddling gold. Tom Selleck trying to persuade elderly people to take out reverse mortgages. Joe Namath, hawking health insurance for people on Medicare. 'Get the healthcare coverage you deserve,' Namath tells us.

That's it exactly. Americans are afraid we are going to get what we deserve. We'll get what we deserve for electing thugs to public office. We'll get what we deserve for allowing our universities to become criminal rackets. We'll get what we deserve for mucking up our health care system and for creating an economy that silently eats away at the middle class.

Yes, it's too quiet. Ward Bond would tell us it's time to circle the wagons. And we know, as we await the catastrophe, that the cavalry isn't coming to our rescue this time.

Is it time to circle the wagons?