Cancel Student Debt
They say going to college is the key to success. All you have to do is borrow money, pick a school, get a degree, and poof! you’re set for life! But no, this cultural paradigm is a lie. The only guaranteed outcome is a pile of debt. A cultural paradigm is a belief about how something should be done or thought about. They are different than personal paradigms because the purveyors of a cultural paradigm profit from its adoption.
So who profits from the paradigm that college is the key for success?
A Brief History of Student Loans
In 1958, the war was over and and the government wanted America to compete intellectually with Japan, Russia and Germany. To boost college enrollment, the government launched a program that encouraged banks to issue student loans to young people. Prior to this program, banks were hesitant to lend to students because they might not pay back the loan. The government’s program eliminated that risk by covering all student loan defaults.
It worked. By 1986, student loan origination rose to $10 billion. More Americans than ever were graduating with 4 year degrees. That said, tuition was cheaper back then. The average cost for a four-year public school degree was $2,100 (using 2018 dollars) and students generally paid off their loans within a couple years of graduating.
Fast forward to 2009. The financial crisis had hit. To boost morale, President Obama passed legislation to cut out the banks so the government could lend directly to students. In his address to the nation, Obama said he wanted America was to have the highest percentage of college graduates in the world by 2020. His plan would double the number of students currently enrolled, from 18 million to 36 million. By 2018, student loan origination increased to $120 billion and total outstanding loans reached $1.2 trillion. Notably, the average cost of a four-year public school degree increased to $10,300.
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Why College is so Expensive
Obama’s federal funds program meant that colleges and universities would receive the bulk of their tuition checks directly from the government. This might have worked out fine if regulations were put in place, but unfortunately they were not. No tuition caps, no spending caps, no oversight whatsoever. If the government wanted to risk trillions of taxpayer dollars on college kids, couldn’t it at least regulate how the money was spent?
We’ve seen this playbook before: In the early 2000’s, the government mandated banks to issue more mortgages. If the borrower defaulted on the mortgage, the government promised to cover the cost. This meant banks no longer carried mortgage risk, which resulted in them handing out mortgages like they were candy — which of course led to the 2008 Financial Crisis.
And now we see this with colleges. In the last decade, schools have wasted no time taking advantage of the situation to buy new football stadiums, state-of-the-art facilities, give out million dollar salaries and so much more. When the government wants to be socialist, it gives away free money. When it remembers we are supposed to be capitalist, it refuses to regulate. The student? No one cares about them.
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Student Loans and the Psychology of Debt
After I graduated college, I waited tables to save money so I could go on a year-long trip around South America. I was 25 by the time I got my first “real” job. It was then that I realized my post-college experience was unique. Because of student loans, my coworkers had gone directly from the classroom to the cubicle. A job can teach someone a lot about life, but how does a 20-something appreciate it when they have no perspective of the world?
The cultural paradigm that college is the key to success robs young people of their freedom. Of wanderlust. Of taking risks. In fact, most steps towards The American Dream require debt. And what is debt? Chains. You own the debt and the government owns you. Think of it this way: If someone cared about you, would they let you borrow $75,000 to study art history at a 3rd tier school?
The government likes you in debt because debt boosts the economy. A Psychology Today article says that a person who owes $100,000 is more likely to buy a designer watch or expensive concert tickets, than someone with only $5,000 of debt. The psychological reason is that when you are in so much debt, spending a little more can’t hurt.
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Cancel Student Debt
Remember that a cultural paradigm enriches its purveyors. The 2009 direct federal loans legislation was meant to cut out banks and give young people better access to debt. Politicians figured it’s better for the government to profit from student debt than banks. From a 2013 USA Today article: The government projects to make more money off student loans this year than ExxonMobil, Apple, J.P. Morgan Chase or Fannie Mae made last year.
But the plan backfired. The government was so eager to lend money that it didn’t analyze the borrowers, the school, the degree, the earning potential, or much of anything. The default rate for federal student loans has skyrocketed and the program now costs taxpayers $307 billion a year.
The idea that college is the key to success does not mean it’s worth a life sentence of debt. We each have the objective in life to connect with our souls and express its authentic desires. When we have the time and space to do this, we blossom into our authentic selves. Today, however, everyone is buried in debt and stressed about how to repay it. If the government can print trillions of dollars to bail out banks, cruise lines and foreign countries, I don’t see why they can’t bail out the students. And after they do, they should exit the student loan business immediately. Let banks assess the risk of the borrower, complete due diligence, and do their job.