In the early nineties, my business was down because of the recession that hit my industry and the state of Massachusetts more like a depression. I needed to find a job, I had a family to support and a mortgage to pay so upon hearing that businesses liked to see you in a program to get a degree, I enrolled as a student to study for a Master's degree at Boston University. I applied for financial aid and was able to get most of the cost of the tuition from student loans. It was amazing to me that the money came so easily and with very few strings attached, it came directly to me and not to the school. I also noticed by doing the math that the classes I took must have been earning the University far more than their cost. I had been running my own business for some time so I was in the habit of calculating cost and profit on any endeavor. There were 30 to 40 students in a class each paying tuition of about $1,200.00 apiece. The cost to the university was to provide a classroom and a teacher for six hours each week. Many of the teachers were from the business world and taught with a Master's degree themselves, part time at night, most of them were probably not highly paid. It occured to me then that, as far as I was concerned, the easy availability of loan money was instrumental in determining the cost to the students. When I signed up, my new advisor told me not to worry about finding a job after making such a serious investment in time and money. It turns out that she meant only not to worry, not that I would find a job. I never was able to get a job in business and the investment was largely wasted except for the piece of paper on my wall. It took me ten years to pay off my loans, in the meantime we lost our house. I cannot blame the student loan system for any of my bad decisions but I do believe that the easy availability of money through government backed loans combined with the mantra that a college degree is essential to succeed have been the primary cause of excessively high tuition rates in the United States.
Later, I learned that student loans are not only backed by the government in the case of default, but that they cannot be discharged in bankrupty, therefore there is absolutely no risk to the banks who provide these loans in return for the interest and fees they charge. This is not a free market system where interest rates are determined by open competition, cost of capital and associated risk. The government has set up a system that transfers wealth from young people at the beginning of their working lives to universities, corporations, banks and even to the Department of Education itself. It is an $85 billion dollar a year business where most of the profit comes not from students who faithfully make their payments but from students who fall behind. Consumer protections for borrowers that apply to all other loan transactions have been removed by Congress. Wages can be garnished, including social security and disability payments and tax refunds, all without a judgement in court. Professional licenses can be cancelled, and jobs in the public sector taken away. They have the power to force money out of those who default, even where there is genuine hardship involved. The interest that the lenders and agencies have in availing themselves of this power to collect not only on the balance of the debt but also the interest and the substantial penalties involved makes this a system of predatory lending unprecedented in American history.
The fantastic amount of money that is owed in student loans will be a drag on the economy for years to come. The next generation is saddled with debt right from the starting gate. Young people will not be able to take out mortgages to buy homes and will not be able to buy other consumer goods the purchase of which normally drives the growth of our economy. Society gains nothing from this debt, the universities are selling knowledge drawn from the work of previous generations much of which was generated in the universities themselves with government assistance. Much of it is knowledge that could be gained elsewhere, on the job, online, from experience and study. In fact, in the real world, knowledge gained from experience carries more weight in finding an actual job. It is the cachet of a college degree, artificially inflated
in value, that costs the money.
In the interest of the American people, the student loan system ought to be immediately terminated. Consumer protection rights need to be restored to student borrowers and subsidies that eliminate free market risk should end. We need to take a hard look at what our social institutions: banks, government agencies and universities are doing for our society and not just for themselves because all are complicit in what has become an intolerable situation.
http://studentloanjustice.org/argument.htm
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