The Double-Edged Student Loans Sword

Student loans have been a focus of many of the speeches at the Democratic National Convention.  The speakers obviously feel that talking about “making college more affordable” through more student loans is a winning issue — but is it?

To be sure, at one time going to college, and especially being the first person in your family to do so, was viewed as a sure way to get ahead and realize the American Dream.  Is that still the case?  As the scope of student loans has expanded — and as such loans have been used to finance educations in traditional colleges, and trade schools, and for-profit schools, and as all such schools seem to increase their tuition requirements on an annual basis — many have come to see student loans as less a gateway to opportunity, and more as a gateway to lifelong debt.

The statistics about the debt load related to student loans are striking.  Believe it or not, the Treasury Department is garnishing the Social Security payments of more than 115,000 senior citizens — to pay off their student loans.  More than 2 million people 60 and older have student loan debt; I know people who are hoping to pay off the loans they took out to attend college and law school at some point in their 50s.  As the article linked above indicates, younger Americans are carrying enormous amounts of student loan debt, debts that have affected the choices they are making about their careers and their lives, debts that have affected their parents who agreed to guarantee the repayment of those loans, and debts that may even make it impossible for the students to later get a mortgage for their purchase of a home.

How much has the easy availability of student loans encouraged universities, trade schools, and for-profit colleges to constantly increase their tuitions, rather than looking for ways to reduce costs?  How are students who borrowed heavily to go to college, or graduate school, or both, to manage in an economy that isn’t producing enough jobs that will allow them to comfortably repay those debts?  How many individuals who took on such loans now regret that decision?

Going to college and receiving a higher education is great, but you need income to repay debts — and that means getting a good-paying job.  If a struggling economy isn’t creating such jobs, student loans can quickly go from a blessing to an albatross.

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A Loan Is, Well, Still A Loan

Recently I’ve been struck by how often President Obama talks about loans being a solution to problems.  Small businesses aren’t growing?  The federal government will help them get loans.  People can’t afford college?  The federal government will help them get loans.

If the federal government wants small businesses to hire more people, why not just cut the minimum wage?  And wouldn’t it be better if the federal government cut taxes (or refrained from raising them come January 1, 2011) so that small business owners could use their own money to expand their businesses, or families could use their own incomes to pay for their children’s college?  If people kept more of their own money they wouldn’t need to borrow (or at least not as much), and therefore could avoid adding a liability to their personal balance sheets, avoid having to make interest payments, and avoid having a debt hanging over their heads for years into the future.

What the President doesn’t seem to get is that many people are very leery about taking out loans — indeed, the would-be borrowers appear to be at least as skittish as the would-be lenders.  Many people have friends and acquaintances who have gotten overextended and had the roof fall in when times got tough.  They don’t believe the “credit relief” ads that seem to dominate the airwaves are a realistic solution to crushing debt problems, either.  As a result, they conclude that it would be foolhardy to borrow a lot of money when the economy is in the dumper and no one knows what Congress might do next.

Can anyone really blame them for being conservative about their personal finances in these difficult times, and for not lining up to incur more debt?