National minimum borrowing age of 21?!

Not sure if any of you have read the FT this weekend, but there is an interesting commentary by Gary Silverman on page 9…..

He argues that considering the US has a national drinking age og 21, it should also think about a national borrowing age of 21 – at least for students who have yet to enter the workforce full-time and lack the cash flows or hard collateral that supports a proper loan application.

The reason? Same as for the drinking age: Primarily to save the young from ruin, since in recent years Americans seem more and more unlikely to handle a little pinot noir at dinner….., ie. For the borrowing age this means they are 18, 19, or 20 years old – permitted to take on debts of USD into he tens of thousands to pay their university bills.

This week the Federal Reserve Bank of New York issued its fourth-quarter report on household debt and credit and the damage came to light: in only a decade, US student loan balances have tripled to US$1.16 tn, more than any category of consumer borrowing, a part from the US$8 tn in mortgages. By comparison, car loan debt is US$955 bn and credit card debt is US$700 bn.

Many of these student loans are¬†still influencing adults: borrowers are either in default or delinquent by 90 days or more on 11.3% of student debt (ie., PAR>90=11.3%). In addition, they are slowing economic recovery since by paying off their student debt, they fail to save, “reducing household formation and home ownership.”

Solving the problem would reuire changes far beyond a higher student borrowing age, but rather a complete restructuring of the US system of refinancing higher education.

Silverman goes on students being, by nature, bad borrowers with a lot on their minds, a lack of income, and no clear sense on how to obtain it. However, he sees students as great investments… But for tax dollars! It should be easy for people to attend universities. He continues mentioning Steve Job’s “misspent youth where Jobs passing a calligraphy class helping him to develop the first Macintosh computer. Eventhough, few arts would seem less applicable to our age of high technology than decorative handwriting, but all that talk of serif and sans serif typefaces led Jobs to something bigger, the market vale of which is now about Us$750bn.”

The older generations need to support the people we brought into this world . It would be wrong to turn our kids into debtors. Lets do it like Warren Buffet: buy and hold. Dividends will come eventually in all kinds of unexpected ways…

sorry, but i am out of the office and cannot find a good picture for this blog. I will make it more pretty once i get back home. thanks!

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