Student Loans: Indentured Labour

Student loans in the United States have already surpassed the $1 Trillion mark. That is a huge sum of money that requires about $60 billion  in debt service every year. Such a level of indebtedness is equivalent to the sum of the official external debt of the Canadian government , $1.18 trillion, or that of Australia , $1.16 trillion. Actually there are only 13 countries in the world whose total sovereign debt exceeds $1 trllion and each of them has the power to tax.

We live in a world where education is the single most important factor in determining employment opportunities and consequently earning potential. That is a given. But what is equally true is that the above potential rewards make financial sense only up to a certain level of expenditure. When the student loan program was initiated the ROI was clearly attractive. Students borrowed relatively manageable sums of money to invest in a college education which in turn allowed the students to have an earnings stream that is sufficient to meet moderate living expenses, pay back their accumulated debt and yet set aside some savings for the future. This is no longer the case. Students often graduate with a debt load $100,000  and have to work at a job that pays $32,000 per year. That sum is not sufficient to pay rent, food and taxes not to mention student loan obligation.

So how did we get here from there? As is often the case, the explanation is complex and different groups have different  interpretations. It is safe though, to present this is a classical case of a blowback, a case of unexpected outcomes. The government had every intention to help students meet the expenses of higher education short of making it free ( remember that free education is not compatible with a market economy); the financial institutions were happy to oblige since the federal guaranteed program offered a safe outlet for loans; the colleges and universities rejoiced because they did not have to watch their expenses since .in the presence of "free" money, the tuition and fees can always be increased and   ;excuse the expression; the gullible student who at the tender age of 18 is willing to put her name to the dotted line with the unrealistic expectation that the degree earned in 4 years will increase earnings so much that making the required payments is not something to worry about. Yes all parties are to blame, just like the financial mess created by sub-prime mortgages. This is almost a parallel development. Instead of making money available to individuals with no job and no possibility of ever paying back the loans once the music stopped we are in this case advancing 18 year old students; who cannot otherwise find financing to buy a second hand car; huge sums of money without explaining to them clearly the potential ramifications of such behaviour. We never took the time to tell them that "There ain't no such thing as a free lunch" ; TANSTAAFL.; and that they are ordering a lunch that they will never be able to afford.  Unfortunately the sub-prime mortgages is not the only relevant analogy. Sovereign debt and fiscally irresponsible spending by many governments all over the world is another example that is in essence very close to what student loan debt has wrought. Governments all over the world were told that they can have their cake and eat it too. They were encouraged to borrow as if there was no tomorrow and to use the funds for all sorts of unproductive services. They were told that they can borrow their way into prosperity no matter what they do with the borrowed funds. Unfortunately that is exactly what our students have been told. Borrow as much as it takes, go to college, have a splendid four years and do not worry about the cost. Guess what, reality has a way of disrupting irrational dreams. Subprime borrowers lost their homes, governments are shrinking their public sector and college students in the US have become the new Indentured labour.

This is a nightmare and it does not have to be this way. If we all work together we can and we must overcome this problem for the sake of all of us and not only the students. The first step must be to stop the denial and recognize the problem. Once we do that then we have to coordinate all our efforts to find a fair solution. Please share with us your experience and let us know whether you think that such a blog can be helpful, if for nothing else but sharing information and giving you a voice.