Student Loans: A Study in Financial Folly

February 28, 2012  •  From
A whole generation is being forced into debtor’s prison.

Young people are told that the only path to success is through a college education. It is a lie. But the indoctrination is so great that a whole generation of young people have signed away their financial futures to get what often amounts to a worthless piece of paper.

The social and economic consequences could be profound.

Imagine: minimum-wage jobs, or no jobs. Astronomical debt. Debt collectors garnishing both your and your parents’ wages. And no way out.

This is the situation that millions—yes, millions—of university graduates find themselves potentially facing today. It is a recipe for social turmoil—even explosion.

Total student loan debt in America is now $1 trillion. The average college graduate in 2010 left school owing over $25,000 in loans. Parents who took out loans to pay for their children owed $34,000 on average.

How big is the problem? For the first time ever, American students owe more in student loans than the country owes in credit card debt.

National Association of Consumer Bankruptcy Attorneys president William Brewer calls it “a debt bomb that could cripple our society.”

Brewer isn’t exaggerating. Outside of owing Cousin Vinny-with-the baseball-bat 25 grand, student loan debt is the most dangerous kind of debt you can have.

If you take out a student loan, you have it until you pay it back or until you die. There is virtually no other way out. It is debtor’s prison. For unsuspecting teenagers and their parents who often co-sign the loans, it has become a painful lesson of indentured servitude.

Student loans are the only type of debt (outside of debt owed to the Internal Revenue Service) where lenders can garnish your wages without a court order. And student loans are the only type of debt that cannot be wiped out in bankruptcy.

But garnishing wages is not even an option for many lenders anymore. According to the most recent Bureau of Labor Statistics survey, the youth workforce participation rate is the lowest on record (for the month of that survey). The unemployment rate for black and Hispanic youth is 31 and 20.1 percent respectively.

Following graduation, you have six months to find a job and start making loan payments. If you don’t, the penalties and interest start piling up.

The student debt problem is enormous, says Ike Shulman, a bankruptcy attorney in California. “They’re basically setting us up for having a large number of fellow citizens become economically non-functional for the rest of their adult lives,” he says.

But it is really much more dangerous than that. What are all these college grads going to do when they can’t get a job? Will they quietly sit unemployed while their debts grow bigger and bigger? Will they sit quietly while they have to scrimp and save to pay back their debts—and the big banks get bailouts?

The 99 Percent Occupy Wall Street crowd isn’t going to go quietly into the night.

Sadly, much of the student debt problem was actually caused by a government claiming to help the students.

The government’s college equivalent of “no child left behind” misguidedly pushes all students to attend college. But many, many students should not go to college. Many students simply are not academically suited for college. Yet instead of promoting other types of career development, the government has coerced colleges to lower their academic standards. Additionally, the government has forced colleges to adopt racial profiling in their admission policies. Colleges now admit racial minorities simply to meet the federally mandated racial quotas.

Does this really help the students? The unwelcome answer to that question gets lost in political correctness.

The reality is that thousands of students go to college just because government and university propaganda convinces them that this is what they should do, even when they are not academically proficient enough to succeed.

The result is a whole generation of college students taking degree programs that are worthless because the dumbed-down courses are the only ones academically challenged students have a hope of passing. Students then spend much of the rest of their lives paying for their worthless degrees on salaries not much better than minimum wage.

Compounding this problem is the fact that government interference in the student loan market has caused the price of college tuition to skyrocket—up an inflation-adjusted 164 percent over the past decade!

The government giving out taxpayer-funded student loans and college grants to practically anyone who applies has massively increased the numbers of students that go to college. Politicians succeeded in increasing university enrollment, but—as they used to teach in economic courses—there is no such thing as a free lunch. There is always a cost.

With all the “easy” money, demand for college admission soared. And thus the laws of supply and demand kicked in. Is it any wonder that tuition costs have skyrocketed along with demand?

This is just another sad example of government interference and the unintended side effects. Students who really should be attending college can no longer afford to. And many students who should not be attending college cannot afford to either, but still attend because the government gives them economically crippling loans.

This is not a recipe for economic success on either a personal or national scale. It is, however, a recipe for economic stagnation, debt servitude and social turmoil.