Fixing Education Debt: Too Much of a "Good" Thing
I work with a lot of artists and freelancers, which makes me particularly sensitive to people's issues with educational debt. Unless you can afford to attend college without borrowing, it is increasingly difficult to pursue any field that doesn't offer immediate and sustained financial success. A writer or designer whose income swings wildly from month to month and year to year is going to be crippled trying to come up with $500/month to send to Sallie Mae. And with no hope of restructuring the loan or having it discharged in bankruptcy, for many folks there's a good chance they'll be paying until they die.
Listen, I get it. I totally understand the argument about fraud and why there should be a high bar preventing people from getting the education and then sticking taxpayers with the bill. But I also see how broken the system is. While I do want to talk solutions, I find it impossible to get to that without two minutes of diatribe first. Here, in no particular order, are the issues that make me get a little mouth-foamy when talking about student loans:
Available money today errodes value sensitivity.
You visit a campus and it's beautiful. All the students look so happy, and they're talking about such interesting things. You think, "This is where I belong." To a teenager about to leave his/her parents' house for the first time, that feeling of fit is supremely seductive. Or maybe the allure is a particular program (I hope it's Engineering) or the status and cache of the school. But whatever it is, on some level you think that if you just get there then the rest of it will all work out. And because lenders are generally tripping over themselves to lend to you (there's very little risk to them, since discharge is difficult), it's just so easy to get the money to go to school. So you go with your gut. After all, repayment is so very far in the future...
It also obscures the skyrocketing price of education.
Depending on which data you use, the cost of a four-year college is going up somewhere between 7% and 8.3% a year. There are a number of contributing factors, as federal and state funding gets cut and institutions fight to attract students by offering more amenities, but the fact is that costs are going up like crazy and until recently nobody seemed to be too concerned about it.
Loans are given each semester, and not seen in their aggregated total until all the money has been borrowed.
Here $7,000, there $7,000, everywhere a $6- or $7,0000, so grows $100,000 of debt before you even know it. I have heard terrible stories of graduates having panic attacks when they FINALLY get presented with the entire amount of their debt right before graduation. To say nothing of the shock of seeing how fast that debt can grow when you put it in forbearance for a few years while you're trying to find your feet professionally. Oh, and remember: the private loan you took out the first semester has also been growing for the three and a half years you've been in school, too. Interest on interest on interest.
This makes me insane. Yes, it's better to borrow money to get a Bachelor of Arts vs. spending the same amount on shoes and handbags -- no doubt about it. But for crying out loud, as if that's a real comparison! All debt should be considered carefully, deliberately, even gravely. To give it a blanket "good" moniker belies the seriousness of the situation. Getting a university degree can increase your earning power by a million dollars over the course of your lifetime. But saying that educational debt is "good" side-steps our natural conservatism about borrowing and erodes our ability to think critically about value.
You're not playing with a full deck, so to speak.
Sorry, 18-year-olds. I know you're a National Merit Scholar and all, but the truth is that your brain isn't quite done forming yet. In fact, the "executive suite" that is your prefrontal cortex, whose functions include "calibration of risk and reward, problem-solving, prioritizing, thinking ahead, self-evaluation, long-term planning, and regulation of emotion" isn't fully formed until your mid-20s. You are an expert on Chaucer and you can recite Pi to 50 digits, I grant you, but you're making a permanent financial commitment that your future self is going to have to deliver on, and you don't even have the part of your brain that can do that yet!
Education debt has a ripple effect over the entire economy.
Young adults can't save for a down payment because that money is going toward their student loans, which means the housing market is slower to recover. Retirement savings starts later for the same reason. People delay having children, and struggle to save for their children's education, and the cycle is in danger of repeating ad infinitum.
Okay, now I'm freaking out and totally mad. What's next?
For the foreseeable future, college is going to cost money -- a lot of money. We can spend forever gnashing our teeth and tearing out our hair about it, but at some point we need to take a deep breath and deal with the most important consequences, namely the pressure on borrowers and the drag on the economy.
There are several groups working on constructive solutions from various angles. Some focus on making repayment more affordable, others on blanket forgiveness for a nation of debtors. I really liked this article that I saw today via LearnVest on Why Student Loan Forgiveness May Not Be as Helpful as You Think. The author suggests a compromise that would act as an economic stimulus: subsidizing existing student loan debt by paying the interest, combined with creating an economic incentive to universities to lower tuition and make school more affordable. This could conceivably enable young people past and future to pump money into the broader economy instead of to the banks.
I think this is a coherent and well-reasoned argument that doesn't get lost in emotion, moral outrage, or good-vs.-evil debates -- which I totally respect, since I had to get on a 500-word soapbox before I was even ready to talk about the article that was ostensibly my reason for this post! Oy vey...