Student Loan Crisis

Simply put, more and more students have no hope of paying back the loans they’ve borrowed to go to college.

Pick a middle-of-the-road-priced university. Good school, but state money is fast evaporating, so tuition and other costs are mid-way to that of the elite private universities.

Tuition: $20k a year times four. Room and board: $15k a year times four. Books, travel, other: $5k a year times four. Add it all up, and the total cost to go to one of these universities is somewhere around 160 grand. Ouch. Some of the money can be paid back via summer work, but it’s not easy to find those jobs anymore, and a lot of students grumpily have to live in their old rooms back with the 'rents, desperately hustling artisanal toothbrushes on Etsy, or moonlighting as drivers for Uber.

But let’s say 10 grand gets paid back through summer work. The interest cost on student loans is high. Why? Students are a bad risk. Tons of them don’t pay back the loans they promised to pay back when they signed the papers taking them out in the first place. 5 percent? 10 percent? 20 percent? Who knows? All that's clear is that some very large number of student loans will default, and then cost a fortune in lawyer bills to collect, if they ever get collected at all.

Is this fair to the students who actually did pay back the loans they took out? They're not responsible for those students who were unable to find gainful employment in their field of study, or those who are too, uh, preoccupied to even bother paying the loans back in the first place. Regardless, all the goody-goodies are left riding the same skyrocketing interest rates as everyone else.

Is it fair? No. Not at all. Is it real life? You bet. Isn’t that one of the first lessons they teach you in college? That life isn’t fair?

So...figure 10% interest on student loans, and here’s where things get brutal. A History-and-English major graduates from Whatever University with 150 grand in debt. They owe 15 grand a year just in interest, and the loan packages requires them to pay down the loan 10 grand a year, bringing their total annual repayment to $25,000, so that after 15 years, the loan companies can be paid off, and presumably loan the money to some other deserving student. But here’s Job Reality 101 for History-and-English majors. There are almost no jobs these days. Other than driving Uber, bartending, or convincing hotties to pay your rent by quoting Shakespeare. That is, until those jobs are taken over by driverless cars, robots, and artificial intelligence computers. And the relatively few jobs that do exist...don’t exactly pay a ton of money.

Think: 40 grand a year for starters. On 40 grand, you’ll pay say, 8 grand in taxes and other government fees…and that leaves you about 32 grand to live on and pay off your loans. But Year One you owe 25 grand on your loans…15 in interest (which is not tax-deductible, by the way), and 10 grand in principal paydown. So that leaves you, uh…7 grand to live on? Wasn’t that what you spent on haircuts, clothing, and car insurance alone? What about food? And rent? And like...anything else? Yeah. You can’t afford it. Hopefully your parents haven’t rented out your room yet.

So why is this thing called a crisis? Because loans of magnitude have continued to flow out of the various coffers that loan money to students, and the ability to repay those loans is getting worse and worse and worse. Eventually, the system grinds to a halt with massive declines in loans made. And then there are…riots? What happens when students are simply denied the ability to go to college? What will they do? Demand colleges drop tuition costs? Well, that’d be nice…but other than the top 40 or 50 colleges, most schools of higher learning are just barely scraping by. Many are committed to very high fixed recurring costs in the form of tenured professors they cannot fire...expensive building or land maintenance…insurance for, uh, creative student activity...and on and on. It all adds up, such that tuition needs to remain high just to pay the bills.

Can the government step in and pay those bills? Well, your feelings about this issue will vary with your political alignment, but that still doesn't solve the issue of rising costs, which'll keep getting higher and higher no matter who's footing the bill.

So what's our solution? The debate rages on. Our only advice is to think long and hard when picking a college major, and taking out loans for school. That means keeping your hands off eBay and Amazon...and keeping your nose in the books.