On the Student Debt Crisis

I’ve been watching some of the ‘major in debt’ stories on Youtube.

One of my reactions to the stories is what did you expect?

Even when I was in high school, the idea of taking on $30,000 or more in debt to pay for an undergraduate degree seemed risky. I knew that the ‘magic of compound interest’ works against debtors, and even though the economy was doing better then than now, I was skeptical that someone straight out of college could make enough money to really support those kinds of debts.

Take this video for example.

That is an extreme example … but even in high school, I thought that almost all for-profit colleges were sleazy, and I find it incredible that he belived the 90% placement rate without asking basic questions which would have revealed those were unpaid internships before enrolling.

So, part of me thinks that it’s these students’ fault for being innumerate, finanncially illiterate, and plain naive.

But whose fault is it that they are innumerate and financially illiterate? If it were just a small group of people, I would say it’s the individuals’ fault. But this is millions of people, which means that there is something wrong with our society.

And why are we making it so easy for innumerate and financially illiterate people to take on so much debt? Well, it benefits the financial predators … which I suppose is the point.

Then there is peer pressure.

Aside from my parents, I felt very much alone in my stance that student loans were bad, that it would be better to not go to college if loans were the only alternative, and that going to community/state college was way, way, way better than going to a private school with student loans. Nobody else really thought that taking on student loans to pay for college was a big deal. I even remember a conversation like this:

Person: Why not go to [expensive college]?
Me: It’s really expensive!
Person: You can get loans.
Me: Loans have to be paid back with interest.
Person: You can get the loans deferred if you go to graduate school.
Me: That doesn’t solve the problem.
Person: Debt doesn’t matter, everybody owes everybody else money nowadays.

And even in high school, I did not fully appreciate:

* how much fraud and lies there are in student loans
* that students loans cannot be discharged in bankruptcy

… so they are more evil than I had thought they were.

I support student debt jubilees because, while I find the naivete of many of these students incredible, young people ARE naive, and we had not created the environment to make them sufficiently numerate and financially literate to repsonsibly take on such debts … not to mention the fraud. Student debt jubiliee is good for the economy, and it is the humanitarian thing to do.


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2 thoughts on “On the Student Debt Crisis

  1. I couldn’t agree with you more. When I started college I had no financial literacy at all, and I just happened to get lucky that my parents were kind enough to help me and my school was generous enough to give me scholarships in addition to loans so that my final debt burden wasn’t too high. I really do think that an Intro to Finance course should be required before taking on debt, because when I was 18 years old I had no idea how much time and effort 10k, or 20, or 50k really represented.

    • Hmmm, the thing is, I think a simple ‘Intro to Finance’ course would only be of limited help. Financial education does not have much effect if it’s not backed by strong numeracy, and people with strong numeracy are already much more careful about taking on debt. This is why many attempts to do this sort of basic financial education fail. What would be more effective – but unfortunately, much harder – would be to improve math education and numeracy across the board combined with changing cultural attitudes towards debt.

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