Student Loans are a conversation in America that has heated up in recent years. According to Forbes article 2/2017, the average student graduates with $37,212.00 in student debt. That would work out to roughly half of tuition for a four-year degree at in-state tuition rates. Also very interesting is that Students on the east coast graduate with more student debt than students on the west coast according to the same Forbes article, that’s an interesting stat, that I won’t dive into in this article. I am not writing this to lecture but to flesh out why the nation’s students and parents are in the situation. I understand that folks that go to college tend to make more in salaries (i’m not sure that stat stands up if you then deduct principal and interest paid on SLD, just a thought)
What is a student loan? A student loan is an unsecured loan. This means the loan is not secured by any tangible property ie there is NO collateral. A simple example is if you buy a home, the collateral is the home, if you fail to repay the loan the bank evicts you and sells the home to recoup their loan investment. Car loans are the same. These examples may seem like DUH why is T.F.H.S telling this? UNSECURED LOAN is a really important part of this conversation. This is the primary reason that the interest rates are higher on student loans and why the Federal Government has to ultimately guarantee these loans. The Federal government wholesale took over the direct lending of student loans in 2010 per the Health Care and Education reconciliation act of 2010 signed into law by President Barrack Obama. The Federal Government's first role in financing education was born in 1944 with the first GI bill paying up to $500 a year for education and stipends for housing to help GIs returning from WWII. The Federal Government has passed ten laws starting in 1944 that directly affect Student loans, grants, debt, or financing.
The student loan “problem” has several facets. I am not going to win friends with my opinions. Full disclosure: I didn’t go to college. I’ve never had a student loan. My daughters both attended college (one went for one 1year/ the other went for two years. I was able to pay for this out of pocket. Their tuition was $10,750ish per semester plus books. Both of my sisters went to college they used loans, grants, and work programs to get thru college with some student loan debt, but not a tremendous amount as I understand.
The first problem with Student Loan Debt is the societal insistence that in order to be a successful human in America, YOU MUST GO TO COLLEGE. I clearly remember going to speak with my guidance counselor in 11th grade about what I wanted to do with my future. I told him, “I’m not going to college.” His entire demeanor changed, and the conversation ended quickly. It was obvious this was not a socially acceptable answer and his offer to help died the moment those words left my mouth. In full discloser: A) I felt like a caged animal in high school, there was no changing my mind. B) I was not a good student (ADHD), I was a pothead, hell-raising teenager C) My mom was the secretary of the dept( if anything you think the GC would put in a little extra effort for a Coworkers kids…Not So Much. I joined the Air Force, then ended up in construction where I found success and eventually started my own business about 10 years ago.
The second problem is that society has normalized the idea that Americans are entitled to go to college, I dare say some people think it’s a right. First of all, Rights are very narrowly tailored concepts/ideas, You cannot have a right that entitles you to someone else labor/industry/intellectual property). If you have a Right to another person's labor/industry you are essentially saying you can take that person’s labor/industry because it’s your right. The American founding fathers understood this and that’s why the bill of rights is pretty short. 1st amendment- Freedom of speech -You can say what you want as long as your not harming or causing others to harm another person or lie about another person. There is no guarantee to be heard there is no guarantee that others will listen to what you say. You are not entitled to a free newspaper or free television news. You have to pay the person that prints the paper for a copy to read. You only have the right to Free Speech no other free shit included.
The Third problem is parents. I’m going to catch hell for this statement. According to Sofi article, 8/11/2021 83% of parents will contribute their child’s college tuition, but reading just a couple paragraphs further, it states “If you’re among the 56% of American parents who are actively saving for your little one’s future college expenses, it can be difficult to know the best way to save”. What does that mean? My interpretation is this- 1) Most parents start out well-meaning and save some dollars and life gets in the way and that money goes to other priorities. 2) Parents are idealists starting out and the reality is 80k is a lot to save while paying bills, planning for retirement, and guess what there are plenty of willing lenders and that is easier than saving all that money. Another thing we don’t do well, in my opinion, explaining the ramifications of borrowing all these large sums of money to our children. Those documents you are signing are real legal documents that have serious long-term consequences. I cannot speak to what all parents say to their kids. I think we have formed some sort of cognitive dissidence with the ramifications of student loans, pretending like it is mandatory and there is no other way to deal with this problem except borrowing the money. I read article after article on numerous platforms, writers pontificating about evil student loans and the evil student loan servicers, NOBODY IS FORCING PEOPLE TO TAKE OUT STUDENT LOANS. The final nail in this coffin with reference to parents is Debt to income ratio. The first thing a bank does when you apply for a loan, to buy a house is evaluated your debt to income ratio. Parents and children should do something similar in the children's desired field, look at the expected debt and expected income, and have some serious conversations. There are numerous fields of study out there, that will never earn you enough money to pay your student loans off. Those courses should come with warnings like a pack of cigarettes from Great Britain (the whole package is the warning)
