Articles like this make me angry when they use a college education as the “carrot on a stick” that makes student loans a good thing:
“Student loan debt is also an investment in your future. Simply put, you will be more employable and earn more with a college degree.”
I believe this is a straw man. The argument for or against a college degree is irrelevant to the structural problems that student debt brings. I believe that student loan debt is a social problem, a social justice problem even, because it is most egregiously harmful to very specific segments of our society.
- 1 out of 3 student loan borrowers don’t graduate. This immediate invalidates the ‘college is worth the debt’ argument. If as many as a third of borrowers aren’t graduating, they are stuck with debt they can’t get out of and no increased earning potential. There is myriad of reasons they might not be graduating, including being poorly trained for college, health, financial, family instability, substance abuse (yo Madison!), and more. More on that here.
- If I default, the government will withhold low-income benefits. Because the government is the debt collector, if I default on my student loan debt the government will withhold my tax returns (including Earned Income Tax Credit and Social Security benefits). These social safety nets aren’t a big deal if I’m wealthy, but it’s devastating if I’m poor. Between the socio-economic classes (rich and poor), who is more likely to default?
- The highly indebted are borrowing even more. We’ve discussed before that there is a bifurcation of healthy borrowers and unhealthy borrowers. The healthy borrowers borrowing is remaining level, but the unhealthy borrowers are borrowing even more than before. Some estimates put these borrowers at around 17% of all borrowers. In my experience, this sounds about right. We know that if you are female, of color, or an older student you are significantly more likely to be a highly indebted borrower.
- Borrowing to make an “Investment” is extremely dangerous. Quoting a 15% financial rate of return is just lying if it doesn’t take into account borrowers who don’t graduate and the higher interest rates and fees on defaulted student loans. If you can’t bankrupt out of a ‘bad investment’, it can cause decades of pain for defaulted borrowers. High returns don’t mitigate risk. This is why the lottery is a bad investment. A potential 15% ROI doesn’t offset the inherent risks of student loan borrowing.
So to summarize, “it’s okay to have student loan debt!” as long as you’re intelligent (with an aptitude for intellectual studies, healthy family structures, and safety nets that allow you to graduate), are not poor, and are not a woman or minority.
There are a variety of potential improvements that could be made on the legislative level (realistic hard cap on borrowing, lower interest rates, larger Pell grants, allowing bankruptcy), but these are out of our ability to change right now.
Instead, let’s focus on personal behaviors I can change RIGHT NOW to reduce my risk of being a statistic. These include borrowing as little as possible, fully understanding my current situation and risks, and building healthy personal financial habits.