Category Archives: Student Loan Bubble

Student Loans: A Failure by Legislators

Every so often, I have the opportunity to discuss something I’m passionate about in my graduate classes. Below is the PDF file of a policy paper for my Higher Education Seminar class. In it, I discuss the student loan opportunities, implications of “over-receipt”, how it’s effecting our economy and the failure of proposed legislation on the federal level. Personally, I believe in a complete cessation of federal student loan lending, but that extreme measure has a small likelihood of taking effect at this time. The paper is broken down by headers in case you prefer not to read it in its’ entirety. I also included a class handout which briefly details the overview of the paper with graphs, charts and bullets…for people who like pictures!
Note: Just because you are not a student, doesn’t mean the mountain of student loan debt doesn’t affect you. This is an overall economic issue, not one affecting only a single generation of millenials.





Student Loans: I’m ready to place blame.

Student loans. Two words I escaped in undergrad but responsibly and begrudgingly chose to assume for my graduate degree (currently in progress). I’ve blogged about student loans in the past, but now that I am actively going through the process, my convictions have strengthened.

My decision, after much contemplation and research, to assume student loan debt was not an easy one but necessary if I wanted to make that “investment” into my own future. (Note: I do not plan to “Teach for America” or work for the Feds, so it’s safe to assume that I will pay back every penny with sufficient 6.8 % interest.)

I could NOT believe how easy the application and approval process is. You fill out a few questions about yourself and your financial state (and at my age, both of these are minimal), submit, wait, and APPROVED! You then complete a 15-minute webinar on loans, sign a “digital signature” and your loan is assigned to a master company who you deal with directly.  The money is directly deposited into your account. After doing this, you don’t really hear from your loan host, except for a few ‘holidays’.

This year, I received a “birthday card” (via email)  from my student loan host…on the wrong day. They don’t even have my date of birth correct in their database. Fabulous record keeping. Sure, this is a minor feat, but when you can’t record-keep correctly, it makes me question what else you can’t do correctly.

Then, just this week, I received a “Welcome Back!” email from my loan host as well. Please see the ‘circled’ sections below:

A few things to consider before we move on:
There are subsidized loans, which allow you to hold off on accumulating interest until graduation day; and unsubsidized loans, where interest begins accumulating from the day you accept the loan. With unsubsidized, you can either a) pay the interest during your time in school or, b) have the interest funneled into the final loan amount and end up paying interest on interest. (initially, you can choose subsidized over unsubsidized, but subsidized maxes out earlier than unsubsidized)
Being the stingy, OCD person who would rather spend that money on something else, that I am, decided to take ‘option A’ in regards to my unsubsidized loans to ultimately reduce the amount I have to pay back. You would NOT believe how difficult this process is.

Let’s talk about how unrealistic student loans are.
Where in real life are you expected to make a monthly payment without receiving a bill or some sort of “payment voucher” etc?
Where in real life can you REDUCE THE TERM OF YOUR LOAN because you’ve gone 10 years with on-time payments? (I’ve yet to meet a mortgage lender who says “Thanks for being on-time for the last few years. We’ve wiped your slate clean, the house is yours!”

We saw with the mortgage industry what happens when you assume more debt that your asset is worth. So why are we allowing students to pull out the maximum [graduate] loan amount of $20,500/year when tuition can often only cost $5k-$6k? Imagine how low payments would be or how quickly you could pay off loans if only the bare minimum was accepted?

Another problem: deferment. I fully support our armed servicemen and women and agree with deferment while they are fighting for our freedoms overseas. I do not support deferment for those experiencing “financial hardship”. If you are unemployed, you can defer for up to three years. Really? I guess this is better than allowing unemployment benefits to be put towards loans, but still. How is this even an option? Maybe you should have selected a degree in something other than Art History or Gender Studies through Social Work.

Finally, cancellation. Whose idea was this? I would love to know so I could take them for a long walk on a short plank. Like I mentioned above, loan amounts can be taken out to far exceed the cost of education. Now there is an option to cancel loans for a variety of reasons. If you plan to cancel the loan based on “service”, don’t disperse a loan at all. Simply don’t charge tuition for said person. Allowing them to take out sometimes 4x the loan amount and then canceling the entire thing…???Heaven only knows what we’ve actually paid for in tax dollars.

