The Student Loan Crisis Is Real
A-not-so-surprising declaration: $1.2 trillion in outstanding education debt, with much of it in default, is a crisis. If a $945 billion loss of assets in the subprime mortgage crisis gets to be called a crisis, then student loan debt should rightfully, also, earn the moniker of "crisis."
Please point to a developed nation somewhere else on this globe that has multiple universities with yearly tuition costs higher than the average salaries of most entry-level positions? Oh, wait -- you can't. They don't exist.
Which is why when papers from the Brookings Institute come out that attempt to claim there's actually no crisis, or that puts the brunt of the issue mostly on "non-traditional" borrowers, I get a little upset.
To give the researchers credit, they do take into scope quite a bit of data. However, their methodologies are contentious to say the least, and do not come even remotely close to a realistic portrayal of the problem. This is a classic example of data not telling the whole story, or better yet, the human story, if ever there were one. If you doubt that, just think long and hard about one person you know whose life has been negatively affected by student loans. I guarantee you know at least one. That's all the proof you need.
So, rather than perform an unreadable, emotionless economic calculus to refute them (there are a lot more people that can do that better than I can) I'm going to take the reductivist road and keep things simple. I'm going to talk about Bob.
Bob: A Case Study
Bob is a pretty simple dude, and doesn't enjoy overtly complex calculations or data skews. So, conveniently, and maybe just for the purposes of this article, his post-grad situation is fairly straightforward. He has $40,000 in unsubsidized direct federal student loan debt -- just slightly above the average of $33,000.
Except, he went to school during 2009 and 2013, so the interest rates on these loans is a lovely 6.8 percent. Without getting too much into cost-income calculations, let's just say there's not much left over after his rent, utilities, and transportation are paid.
On a 10-year repayment plan, Bob owes about $460 a month for a thing he does not own, and that lives up in his head all day.
Here is a small list of things Bob cannot do for the next 10 years:
•Put $460 a month extra into his retirement plan
•Save an extra $460 a month for a mortgage
•Save an extra $460 a month for a car
•Save an extra $460 a month for his girlfriend-hopefully-soon-wife's wedding ring
•Pay unforeseen medical bills totaling $460 a month
•Help his parents pay unforeseen bills totaling $460 a month
•Cover his recently laid-off roommates' portion of the rent up to $460
•Go out to a $460 celebratory dinner (hey, nobody's perfect)
My point? How could anybody possibly argue that having a monthly payment for 10 years does not somehow negatively impact quality of life or ability to save? Of course it does -- it's a damn bill! Why are we even doing extensive studies on this in the first place?
Right, because we need to understand the severity of the cost. How much of that $460 a month does Bob really feel at the end of the day if he's making a decent salary? Is he hurting enough that we need to maybe change the system? Or, are we good to just keep things how they are?
The severity of impact is beyond the point: Bob should be paying either nothing or almost nothing for his education because it is a social good, not a commodity.
Your neighbor's new car doesn't help anybody but him and his family. The education of the kid who finds a cure for cancer potentially impacts the entire world, and for the better. Even the education of the kid that goes to work for Goldman-Sachs (debatably) impacts the world at large for the better. Education and commodities are two very different, very distinct things, and the financial management of them should be distinct as well -- not nearly the same, as it is today.
Of course I'm simplifying here -- changing the way we finance education is no easy task, although some hopeful presidential candidates have come up with smart ways of doing so.
But please -- stop minimizing student loan debt as an issue. Stop using data in questionable ways to maintain your desired narrative. Stop looking at students as numbers in an excel spreadsheet that can be sliced, diced, segmented, and silenced. Stop pretending like America isn't profiting off the backs of its youngest and most vulnerable workforce.
Stop pretending like there aren't human beings involved at the other end of this conversation.