Is Student Loan Debt Unfair?

Heard on NPR tonight, from an Occupy Wall Street protestor:

It’s unfair that someone has to graduate from college with so much debt, and then not even have a job.

I’m sympathetic. I dropped out of college, and with enough debt that I couldn’t go back for several years. And now I still have a significant amount of debt from my graduate program. And teaching at a private college I watch many students graduate with a heavy load of debt, and lately have had some begging me to help them find jobs. So I get it. But it’s wrong on multiple levels.

First, it’s not necessary to graduate with heavy debt loads. I was the only one of 4 kids in my family who left college with significant student loan debt. My brothers and my sister went to the local college, living at home and working while they went to college part-time. Yes, it took them longer to graduate–that means they paid with time instead of money.

Second, students are fortunate to be able to get student loans so readily. If we didn’t have a public policy of providing and guaranteeing loans, they wouldn’t have the opportunity to graduate in 4 years–they’d have to take the path my siblings took or else not get an education at all. We already have a public policy that helps them out–they neither recognize nor appreciate that.

Third, education costs money to provide, and the students are the primary beneficiary. Education is not a perfect private good, because it has substantial positive externalities, so some subsidies are fine (and for those students who go to state schools, they are normally getting some pretty substantial subsidies; some private college students are, too). But it doesn’t seem unfair to ask the primary beneficiary to pay the bulk of the cost. The assumption seems to be that others have a responsibility to provide student X’s education–but why that’s their responsibility and not student X’s is hard to explain.

Fourth, it certainly stinks to not be able to find a job, but who is responsible for ensuring recent graduate X has a job? It’s easy to blame “the system,” but that doesn’t get us anywhere. What kind of system could we design that would actually ensure everyone a job, yet not have the downsides of a planned economy? And just how widely are they casting their net in looking for a job? While the national unemployment rate is 9%, the unemployment rate in North Dakota is 3.2%, in Nebraska 4.2% and in South Dakota 4.7%. In New York, where the protests began, it’s 8%. I don’t care if you don’t want to live in the plains states–nobody has a duty to bring a job to you; there are jobs available if you’ll get on the bus and go to them. Sure, for a homeowner with a family that’s a difficult choice (although immigrants from other countries do it all the time, going further away from home–including, probably, these folks’ ancestors), but for a recent graduate from college, most of whom don’t have mortgages and kids? Labor needs to be mobile-if you’re not willing to be mobile, that’s your problem, not someone else’s.

Fifth, how is their position fundamentally different from that of an entrepreneur who’s borrowed money to try to start a business? The recent grad has also borrowed to make an economic investment they hope will pay off. If nobody’s responsible for guaranteeing the entrepreneur’s success, then why is someone responsible for guaranteeing the recent graduate’s success?

Their frustration is real, it’s understandable, and the cause of it does demonstrate that our system is not functioning well at the moment. But it does not indicate that another would work better over the long run, and it does not indicate that anyone else has a responsibility to provide something to them. Because, make no mistake, it’s ultimately never “the system” that provides anything, but all the other people within that system.

I’m reminded, as I am so often, of Horace Walpole’s aphorism that “this world is a comedy to those that think, a tragedy to those that feel.” These “students” feel, but they do not think.

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About J@m3z Aitch

J@m3z Aitch is a two-bit college professor who'd rather be canoeing.
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8 Responses to Is Student Loan Debt Unfair?

  1. D. C. Sessions says:

    I sympathize, really I do. Of my three college-grad children, only one has a job (OK, another is a grad student. Still …)

    But none of them have any debt. I may have less in the way of retirement savings right now,
    drive an eight-year-old economy car, and live in a smaller house than my colleagues do. It’s a matter of priorities, thank you, and I think that nationally we’ve shifted ours a bit away from investing in our children’s futures.

    The guaranteed student loan programs are essential. They’re the only way to get a decent education for far too many bright American kids — but they shouldn’t be the first line of finance for the upper middle class, for crying out loud.

    Rant over.

  2. Dr X says:

    I do think there is a problem that guaranteed loans have fueled the explosion of tuition levels at private colleges and universities. While tuition at public schools has risen at a rate very close to the CPI, it has gone through the roof at private schools. That might not matter, except public 4-year colleges and universities used to have fairly liberal admissions standards. Now, the high price of private schools has driven applications at public universities through the roof, making admission to these schools much more difficult. So, quite a few students find themselves going to private schools because they can’t get into a state university.

    Considering that a college degree has become almost the job-market equivalent of a high school diploma, I find it troubling that high debt is becoming the norm for people just beginning their adult lives. High debt at a young age is now becoming necessary just to grab a spot on the bottom rung in life.

    Add to this that colleges and universities have integrated the idea of heavy borrowing into their basic sales pitch. I have serious doubts about whether typical 18-year-olds appreciate the gravity of what they are taking on.

