Sixth in a series on student educational debt.
The decision to borrow in pursuit of a college education is personal, but 45 million borrowers eventually impact the U.S. economy and therefore every American. The after-effects are persistent and pervasive, and result in economy-busting fairytales.
To poison the fountain of nourishment for a republican form of government, make higher education worth less. Encourage the view that education’s cost is a pile of C-notes from a game of Monopoly, and everybody gets free parking to boot. Or, that everyone needs—and, more confounding, is entitled to—college attendance on the taxpayer’s dime. Make common the idea that people still should be paying for college as retirees, as a multitude of Americans do. Financial literacy? A figment of somebody else’s imagination.
The dot-com and housing bubbles bedeviled our national economy for a decade. But they are a walk in the park compared to the looming threat of a third bubble — student debt. This debt debacle is the most debilitating in this trilogy of tribulations resulting in limp economic security. Most vexing is the accompanying loss of faith, confidence and trust in our republic. And trust, as Eamonn Butler has written, is the foundation on which a free society stands.
Some call for debt forgiveness. Hopefuls in the last presidential election proposed erasing as much as $50,000 in debt. Bernie Sanders championed a scheme to forgive all educational debt. But an omnipresent malignancy in our society is taking the easy way out, working to relieve too many of owning too little personal responsibility. Forgiving debt with the stroke of a bureaucratic pen is a growingly seductive election-cycle elixir, especially for twenty-, thirty-, forty-, fifty- or even sixty-somethings. But the cost is economic vitality while free moral agency is pilfered or mortgaged, pick your poison.
Absolution of personal obligation in a matrix of responsibilities causes purposeful citizenship to leach from individual to state, and states can’t be citizens. There is flagrant finger pointing. In Salon, Jeffery Williams puts the blame on “the 1%.” Some are an easy target to be sure. Alan Lord, who made his fortune as Sallie Mae chieftain in the student-loan industry, is low-hanging fruit for those wanting a scapegoat to diminish individual economic obligation. However, Williams is wrong. A college education carefully configured is a sound investment. According to a detailed study of 4,500 institutions by the Georgetown University Center on Education and the Workforce, the average career return on investment for a college education crests at $2.7 million. In 2019, those with a high school diploma averaged, after tax income, $40,500 annually, and, as educational levels stair-stepped up to a professional/doctoral degree, earnings increased to $120,500, according to the College Board. Absent debt, these are compelling numbers.
Rising student debt reduces consumer spending for 90% for 45 million indebted Americans, backs bowed, paying off education loans according to the FDIC. Over 10% are in default and may never be able to make good on their borrowing. This indebtedness impacts home ownership, after family the primary piece of the American dream. For younger borrowers with student loans, the Federal Reserve estimates that a 20% drop in home ownership over the past decade is attributable to student debt. Beyond the borrower, the carpenter down the street, code officials, retailers and mortgage lenders all gasp for air as the economy writ large asphyxiates.
The impact of overloaded student borrowing on the national economy is inarguable. These confounding circumstances dim cultural and economic hope: Many borrowers don’t expect to retire student loans. Brookings estimates that by 2023, 40% of borrowers will be in default. All innocents in pursuit of the American dream? Important aspects of a fruitful life—home ownership, marriage, raising children, preparing for retirement—are put at risk for those whose backpacks bulge with promissory notes, often for a product of questionable utility. This is an economic foundation constructed on sand, not solid rock.
Free people decide to borrow, legitimacy of motivation aside. These personal decisions empower or impede national economic growth. Banking, industry and government at every level, including universities that dilute the gravity and sense of obligation in this labyrinth of decision-making, serve no one well. Abrogated responsibility mutates individuals into indentured servants. Free moral agency alone empowers a solvent democracy, the primary purpose of all education.
Anything done to diminish personal responsibility for education, by default or design, tears at the fabric of a free society and our constitutional form of government. Universities are in the position of providing hope, opportunity and aspiration. Costs absent responsibilities are an erroneous economic equation that does not compute leading to a measurable loss of value, for one and for all.
Walter V. Wendler is President of West Texas A&M University. His weekly columns are available at https://walterwendler.com/.