The fourth problem is Colleges. Colleges have evolved over the decades and not for the better in some ways. The first major problem with a college education today is the expense. The following snip comes from the US Bureau of labor and statistics- “Between 1977 and 2021: College tuition experienced an average inflation rate of 6.39% per year. This rate of change indicates significant inflation. In other words, college tuition costing $20,000 in the year 1977 would cost $305,659.73 in 2021 for an equivalent purchase. Compared to the overall inflation rate of 3.46% during this same period, inflation for college tuition was higher.” I found this really fascinating especially in 2021 while we are experiencing record consumer inflation and people are freaking out about groceries, gas, and lumber prices. It's odd that we don’t see Politicians railing against the cost of college tuition only the loans. The snip set up my next point perfectly. The inflation rate for college has consistently averaged TWICE what consumer inflation is in a typical year. Per the same source (USDL&S) College tuition is 1428% higher than in 1977. To unpack this will take a lot of information and pages. I’m going to try and keep this short-ish. College’s have transitioned from an austere place of education to 5-star resorts. My business performs work for a major university, I get to see some of this first hand. They don’t have pools, we now build Aquatic centers. Student Union has 4-5star eateries with trendy Star Bucks and all types of fast food that accept all forms of payment including cryptocurrencies. Dorms were 4 people sharing two rooms and a bathroom/shower, they are now suites with kitchens and other amenities. Competition between colleges use to be about where to get the best education, these days it’s all about amenities. Imagine having a conversation with your child about which college to pick- You can go to Unversity X and get the best academic education or you can go to University Z - they have a rock climbing wall, aquatics center, on-campus skiing (Michigan TU), Lazy river & Beach club (U Missouri), Luxury condo dorms (Boston U) and the list goes on (credit The Thriller website for compiling the list, I didn’t use the entire list) Cheap interest bonds and loans allow these universities to build these facilities but at the end of the day, maintenance upkeep and staffing these facilities are built into your tuition. When a university builds Lazy river & Beach Club, the University 40miles away or the state next door builds something to compete with it and so goes the escalation in college tuition. States love colleges for the taxes they generate. I live near Harrisonburg VA home to James Madison University. The population of Harrisonburg doubles when school starts. Imagine the tax dollars that are generated, build cool stuff, attract more kids, more tax dollars (gas tax, sales tax taxes on rental properties, etc). The best part is most of these folks are not part of the voter constituency in the town they go to college in. They have no vote. No dissertation is required!
The William Bennet theory- Bill Bennett was Secretary of Education(80’s) under President Reagan. He famously stated (paraphrased) that the more federal and state money in loans and grants that are available the more tuition would rise. The following is from The College Investor (website for Millennials)-
From 1990 to 2013, the growth of student loan debt surpassed the growth in students, going from $24 billion to $110 billion per year, a 352% increase in loans. During that same period, the number of students borrowing increased by 40%:
1992 - 1993: 49%
1999 - 2000: 62%
2011 - 2012: 69%
2015 - 2016: 71%
The increase in borrowing coincides with an increase in intuition” The College Investor”
Federally-backed student loans per this and some other sources certainly have had an impact on tuition rates.
Finally, the last and final part of the problem is Politicians. Alexis Tocqueville famously toured America and attended town halls and traveled extensively thru-out the US. One of his famous quotes is as follows“The American Republic will endure until the day Congress discovers that it can bribe the public with the public's money.”
― Alexis de Tocqueville circa 1831-32. When politicians tell the American public things like “forgive all student loan debt” That is exactly what they are doing…buying your vote, except they are not buying your vote they are lying to you. Most colleges are state-owned and managed, but tuition pays the bills. So if we forgive all student loan debt, that will ultimately lead to free college. Is that where we are going FREE College? China has free college and still there students apply to US schools. Why?
The Student Loan Crisis is not really a crisis. I get it, you have student loans and you have to pay them back. Paying back any loan sucks, I have a mortgage, car loan, credit cards, etc, they all suck. I think one of the under-discussed realities is that people borrowed lots of money and the only tangible thing they have is a diploma, compound that with a graduate that cannot find a job in their field of study or that pays well enough to actually pay the loan and live. The fact of the matter is in order for the system to continue to work, loans must be available. Folks who get on social media and tv and bemoan the systems and their unfairness, how else do you pay for something you cannot afford? You borrow money. The United States of America had to borrow money during the Revolutionary War and pay back loans after the war,(how unfair we fought for freedom and had to pay back loans?! the indignity of it all) people got so mad that they moved to Ohio territories (the frontier at the time) to avoid the taxes levied to pay back the French lenders, we paid back our debt anyway.
PS
Here is an interesting quote snipped from a USA Today (2/2017 Paul Davidson) article I found “Sometimes the perception about your financial future is even more influential than reality, Chopra says. “They may qualify to buy a house” but never even try “if they perceive their debt is too big,” Chopra says.
Tin Foil Hat Society-
“The further a society drifts from truth, the more it will hate those who speak it.” by Selwyn Duke