Student Loans: The new indentured servitude?
dissentmagazine.org
dissentmagazine.org
We could have taken on a lot more debt, but chose to work most of our way through college instead. Graduation took longer, we never went out to eat, and drove a crappy old car. Isn't that what "having no disposable income" is supposed to look like?
Unlike with a car or house loan, there's nothing to guarantee the loan except for human capital. Which means that we have to choose between an inhumanity (using a person as collateral, which is effectively what the current system entails) and student loans turning into bad debt on a system-wide scale. Neither's acceptable, so let's get rid of the whole thing.
How would the world be a better place if no one had access to this (generally very low-interest) source of funding for their education?
I may be biased because I put myself through college on a combination of ROTC and loans, both of which were in different ways using my own time and labor (present and future) as a way of investing in my future. There was no other way I was going to be able to attend MIT, a dream I'd had since I was about 8 years old and saw a PBS special about the 2.70 design contest.
Sure, some people take loans and don't spend the money wisely (fail to graduate, choose an expensive school for a very low paying career, max out their loans and gamble or fritter it away). Those are all personal choices and I don't have a problem with those people suffering the consequences in exchange for what I perceive to be the greater good: that a motivated kid from middle or lower income family (such as I was) is able to attend MIT, thrive there, and as a result go on to have a substantially more fulfilling life. Oh and by the way, as part of that life, you'll have to pay back that money that someone fronted you when you were penniless, unemployable outside a mall context, no credit history, no significant employment history, etc.
Taking that opportunity away from all such kids, in exchange for having no one be able to make a poor choice specifically around student loans, is not a good trade, IMO.
There is a flip side though. There are people who made every effort and did everything right and still did not graduate because of things such as major family issues, accidents leading to disability, or simply failing out despite their efforts. They are then shackled to student loans without the benefit of the degree. Granted, these tend to be a very small minority but in discussing the system the edge cases should not be forgotten.
The cold-hearted realist in me says "Well, some people are going to struggle and fail in life, ulimately dying in debt and this is just a different mechanism that manifests in that sliver of folks with stupendously bad luck."
The compassionate human in me says "There ought to be a way to let people not have to suffer the rest of their life for stupendously bad luck when they were young."
The realist then worries about how to make that almost as gaming-proof as the current system where you have to die or at least fake your own death and create a new identity (either of which would "game" any system).
I would go so far as to donate to a charity setup to payoff the loans in those exceptional cases you describe (ideally at a negotiated discount, reflecting that those loans were unlikely to be paid anyway). Perhaps requiring that the person declare "normal" bankruptcy as well, and then that "qualifies" them to apply for a hearing of some sort before this new charity's board where they can state their case and answer questions. The forcing of "normal" bankruptcy as a qualifier is intended not to punish the individual but rather to ensure that it's not undertaken lightly and that the charity is hearing few frivolous cases.
You ahve shaken my belief system enough (in a good way), that you may have literally given me a direction to focus my future charitable endeavors. Thank you...
The bulk of the talent is always going to come from the middle class, by nature of it's being 100 times the size of the upper class, and of the fact that, by and large, upper-class people aren't much smarter than the rest of us. If MIT wants to stay MIT, it'll find a way to get smart people in even if non-discharageable loans are abolished.
Do you know that student loans were dischargeable in bankruptcy until very recently? They were!
See http://www2.ed.gov/offices/OSFAP/DCS/loan.cancellation.disch...
And there was no wave of bankruptcy before this law; the banks merely saw a chance to utterly screw a certain segment of the population. And really, why not change this so you can then market such loans to people who probably oughtn't get them and then ruin their lives for forever?
Fwiw, the national student loan default rate for 2007 was only 6.7% (http://www2.ed.gov/offices/OSFAP/DCS/default.html and http://www2.ed.gov/offices/OSFAP/defaultmanagement/2007state... for per-state rates).
The low interest rates on Federal loans (hovering between 1.5% and 2.5% last I checked) make them far more attractive to the alternatives, especially since the vast majority of students pay off their loans. Scrapping Federal student loans entirely would only benefit the people who default.
