Wednesday, May 5 2010

Student loans

Let me see if I understand the current situation:

  1. Tuition has risen dramatically in recent years, pretty much everywhere, and at a rate far higher than can be explained by an increase in the cost of providing the services.
  2. Many degrees can never produce income sufficient to keep up payments on the loans required to get them, even at relatively cheap public universities.
  3. The loan companies have successfully lobbied to stack the deck against students, making it very easy to accrue penalties that can double the principal of the loan, and offering no way out, not even death or bankruptcy. If you ever fall behind after your deferment ends, you’re screwed.
  4. There is immense social pressure to go to college and do something, to the point that you’re considered a failure if you don’t, and many allegedly-intelligent adults insist that college is a right.
  5. Many employers require Bachelors/Masters degrees as checkbox items that are completely unrelated to job duties (“you must be this tall to ride the roller coaster”), as an alternative to the sort of applicant testing that gets them sued.
  6. Self-esteem-based public-school education has resulted in millions of teenagers who believe that “following your dream” is a valid career plan.
  7. A lot of 18-year-olds are signing off on $30,000/year loans to major in Underwater Basketweaving, etc, despite the demonstrated lack of demand for such skills.
  8. The percentage of students defaulting on their loans is going up fast.
  9. The loans in question are a mix of federal, state, and private, making it very difficult for any single goverment agency to simply “fix” them (or even find them), very much like bad mortgages.

A lot of people are writing to Obama begging him to solve this problem. “Cut the interest rate to 1%”, “abolish the penalties”, “let us declare bankruptcy”, or simply “forgive all student loans, period”. They look at the massive bailouts of mismanaged corporations, and ask where their bailout is.

I can sympathize with a laid-off engineer struggling to make payments on $30,000 in loans, or a single mom who got an accounting degree in night school and fell behind on payments because her kid had a big medical bill. I have no sympathy at all for someone who racked up over $100,000 in loans in order to get a low-paying “dream job” in Manhattan:

“I chose to go to a private school and I chose to work in a field where the starting salaries are low. Does that mean that I chose to live a life of struggle, wondering how I am going to pay my rent, afford the basics of living and still stay in my chosen career field…all while putting up with high interest rates and an amount of debt that brings me to tears?”

The above list includes some serious problems, and taken together they’ve created an awful mess, but it’s not one that can be wished away with a stroke of the presidential pen, even if Obama were interested. Solving the student-loan problem has a lot in common with trying to manage health-care costs and resolve the mortgage crisis, including the mis-regulation that created the problems and the mis-regulation that failed to solve them.