The right things in the wrong order will get you hit by a car. During a rerun I was watching yesterday of HGTV’s show “Fixer Upper”, Joanna gave her husband, Chip Gaines , an old Jeep for his birthday. He was pretty fired up about the whole thing and in his excitement he started the Jeep. What happened next is a common experience if you’ve ever tried starting a vehicle with a manual transmission without realizing it was a manual – the car (parked in gear to prevent rolling) jumps forward as the engine turns over. On the show, Joanna standing in front of the car, has to dive to the side to avoid getting hit by the Jeep as it lunges forward and crashes into a parked van.
Chip, in that, nearly awful but now humorous, moment realized and reminded me of something that was brought to my attention through a Tony Robbins podcast I heard this week: The proper action executed in the wrong order doesn’t yield the desired results. Chip executed all the correct activities to get his Jeep to operate correctly – put the key in the ignition, started the motor, and put the car in gear. But when the correct activities were executed in an incorrect order, it nearly resulted in crushing his wife.
The ballooning student loans of America, crossing $1 Trillion dollars, are a great example of the principle above. I’m sure student loans were introduced as a tool to help open higher education to millions of Americans that had previously not had any financial alternatives. When they were introduced, the majority of students were funding their education through family money, personal savings, self-funding by working through school, or scholarships. Student loans were introduced as a last resort to those who were unable to finance education through one of those routes. This system worked well for many years.
Unfortunately, when you introduce a financial incentive into a system, it changes the motivations of one of the parties. After market saturation of people able to pay for school, both lenders and schools found themselves with a similar objective – the lender and the school both needed more students to grow operations – one to lend more money and the other to grow its program. The size of this pot of money was enough to organize lobbyist to change the law – first to allow the interest to be deductible and ultimately to bring the government in to subsidize and guarantee all the loans.
This mutuality of interests probably escapes most students. It’s not unlike the movie Social Network, when Eduardo – asked why he didn’t have his own lawyers, rather than Facebook’s attorneys, review a critical document – replies “…in all honesty I thought they were my lawyers.” Most students assume they are on the same side of the table as their school, with the unfortunate but rising cost of the education on the other side of the table. In such a scenario, student loans are brought to the table as the first and easiest solution to bring the two sides together. But what the student doesn’t realize is that this solution benefits everyone at the table but them.
It is this escalation of its rightful position in the hierarchy of funding education that has caused the student loan crisis many are experiencing. When it was regarded as a last resort beyond using other resources, the amount of accumulated debt remained easily payable. But when it was moved up the ladder and assumed its position as the easiest route, it ballooned. Schools, credit experts, and financial gurus have even gone as far as to sell student debt as ‘good debt’ – thus it isn’t just the easiest way to finance education, but also the best.
When you tout student loans as the ‘best’ route to fund education, you’re starting the car with the transmission engaged. The point of this article isn’t to slam student loans but rather to remind us that when you put the right things in the wrong order, the machine doesn’t work. Right now, the machine of higher education isn’t working for many – some are able to get out of the way and some are getting run over.