    Also interesting is that these loans are an exception to bankruptcy. I understand the issue of moral hazard, but there is moral hazard in bankruptcy law generally. What it is about people who’ve taken these loans that makes it acceptable to say that we’re fine even if a person winds up with this albatross around their neck for life, which is happening increasingly? Meantime, someone like Trump can reorganize and see large parts of his debts reduced, enabling him to bounce back to the ranks of mega-wealth.

    We can talk about what people could have done to prevent these difficulties, but I think we have to deal with human beings as hey are, rather than as we would like them to be when we look at a system that is having increasingly serious consequences for young people. And because something like 60% of human resource directors say that they now check credit ratings of job applicants, getting into a hole with student loans can have devastating effects on the hunt for employment that could help someone cover their debts.

    Perhaps student loans should be tightened up, maybe allowing a much smaller percentage of borrowing against tuition/room and board. Start exerting some downward pressure on private school tuitions. I also find it troubling that what I once thought of as a great idea, the private, for profit college, is looking more like a device to exploit the student loan guarantee system, where being able to borrow the money is the only qualification for admission, without a realistic appraisal of the student’s chances for graduation. That’s not as a consequential to the student if they haven’t borrowed, but potentially devastating if they have.

  3. I agree with much of what Mr. Hanley says, with a partial exception to his 5th point, in that the entrepreneur generally has the advantage of recourse to bankruptcy (I realize it’s not a free-for-all, because there are conditions that must be met for bankruptcy and because declaring bankruptcy has real consequences and is not a completely free ride). Still, I acknowledge that one result of making student loans non-dischargeable in bankruptcy is to make the interest rate lower, on the assumption that the government would probably charge a higher interest rate if it had to account for the risk of bankruptcy.

    I also agree with most of Dr. X’s last paragraph and will add that I don’t think student loans are unfair. But I do think–or suspect–that the way they are implemented creates an incentive for colleges to raise tuition rates higher than they otherwise might. That’s not exactly unfair–at least not in the sense that the protester seems to have meant “unfair”–but if it’s true, then it’s something that needs to be fixed or at least better managed.

  4. Dr X says:

    I wouldn’t use words like fair or unfair to describe something that I think of as more of a practical policy issue.

    By the way, I think student loans were nonchargeable in bankruptcy until something like the late 1980s. It was one of those issues that made for a nice let’s-get-angry story on the news and, as I remember, not only was the fact that student loans dischargeable the cause of some furor, but collections were incredibly lax. Basically if someone didn’t pay, they might not even hear from the government.

    I do think it’s possible for courts to discern the difference between someone who has no reasonable prospects for repayment and someone who is just looking to weasel out of the loans they took. They could also implement something equivalent to Chapter 11 (or is is it 13?) reorganizations for lower amounts than the amount currently set. Allow a period of no interest reprieve with a payment schedule or a court ordered adjustment in the principal.

  5. James Hanley says:

    I do think there is a problem that guaranteed loans have fueled the explosion of tuition levels at private colleges and universities.

    But part of it is also rising expectations among students about what they want in a college. My predecessor at my college, now retired, once blogged quite a rant about how plush colleges are now, when back in his day they got along just fine with much more spartan conditions, thank you very much. As an example, my first dorm room was a double, but one homecoming weekend an alum told me that in his day there had been 3-4 students per room (it wasn’t a particularly big room, either). Nowadays students are increasingly demanding single rooms, because the increase in home sizes and the decrease in family sizes means most have never shared a room, and they don’t want to start in college (I foresee a lot of marriage conflicts!). 1 or more private colleges fails each year in the U.S., so competition for students is a matter of survival, and many students put amenities above price.

    The ability to get loans to pay that price surely plays an important role in their decision-making, and absent that they might go for lower prices and fewer amenities. But my point is that it’s not simply a matter of colleges raising their rates as a direct consequence of the government handing out money, as I’ve often seen it portrayed.

    An interesting point about bankruptcy that I obviously had not thought of. I don’t think we could reasonably make it too easy to discharge student loans, or we’d create an incentive to go jobless for a year or two in order to shuck them off. But to have them be totally non-dischargeable sounds like a really bad public policy. Surely some (necessarily imperfect, but better) middle ground could be devised.

  6. D. C. Sessions says:

    Surely some (necessarily imperfect, but better) middle ground could be devised.

    An obvious example would be tolling them for the unemployed (as distinct from forgiving them), especially in times of high unemployment. Assuming, of course, that we ever see times of high unemployment.

  7. Dr X says:

    @JH

    But part of it is also rising expectations among students about what they want in a college. My predecessor at my college, now retired, once blogged quite a rant about how plush colleges are now, when back in his day they got along just fine with much more spartan conditions, thank you very much.

    I’m aware of this, but didn’t mention it. Of course, it’s still a matter of having the money to pay for the amenities that become competitive features of private schools. Those who might want to economize are still saddled with the bill for that. And around here it’s not much cheaper for students to move off campus.

    And in my previous comment I meant to say that student loans were dischargeable through bankruptcy at one time.

  8. Dr X says:

    bad /tag

    [Fixed–JH]

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