The last thing I am implying is that students are not responsible for their own loans. They absolutely are. But, back to the email….
Why would you send emails saying “You don’t need to do anything!” when in reality, you do?
Why would you cease correspondence after signing loans until 6 months after graduation when the payments begin?
Why would you omit the fact that you can start making payments on your loan amount starting the day you assume them?
Why would you allow telephone operators to say payments cannot be made over the phone and make online account set up extremely time-consuming in an effort to discourage early payment?

I’ll tell you why: Because student loans are a feeder into the dependency of a nanny state.

With student loan debt at an all-time high, approaching nearly $1trillion dollars, we should be scared. We should be making moves.
We should absolutely encourage people to begin paying money back immediately upon the commencement of the loan. Even if it’s only $10 a month, some sort of effort, some sort of action should be promoted if it won’t be required.
We should ONLY allow tuition costs paid directly to the school + a book allowance to minimize repayments and loan withdrawals.

The student loan program is entirely broken. It is only working for that small percentage that actually pays, or intends to pay, back the full amount + interest. I call for an entire moratorium on the federal student loans industry. Otherwise, cost will only increase as those of us who make every effort to repay them are left with the burden of compensating for those who do not.

Student Loans: A Free Investment In Your Future?

Any discussion about student loans gets me very fired up, mainly because the concept is so broadly misunderstood. I’m often offended by the desire of others to ‘write off’ or default on their student loans….because I have them!

Student loans are an investment in your future. And just like a home loan or a credit card, you are borrowing on the condition that you will pay it back. I don’t know of any circumstances where you pay your mortgage every month for 18 years and one day your lender calls and says, “You don’t have to pay any more! The house is yours!” It just doesn’t happen. Obama’s recent “Student Loan Overhaul” is a real slap in the face to faithful borrowers. Of course, if you work for the government for 10 years, your debt will be relieved. But now, after 20 years of faithful repayments while working in any sector, the government will excuse your loans. How does this make sense? And how is it fair? It increases the costs of future loan holders who will essentially be repaying the debt of those who were pardoned from paying.

Sure, it all goes back to the morals and current direction of our country. What are we teaching youth? It’s okay to default. You don’t have to fulfill contractual agreements to repay funds. The government will bail you out and pay it for you.

Just this morning I read a Huffington Post article detailing the new movement to ‘Occupy Student Debt”. The movement is asking that borrowers default on their student loan payments after one million individuals have similarly signed the debtors’ pledge. Are you kidding me? I understand that there is high unemployment, and yes, things are a little cut throat out there. But you can’t just throw your hands up and say “We quit!”. Why don’t you use the ambition you had in attaining all that post-secondary education and use it to find a job. Our economy is struggling and you have $500+/month student loan payments and you think you are above working at Chick-fil-a or driving a delivery truck?

This Occupy Student Debt movement also wants to draw attention to the increased cost of tuition. The movement seeks interest-free loans from now on and relief of all current debt. This movement is a true disgrace to those who took out student loans and make a legitimate effort to pay them back every month-until they are COMPLETELY repaid. There is no accountability. If $200,000 in student loan debt sounded unreasonable, maybe another, less-expensive school choice was in order. Or maybe work a little and save money, THEN go back to school. Or maybe maintain a job while in school and pay your own expenses instead of taking out loans to cover tuition, housing, AND entertainment. Don’t tell me it can’t be done.

Bottom line: It’s obnoxious for students or recent graduates to go around complaining about student loan debt. It was a choice. Undergraduate, Graduate and Doctorate level educations are not a right, they are a privilege. And they’re not for everyone. The -high- cost of education is a barrier to entry: not everyone needs a post-graduate degree and it allows for diversification in the work force. Don’t expect any of these “solutions” to rectify the “problem”. That is, if you define a ‘problem’ as fulfilling a contractual agreement.

I liked one of the comments on the article “If you throw away the loan, they should take back the degree”.