A Debt Payment Moratorium? Is That All We've Got?

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Friday March 13, 2020 · 12:20 PM PDT

2020/03/13 · 12:20

I’ve seen references to debt moratorium proposals lately, the source even being Steve Mnuchin himself.

Mnuchin May Suspend Student Loan Repayments Amid Coronavirus Outbreak

Make no mistake, Steve Mnuchin and his banking cohorts have never worked for you and NEVER will, it's Wall St. vs. Main St. again, wrapped in a nefarious narrative which sounds appealing and reasonable given the situation. Rest assured there are plenty of actors who are looking at ways to profit off any disaster like this, and Mnuchin, the foreclosure king, and his cohorts, should be viewed accordingly. This is a barely quarter measure which will add any interest accrual on the debt balances directly onto the principal and bury us in more long term debt.

Some basic Finance 101 calculations as an example: In the first months, a 10 year $100,000 student loan at 7% (Sorry, no Fed rate reduction for you!!!) accrues just under $600 a month in interest. Skipping 3 months will add $1800 directly onto the $100,000 principal, and that extra $1800 interest will end up costing $2500 by the time it’s paid off.

The catch is that $2500 cost is the EXACT same long term damage which would happen if one simply missed making the payments due to the same hardships, minus credit score and penalty fee dings. Proposing a moratorium on credit score damage and penalty fees would be much less misleading than making it appear palatable by using a debt moratorium narrative.

Of course, an accompanying interest moratorium would be best, but that’s a policy which would require some actual thought and work, and banks will ALWAYS be kept whole if at all possible.

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