Dear Mr. Berko: Our beautiful 27-year-old son, who started school in 2008, owes $87,000 in student loans and has three more semesters to go to complete his degree in English literature. He loves Shakespeare and hopes to teach literature at the high-school or college level. He needs about $31,000 to complete his bachelor's degree. He wants to consolidate this $31,000 with the $87,000 he owes so he can make one payment, but he needs us to co-sign on his loan. Our stockbroker thinks we shouldn't co-sign and recommends that we sell $31,000 worth of losers in our portfolio to finance the completion of our son's schooling. We have enclosed our portfolio and would appreciate your selling advice, too. This is beginning to drive us a little crazy. — BR, Rochester, Minn.
Dear BR: They say insanity is hereditary. We get it from our children!
In 2007, $510 billion in student loans was outstanding, and that amount may triple to $1.5 trillion this year. When the government funds a program or service, the costs explode — usually exceeding the funding limits — and the quality of the program or service implodes. Good examples are public schools, food stamps, home mortgages, Medicaid, college courses and Supplemental Security Income.
You won't like my response, but a beautiful 27-year-old son who loves William Shakespeare (a bloody bore to read) and needs a year and a half to get a Bachelor of Arts is a bad investment. The national appetite for Shakespeare at the high-school or college level is dismal. And I wouldn't hesitate a Minnesota minute wagering my two 1916-D Mercury dimes to a road apple that your beautiful 27-year-old son would eventually leave you with a huge unpaid balance on that loan if you were to co-sign. Sons, daughters, nieces and nephews find it much easier to default on loans from a relative than from a bank or a private lender. And sometimes those family borrowers plan on it! At least once a month, a reader will complain that he's hounded by his kid's student loan, that he gets dinnertime calls from lenders seeking payment or that his credit has been damaged. One father, who was pursued relentlessly to make good on his daughter's $116,000 loan, liquidated a retirement annuity, paid a 7 percent early-out penalty and then had to sue his daughter for recovery (and lose) in order to deduct some of the loss from his gross income. Then his accountant advised the daughter that she had to pay federal taxes on the $116,000 loan forgiveness, which is treated as income.
Don't sign a consolidated loan; that would be retirement suicide for you. I'd go one step further: Don't give that kid $31,000 to complete his B.A. You're probably pouring good money down a black hole. That kid needs a master's degree to teach at the high-school level and a doctorate to teach at the college level. And at his learning rate, those degrees could take a dozen or more years. Meanwhile, many of today's student borrowers believe that the government will forgive their student loans in the next 10 to 15 years. No pun intended, but they're banking on it because they feel entitled. Isn't that wonderful?
Your wise broker has given you good advice. The three issues he'd have you liquidate are the same issues I'd sell: General Motors, Bank of America and 3D Systems. General Motors (GM-$28) may sell a lot of cars this year, though the consensus for 2017 isn't so sanguine. Most consumers are so borrowed out that they can't come up with $1,000 in an emergency. Subprime delinquencies are rising in auto land; they're especially high in Florida, Arizona, Nevada, Colorado, California and Texas. Shambling and lumbering Bank of America (BAC-$13) is too big to fail and too big to be successful. The quickest way to get BAC back to $26 would be a 1-for-2 reverse split and then firing current management and replacing the board of directors. 3D Systems (DDD-$13), once one of Wall Street's hottest stocks, is having profit problems, and its recovery doesn't look good. Plus, the competition is fierce.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at [email protected] To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.