The Student Loan Lesson
Too Much Emphasis on the "Student," not Enough on the "Loans"
The Supreme Court this week heard arguments about President Joe Biden’s Student Loan Forgiveness Executive Order. Most people impacted think this is a question about whether the policy is worthwhile; however, it’s really a question of a President’s power to enact such a package, which most law scholars seem to say he doesn’t.1
Nonetheless, student loans have been an increasingly large problem. Most jobs today require some advanced degree (although whether they really need that degree for most jobs is questionable). For years, we’ve been telling kids that to get a good job they have to go to college. We should be more careful with our words. It’s not “college” they need, it’s an “education.”
There are four basic drivers of student loan debt:
Student choices in university are based not on financial reasons, but more for prestige and status.
Many students don’t know why they are in college and plan on just “figuring it out” when they go. To them, it’s just the next step after high school.
Most students seem unaware of the actual costs when they put their name on the dotted line (even when it is displayed plainly for them).
Most students do not “shop around” for better alternatives and more affordable educational options.
To those who believe it’s the price of tuition or predatory student loan lenders that are the problem, I’d just point out that people go to college and take out these loans willingly. Supply and demand dictate the cost of college; if students would consider choices better, the costs would be more elastic and exact downward pressure on costs. Likewise, one doesn’t have to sign for exhorbitant and prohibitive lending terms if one were a better credit risk, had collateral, worked part time or weren’t taking out so much. These are choices, and bailing them out is a moral hazard that society may want to think twice about paying off.
Prestigious Universities
Students believe they have to go to the biggest, most prestigious university they can, that has a great football team, new dorms, a kick ass student center and a fantastic library they’ll never use unless forced to. Oh, and they’re going even if they have to spend every dollar from your pocket to do it.
You know what they teach at Yale that the don’t teach at the University of Wisconsin- Eau Claire? Absolutely nothing. It’s the same stuff. It’s not like the Ivy League has a monopoly on learning the law, biology or Plato. Is it cool to learn law from a great lawyer or physics from a famous scientist? Sure. More often than not though, you’re learning from a teacher’s aide or a grad student and not from that famous faculty.
I know people who got undergrads in small midwestern schools, went to grad school on the east coast and had to read THE EXACT SAME BOOKS THEY DID IN UNDERGRAD. In that sense, they got an Ivy League grad school education at a small midwestern undergrad university for a fraction of the cost. The main thing is that they got an education, without spending a ton.
College is Not the time to “Figure it Out”
Going to college to skip history class, get a D in English Lit and spend your Thursday nights at a weekly kegger isn’t a very economically wise decision. Being there when you don’t even know what you want to get into is even more unwise.
When you’re in college, you’re on a clock. Every minute in class costs money. Use the time wisely. Taking out unsubsidized Stafford Loans so you can eat out instead of on the meal plan or take that once in a lifetime trip on Spring Break instead of studying is a poor life decision. And letting the costs aggregate and compound over 20 years because of interest is outright insane, yet students routinely make that decision.
Signing on the Dotted Line
Few have the capacity to save for medical emergencies, much less their kids’ college. So students seek the only available avenue to them— the student lenders. School financing departments I’ve been to are very cautious and want to make sure you understand the debt you are taking on. They’ll even spell it out for you the overall total cost over x number of years2. To students, they tend to not care and just sign on the dotted line because, well, they need the money (“need” is a tenuous word here; they don’t need it like they need food or shelter, they need it because they want to stay in school, in particular “this” school).
To hear students out of college schocked that they have to pay back $50k, $75k, even $100k AFTER UNDERGRAD tells me a few things. It tells me that they took out a lot of debt for stupid reasons. It tells me that they didn’t consider the costs when they took out the loans. It tells me that they had pie in the sky expectations that once out of school that the Guggenheim was going to hire them that high paying job as curator over the 10,000 other applicants it gets a year, and now instead they have to work at the Peoria public library for minimum wage on that Renaissance Art History degree.
Students should have better expectations about how much they take out, the payback schedule, and what standard of living they can expect given their area of education and job prospects.
Better Alternatives
As far as I’m concerned, too many students look to the higher end schools thinking it makes them better people and they absolutely must go, when in reality they ought to seek out more inexpensive alternatives. Macklemore had it right:
I'm like, "Yo, that's fifty dollars for a T-shirt"
Limited edition, let's do some simple addition
Fifty dollars for a T-shirt, that's just some ignorant bitch shit
I call that getting swindled and pimped shit
I call that getting tricked by a business
There are plenty of other ways you can get an education, sometimes without going directly to college, some of which will help you finance it as well.
The military is an often overlooked course to college; not only do you serve your country and gain a different perspective of the world, but they will PAY for your college.
The first two years of college are usually general education requirements. You can do those anywhere. Junior college is a cheap alternative for the same credits, and you tend to learn more as the classes are smaller and more focused. You can even take many of these courses in high school as AP.
Technical schools are great places to learn hands on training. Some of the best computer programmers I’ve met didn’t set foot in college, and got a degree from a Tech School. They got internships at local businesses and began the real practical learning so many colleges don’t train for. Same thing with plumbers, electricians, and many other technical jobs, much of which are in high demand right now.
Smaller towns and state colleges. Cost of living in the middle of the country is cheaper and state college tuition is much more manageable. Private colleges on the coasts can be pricey just to live in, while going to Upper Michigan for the Michigan Institute of Technology (the other M.I.T.) costs much less for the same degree.
One Final Thought
When you get out of college, yes the financial sticker shock is hard. It may seem insurmountable. But you have to work it off. That’s what you said you’d do when you signed on the dotted line. You start at the bottom of the job ladder and work your way up. Disposable income is horrible, even non-existent, those first couple years of paying off student loans.
But there’s a reason you do it. College graduates make substantially more over the course of a career than those with only a high school degree. Likewise, the costs of college 25 years ago when you took out the loans are much less than the standard of living/salary you make today when you have to pay them off. So long as one stays committed, works hard, pays down the debt (and MORE than the minimum), it can be done.
After all, I graduated with $130k in student loan debt from law school and paid it completely off. I’m not a high paid lawyer. I lived humbly. I paid as much as I could when I could. I temped the first 5 years out of law school. Worked overtime, sometimes 70 hour weeks. And I paid off a 30 year consolidated loan in 20.
Footnotes and Parting Thoughts
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I tend to agree. A President can’t just unilaterally discharge debt in this way.
The Truth in Lending Act requires lenders to provide this information in large legible and easily understood figures. Finance officers usually point to it and tap at it with a pen to make sure you understand the debt your incurring.