I’ve mentioned this before: but I recently realised that somewhere in my childhood, I developed the deep-seated belief that anything I eat ought to be delicious. Which means:
- I am regularly disappointed; because if you search for flaws, you can find them.
- Despite this, when disappointed, I whinge about it – to my dinner companion, waiter, manager, and anyone else in the immediate vicinity, online or otherwise.
- When I do actually find something delicious, I eat far more of it than I should – as though this might well be the last time I ever get to eat it.
- And also, I tend to go out and frantically search for deliciousness. Which ends up becoming a truckload of consumed calories (even if I consider most of them to be wasted).
The belief is unhealthy. And not solely because it sounds like the swift slide into obesity: but also because it gets jazzed up in my mind’s eye with “I’m just a foodie” and “I can’t help having a refined palate”.
It’s all a bit unreasonable, really.
And I think this is a general human failing. We all have a few beliefs that are irrational and/or ridiculous, and those then translate into self-righteous indignation when the rest of the world doesn’t play along.
With that in mind, let’s talk about the student loan situation in the United States.
How Student Loans Work
This sounds a bit obvious, but a student loan is a loan, given to a student, in order to get them through their years at college. They stem from a US government initiative from the 1950s, after America freaked out that she was falling behind the Soviet Union in the race to space. Here are the main types of student loan to be aware of:
- Subsidized Federal Student Loans: loans from the US government that do not accrue interest while the student is studying, but only start to accrue interest on graduation. The interest rate and debt limits are set by Congress. You have to demonstrate financial need in order to qualify.
- Unsubsidized Federal Student Loans: loans from the US government that accrue interest while the student is studying, but the interest only starts to accrue interest on graduation (ie. the loan earns simple interest while the borrower is studying, after which the interest becomes compounding). Again, the interest rates and debt limits are set by Congress. And almost anyone can qualify.
- Private Student Loans: loans from non-government lenders that start to accrue interest immediately, and are subject to higher fees and interest rates (usually).
None of this sounds particularly scandalous. But here’s the catch: it’s practically impossible to discharge a student loan via bankruptcy proceedings. You’re stuck with it until you pay it off.
Of course, it’s not completely impossible. You’d just have to prove “undue hardship”. And to be helpful, here are the three general (and not unreasonable) requirements to prove “undue hardship”:
- At your current level of income and expenses, you are unable to maintain a “minimal” standard of living if you’re forced to repay the loan;
- Circumstances exist which indicate that your situation is unlikely to change for the large part of your loan repayment period; and
- You’ve already made some good faith efforts to repay the loan.
Unfortunately, most students don’t study law, so they may not be aware of this. But more importantly, if you’re in the midst of a bankruptcy proceeding, what is the likelihood of you being able to afford an attorney?
But if we’re honest, that is actually quite fair
When a student loan is given out, here is a credit assessment of the recipient:
- At least four years away from repaying the loan.
- Probably wouldn’t qualify for a credit card.
- Mainly wants to get laid.
If I had a student loan, and all I had to do was declare bankruptcy to discharge it, then I’d still be wearing my graduation gown at the liquidation hearing:
So long, folks. Hurrah!
*waves around degree certificate and liquidation notice*
Of course – there are some penalties for having declared bankruptcy. But students, even freshly graduated ones, are not famous for their forethought. I mean – we live in a world of durex, and yet students are still getting pregnant “by accident”.
The point is that without the alleviation of credit risk (ie. making it near impossible to discharge the debt other than by repaying it), there would be no student loans. Because no one would agree to make them.
“The Shocking Statistics”
Nevertheless, the rising number of student loans in the USA has attracted a lot of media attention over the last two years. The outraged and opinionated are throwing around phrases like “immoral” and “drowning in debt” and “the principal of the thing“.
Here’s a scattering of statistics:
- In the US, 37 million borrowers owe, collectively, $1 trillion of student debt.
- About 85% of that is owed through Federal Loans, with balance coming from private loans.
- The average student loan is around $24,000.
- 30% of student debt is owed by students studying for advanced degrees.
- Current interest rates on subsidised Federal Student Loans: around 3.5%.
- Current interest rates on unsubsidised Federal Student Loans: around 7%.
- Unemployment rate for college graduates: 4.6%.
The outrage seems to be related to the following:
- Not being able to discharge Student Loans by declaring bankruptcy.
- 10% of college graduates spend more than 25% of their income on repaying their student debt.
- Default rates are rising, so the Education Department has started hiring independent debt collectors.
- Lots of students don’t graduate, but still have the debt.
- Of those that graduate, many end up in jobs that only require a high school diploma (around 38%).
- Tuition costs rose annually by 7.45% between 1978 and 2011 (ie. they are 11 times what they were in 1978).
Bizarre! As I said earlier – without the no-bankruptcy-relief clause, there would be no student loans. And of course default rates are rising – there’s an oversupply of the over-educated (which is what happens when $1 trillion gets pumped into educating the masses: bachelor degrees become a literal dime a dozen). And why on earth should a student’s failure to graduate have any bearing on the loan they took out?
To anyone complaining about the hardship, here’s a hard truth: what makes you think that you have a right to free higher education? You don’t. No one does.
In any case, in all likelihood, you would be better off just finishing high school. After all, aren’t 38% of college graduates stuck in jobs that only required high school diplomas?
Oh – and if you go and study a double major in Latin literature and gender studies – then you are unlikely to find a job that will allow you to pay back the loan.
It’s the exact same issue as my delicious belief crisis. Believing that I am entitled to study whatever I want at a university level, and that I should get to do this using borrowed money, and that I should not have to pay it back, is highly irrational.
If I do not want to accept the obligation of paying it back, then I should not go to college.
Expecting otherwise is, well, immoral.
And on the topic of increasing tuition costs…
Again I’ll say it: what did everyone think would happen if $1 trillion worth of student loans arrive in the market place? That the tuition would stay at the same price?
It’s basic supply and demand. If the supply is constant, and the demand increases, the price goes up. If the consequent response by the customers (students) does not involve walking away from the product (college education), then there is no reason for the price to come back down.
Maybe this should be taught in high school.
And here’s an idea: any child that doesn’t get it should just be left behind.