Far from being “drivel”, as our illustrious moderator believes, these posts raise serious issues especially college debt. Acknowledging his reference to “personal responsibility” (and I speak as a beneficiary of the UK grant system where not everybody got to college in my time due to the rigorous admission standards), there was a time when college was affordable and the validity of personal responsibility was possible in the “land of opportunity.”
But now the situation has changed and the four-year model becomes even more problematic. Why not three years as in Europe? Also, not everyone can benefit from a University education assuming we wish to retain that model. What about considering a diverse structure of higher education that will include universities, polytechnics (as in California’s Humboldt University changing its status to a Polytechnic), Community Colleges, and other forms of educational training all equal in status according to the different types of education offered? Nursing and Medicine have high admission standards so why not apply them to other areas ensuring a highly trained, professional workforce on the level of European and Asian examples? A mixture of grants and repayable loans could be instituted.
Unless there is reform, American higher education may face the type of looming economic collapse that may be here sooner than everyone thinks.
Why is there this continal assumption that people with unpayable debt are trying to get one over or took on a pointless Outrage Studies degree?
Some of us followed the rules, did everything “right” yet are in a mathematically untenable position not of our own making.
At what point is it even reasonable that someone who can’t even afford the interest payments on a student loan gets to be taxed on the hyperinflated “value” of an “investment” that wasn’t worth the paper it was written on?
Here’s some fun numbers:
(Note — no longer completely accurate because of 2 years of interest free COVID protections… This will be remedied when the 0% period is over.)
My Student Loan for a business degree in 2000 was roughly $33,000. The Fed set it at 8.25%, which made my monthly payments $404.75.
I grossed $4,795 in 2000 looking for work and burning through savings.
I grossed $18,642 in 2001. $15,818 in 2002. $15,931 in 2003. $20,328 in 2004. $20,280 in 2005 and $22,880 in 2006. I didn’t break 150% of “Federal Poverty Level” until 2007. So for the first seven years after graduation my only options were Deferment & Forbearance. During that period my loan ballooned to $58,676 and brought my scheduled payment to $719.
During this time I was seeing VA and State workforce/Voc Rehab people trying to find out why I can’t get hired for professional/business jobs. Well,
I was over 35, a Veteran, my resume has nothing but temp work in it, so it was useless, and turns out I’m somewhat autistic (ASD/PDD-NOS “Aspergers”, diagnosed by VocRehab Phych in 2007), and basically creep out HR/Carpetland people. E.g. “social fit” is more important to HR than skills.
Anyway, IBR (Income Based Repayment) was also started in 2007, and became an option.
Oh, and I was laid off from my job at an architectural firm doing random tech and labor because of the housing bubble.
I made $27,480 in 2007 (167.54% FPL) … my 25 year IBR payment was around $150 IIRC. Let’s call it $200. Regardless, doesn’t even cover the interest.
SO I got to cut my gross monthly earnings from $2290 to $2090. That’s a pretty tight budget, but let’s see where that leads us…
At the end of the 25 years at essentially the same income (because I still can’t get hired for anything that pays more than $15/hr despite my degree) I get to have my now $260,158.15 in capitalized interest forgiven… which means, using my 2018 AGI and 2019 tax tables, I get a $46,076 Tax bill from the IRS… AFTER paying $60,000 ($200*300 months) ($106,076 total)
Wow. And given that my average annual income over the last 18 years has been LESS than $15/hr, what are the odds I could amortize “up” to a flat 25yr schedule?
Well, that would have been $462.63/mo starting in 2007 So, I’d get to live on $1,827.38 gross/mo. AND I would have the pleasure of paying $112,453 total over 25 years. But at least I avoided “loan forgiveness” and the tax man, right? No! Going all 25 years at a mere $200/mo only costs $106,076 – a full $6,377 less!
This system was DESIGNED to crush people who couldn’t find professional work immediately, especially if stuck with higher interest rates, and keep them from ever getting ahead – all to increase the “asset value” of the “student loan debt”.
And it works smashingly well.
Oh, & FWIW… If I default and get a Wage Garnishment, (25% of discretionary income) it will only cost me around $100/mo until I die in 30 years give or take. That’s only $36,000 – or roughly equal what my original principal was.
Gotta love math.