Student Loans in Default Traded for Broken Social Security Promises?

This article was published by The McAlvany Intelligence Advisor on Monday, January 1, 2017: 

On the surface, Representative Tom Garrett seems like an intelligent guy: a freshman member of the House from Virginia, he served previously as the Virginia Commonwealth’s attorney for Louisa County. He’s already earned himself a Freedom Index rating of 80 percent from the John Birch Society for his voting record in the House.

But at age 45 he is still paying off his student loans that helped him obtain his undergraduate and graduate law degrees from the University of Richmond. And he had an inspiration: why not allow students in default on their student loans trade them for deferred benefits under Social Security? After all, nearly one in every four students with college loans is already in default (they haven’t made a single payment in at least a year), and this would clean up their credit report and remove a financial burden they’ve been carrying around for years. Said Garrett:

We can’t afford to lose the energy, ideas, and vision of young people who give up their dreams of going to college because it is unaffordable. And we shouldn’t saddle young people who graduate with enormous debt, forcing them to postpone marriage, becoming parents, buying homes, starting a business, and many other activities that enhance their lives and strengthen our economy.

Within days of Garrett’s offering, bloggers at Reddit lit up its comment page. Peter Puppy exclaimed:

Just like loans, it’s borrowing from the future to benefit the present. The advantage is that we don’t really know when SS will run out … so it could be a win-win.

Followed by this from Quenton:

That was my exact thought. If I don’t expect to receive SS benefits because of its uncertain future then I should definitely sign up.

Why not? If the bill (H.R. 4584, which already has four co-sponsors) is passed into law, a defaulting student can shuck himself of a lingering liability by in effect passing it on many decades into the future. “Life is uncertain” goes the quote: “Eat dessert first.”

The Social Security Administration is sending checks to nearly 62 million people – retirees and their dependents, survivors of deceased workers and disabled workers and their dependents – and the number continues to grow as the workforce ages. At the moment, including everyone working either full-time or part-time, there are fewer than 2.5 workers supporting every beneficiary. In the early years of the Ponzi scheme, there were more than a hundred workers supporting every recipient. In 1940, for example, the ratio was 159:1. By 1970 the ratio had dropped to 3.7:1 and by the year 2000 the worker/recipient ratio had dropped further to 3.4:1. This raises the existential question: who is going to pull the wagon when everyone wants to ride?

Social Security trustees continue to report the obvious: the scheme is slowly winding down. They claim that, on a present value basis, the program has an unfunded liability of more than $12 trillion. This is far less than that calculated on a “generational accounting” basis by Boston University Professor Laurence Kotlikoff. He estimates that shortfall is more than $200 trillion.

It was just reported that Social Security’s programs paid out more than a trillion dollars in benefits in 2017, and by 2026 (eight years from now), it will be paying out $1.6 trillion a year. In 2022 the program will go into deficit, and by 2034 all of its so-called reserves will have been liquidated.

As noted, Garrett is no fool. He just hasn’t realized what he is actually proposing: exchange one broken promise (in the present) for another broken promise (in the future). If his bill passes into law the reality will become clear: a house built on nothing but broken promises is doomed to fall.

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Sources:

CNSNews.com: Social Security Beneficiaries Hit Record 61,859,250

The Wall Street Journal: Nearly 5 Million Americans in Default on Student Loans

CNSNews.com: Social Security Administration Spending Tops $1 Trillion for First Time

Reddit: Status of SSA bill

Tom Garrett: Let’s allow our kids to use some of their future Social Security earnings to pay off their student loans

Background on Tom Garrett

Garrett’s FI: 80

Garrett’s bill has 4 co-sponsors

Social Security worker to beneficiary ratio over time