An indebted unemployed student’s story:

An indebted unemployed student: "At last I thought I had a reasonably good paying job that would make me be able to repay my student debt, and earn me something on top of that, for all the time and efforts I had invested in my studies. But, that was not to be, because the owner of the SME who was offering me the job, had his credit application denied by the local bank that had the most intimate knowledge of his business and plans. Much saddened, even despaired, I asked the employer I had counted on… How come?”

SME owner: “The banker told me that if he gave me the loan then, because I was officially perceived as risky from a credit risk point of view, regulators required him to hold much more equity than if he lent that money to an AA rated corporation or invested it in treasury bills. And, unfortunately, he did not have that equity.”

Indebted unemployed student: “What? In the home of the brave, banks are required to hold more equity against loans to the supposedly risky than against loans to the supposedly safe?” 

SME owner: “Yes, ever since the US signed up on the principles of the Basel Accord back in 1988, and especially after the approval of Basel II in 2004, that is how it is. Sorry my dear unemployed student loan debtor, there’s nothing I can do about it! I am just as sad and hurt.”

Indebted unemployed student: “But why would the regulators do a thing like that?”

SME owner: “Beats me. As far as I know all real big bank crises have never ever resulted from excessive loans to “risky” SMEs and entrepreneurs like me, these have always resulted from excessive bank exposures to what banks, and regulators, believed to be absolutely safe, but turn out not to be.”

Indebted unemployed student: “But that’s plain crazy!”

SME owner: “Indeed, it is an odious discrimination, and by killing opportunities it promotes inequality.  But, no one dares to question the regulators, especially when it has become so fashionable to question bankers… or perhaps the regulators are all just statists and love the idea that banks should foremost lend money to government bureaucracy, as well as to their intimate friends of the AAArisktocracy they usually see in Davos.”

This fictitious but sadly too real story, is sent upon request to Rep Elijah Cummings and Senator Elizabeth Warren 

PS. I have always believed students should be given access to student debt as if they were AAA rated, because although they might not have an AAA credit rating, they sure have an AAA rated purpose. That said, much much more important than their debts, are their possibilities of future jobs.