John Kreese: “Prepare! What do we study here?”

Cobra Kai: “The way of the fist, sir!”

John Kreese: “And what is that way?”

Cobra Kai: “Strike first, strike hard, no mercy, sir!”

John Kreese: “I can’t hear you!”

Cobra Kai: “Strike first, strike hard, no mercy, sir!”

Grandparents (Photo credit: ☺ Lee J Haywood)

The San Francisco Chronicle has reported on retirees who are finding their Social Security benefits garnished due to student loan debts. These debts are accumulated for a number of reasons, some are for undergraduate or graduate loans still owed and some are for older Americans returning to school.  However, the majority of loans are for parents and grandparents who took out federal loans for their children or grandchildren’s college education. Hold up, wait a minute, are we saying that if Gramps and Grammy don’t pony up the cold hard cash, our Congress has authorized the “full force of the federal government” to be deployed to crack the whip on these grandparents gone wild? This is after Goldman gets to Sachs the U.S. treasury with the help of his bff Ben Shalom Bernanke, but for our elderly living on fixed incomes there is no mercy. Somewhere, John Kreese is yelling, “Sweep the leg!”

This is about more than deciding whether people should pay their debts which I do believe they should do. This is about taking advantage of people using an elaborate system of wheels and strings that keeps us in a continual state of indentured servitude. How much of our working lives are spent so someone else can benefit? When you owe someone you are in a cycle of working to repay what you owe. In some cases, this is a simple matter that is easily contained by good financial management. But like a hamster on a wheel you can only get off when the debt is repaid. In the case of a mortgage or car loan, you may be running on the wheel for years or even decades. Hypothetically, the lender has an interest in not loaning more money than the lendee can repay. In a sound economy, there are checks and balances, otherwise known as regulations, to keep the system running smoothly.

A 6 months old Winter White Russian Dwarf Hamster  (Photo credit: Wikipedia)

However, when those safeguards are not in place, then the wheel begins to spin out of control. The entity being paid has no reason not to seek as much profit as it can so college tuitions continue to increase far beyond what most family incomes can keep pace with. The banks are given free rein to grant loans when their accountants and lawyers know full well the borrower does not have the means to incur such an obligation without making painful concessions, like going without a prescribed monthly medication. But still the wheel continues to spin ever faster. Now we get to the element of the discourse that overshadows all else. Borrowing money alone is not the problem, it is the interest that kills. When a loan is made, the interest rate is the tell for whether you’re swimming with sharks. In biblical times, usury was forbidden. These are not interest rates that are intended to help people finance a car or a home or an education.  These are interest rates that are intended to bury people or to sweep the leg.

Deutsch: Karikatur (Photo credit: Wikipedia)

When some of us borrow money we figure out in our head, or in my case with a calculator, spreadsheet and my Suze Orman audiobooks, how long it will take to repay the loan. If I borrow $144 it will take 12 months if I pay $12 a month. Simple right? What many of us do not fully consider is how much we will need to repay when interest is factored in, that is, if we even know what type of interest we are on the hook for. Is this a variable rate, fixed rate, simple, compound, subsidized, unsubsidized, short-term, long-term, or interest only loan? Interest rates are the strings which the lenders use to make the puppet dance. A 1.9% interest car loan for someone with a 90,527 credit score can make the puppet do a jig but a 19% interest rate on a car loan for a working mother with a gold plated Medicaid card will make the puppet convulse in spasms. Even better, the puppet may start out doing a jig to the tune of an adjustable rate medley until the music stops and there is only one chair left for you and the grim repo-er (hey, this is a blog not The Allegory of the Cave). Our grandparent’s “golden years” should be the time in their lives when they are finally able to free themselves from the strings of the puppet masters and dance to their heart’s content. Instead, they hear the enlightened words of the legendary Cobra Kai sensei, “We do not train to be merciful here. Mercy is for the weak.”