In 1979, I was earning a modest $11,000 a year at one of those tedious entry level jobs that some of us manage to get literally hours out of college. All was going smoothly as could be expected for a first timer in the workforce until roughly six months later when I received my first invoice for my student loans.
Between rent, a car and a new work
wardrobe, $11,000 goes only so far and the thought of another expense slicing
an already thin pie even smaller, I spent a lot of time trying to determine where
I could cut costs.
It took four years but somehow, I managed
to pay them all off.
Fast forward 40 years.
Student loan debt in the U.S. has
now morphed into a $1.6 trillion dollar behemoth with 30 percent or more of
borrowers defaulting on loans. To put that dollar figure in perspective, it is
about 10 times larger than the Savings & Loan crisis of the 1980s.
Now there are myriad reasons for
this – a steep decline in government investment in colleges, the explosion of
online learning and last but not least, individual choices of students who
eschew more tuition reasonable state schools or community colleges in lieu of
far pricier private colleges. Compounding that dubious choice of higher learning
institutions many graduates with what I like to civilly refer to as “toilet
paper” degrees. Meaning that in the real world, they’re good for little else.
Case in point. I know a woman who attended private college in the Northeast (tuition, not including room and board was comfortably over 50K a year) and graduated with degrees in foreign literature and philosophy. Now could someone be so kind as to forward a list of Fortune 500 companies who are actively seeking candidates with that educational pedigree.
Now the incoming administration has
promised to make student loan forgiveness one of its priorities. How much
“forgiveness” is still to be determined.
This scenario eerily reminds me of
the subprime mortgage implosion of not so long ago. It was deemed okay to offer
home loans to folks with FICO scores under 550 and thousands in credit card
charge offs. The bride has been in the mortgage business since 1985 including
two tours of duty in subprime and I saw one applicant approved for a loan
despite a 500 FICO score and 80K in credit card charge offs. Let me repeat that
for emphasis - $80,000!
Suddenly when the interest on those
loans ballooned after the first year, suddenly the borrowers who didn’t bother
to read the terms of the loan and their adjustable rates cried foul among other
things and defaulted at an alarming rate. And we all know what happened after
that. Recession, bailouts, you name it. Bottom line, the costs were passed on
to the taxpayers.
Which is exactly what will happen
here. And those like me who paid back their loans I’m sure will be thrilled to shrug
our shoulders and say, “no problem, our treat.”
I recently saw a consultant on a
financial program explain a rather simple strategy to repair the growing
student debt crisis: You take out a loan. You pay it back.
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