I won't go so far as to say that arguing against student loans is directly arguing to reserve elite colleges for the wealthy only, but I am one kid who wouldn't have been able to go without loans. Perhaps that makes me "too involved" or "too passionate" about my own experience to be fully objective, but I'm glad every day, workday or not, about the choices I made and the fact that loans were available so I could make that free choice to take them.
- I'm poor, I need to take a student loan and get educated if I ever hope to get out of my poverty and jump into the middle class. I sign away X% of all future income.
- I've graduated and luckily have a decent job. I pay X% of my income monthly to the government (isn't that just a tax?), and thus my family's quality of life suffers, in particular compared to rich families who never had to take the loan to begin with. In fact, by the time I die I would've paid this loan back several times over.
- I cannot afford to bankroll my children's educations, because I am X% poorer than someone else who has this job but never had the loan. My children will end up signing away X% of their income also for life.
This smells like a recipe for increasing the wealth gap by drastic amounts.
What I was responding to was the notion that instead of signing up to owe a particular sum, you sign up to owe a portion of all future income - and thus remove the risk of being bankrupted by your student loan (e.g., if you're out of work, you owe nothing, because you make nothing).
The trick here is that by removing your risk from that end, you are committing to essentially an unlimited mountain of debt. No lender will give you an easy out from a loan without a steep downside on the other end - like a big, nasty private income tax for the rest of your life.
maybe kids would have to work for a year or two, to save a bit of money, and build a credit history before they'd be loaned the funds. just as well, imo. most 18-19 year olds aren't ready to be in college, anyways.
The problem lies in the fact with our unemployment situation there are plenty of people in "good" fields that are still screwed.
Apparently the government realized they will be stuck with a huge hit around 2035, because they have since changed the terms of student financing to constitute a larger fraction straight grants, but if you do take out loans, the terms are much more strict.
I think it's honestly a pretty good system.
College student-loan debt has revived the spirit of indenture for a sizable proportion of contemporary Americans. ... Because of its unprecedented and escalating amounts, it is a major constraint ... binding individuals for a significant part of their future work lives. Although it has more varied application, less direct effects, and less severe conditions than colonial indenture did...and it does not bind one to a particular job, student debt permeates everyday experience with concern over the monthly chit and encumbers job and life choices. ... [Lenders subsist] off the desire of those less privileged to gain better opportunities and enforc[e] a control on their future labor. ...the planners of the modern U.S. university system...promoted equal opportunity in order to build America through its best talent. The rising tide of student debt...counteracts the meritocracy. ...the current system of college debt ... leads those less privileged to bind their futures.
I think you can meaningfully divide student borrowers into two groups. One group consists of those who reasonably estimate a positive ROI on their student loans. For these people, it may be somewhat troubling that you can't discharge the debt, but it seems at least somewhat fair since you can't divest yourself of the education, either. These students have no rational reason to complain: they made a financial investment and rationally expect to profit. In their case, the meritocracy is not only intact, but even helped by their ability to raise an investment.
The other group consists of those who can't rationally estimate a positive ROI on their student loans. If you're really serious about wanting that education, it's your call whether to blow tens of thousands of dollars on it and realize you will never repay your investment. You have to know you're impoverishing yourself for the sundry benefits of spending years of your life getting a college degree. Maybe it's still worth it. Maybe it's not. But if it isn't, it's not the lenders who are at fault, it's the cultural expectation to get a college degree, even in a field that doesn't increase your earning power. The lenders may benefit, but so do the universities, which get a glut of Ph.D.'s to string along for cheap adjunct positions and millions in tuition. (http://chronicle.com/article/The-Big-Lie-About-the-Life-of/6...) (This very glut also means that, as an example, the humanities have at least the potential for greater meritocracy, in practice.)
Student loans--and for that matter, colonial indentures--are probably a great opportunity for those with the capability to make something either out of an education or out of a trip across the ocean. And they're probably worthwhile for someone who seriously believes their life would be improved by a stint in college or a change of continent, even if it doesn't directly pay off. So I'm reluctant to criticize the system just because it has certain dangers.