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Student Loan Debt Is Over $1 Trillion. So What?

by Shawanda Greene

There’s been a lot of hullabaloo around student loan interest rates lately.

If you haven’t heard, America’s student loan debt recently topped $1 trillion. That trumps what we owe on credit cards.

OH NOOOO!

Come July 1, 2012, the government subsidized student loan interest rate is set to double from 3.4% to 6.8% on new undergraduate loans – a big jump over the 1.6% I enjoyed a few years back.

It’s not terribly difficult to pay off a small, low interest rate loan.

Even if you’re paying high finance charges on a low balance, or vice versa, you’re still in a good position to become debt free.

But when you have big obligations with big interest rates, you’re pretty much screwed.

Apparently, student borrowers are finally realizing that.

They’re gambling on a college education with borrowed money, and they’re scared of making a bad bet. Since half of the nation’s new college grads can’t find gainful employment, I can see why they might be worried.

Now we got folks demanding student loan debt forgiveness. They’re mad as hell the debt must be repaid at a totally reasonable interest rate. The pay-whatever-it-costs-to-get-a-degree guys wanna renege on their promise to the taxpayer. To that I say, “Nah, buddy.”

Here’s where I get confused.

Ten years ago, financial gurus, politicians – let’s just say EVERYBODY – was screaming, “Student loan debt is good debt!!!”

I don’t remember a single “expert” who disagreed with this position.

Heck, we should be proud student loans exceed credit card balances.

Let’s congratulate ourselves for this monumental achievement.

Bravo! Hell yeah! Let’s here it for us! *golf clap*

Both political parties are sucking up to the angry crowd of future debt dodgers. “Let’s keep the rate where it is,” they say.

Since the United States is deeply in debt, it’s natural to wonder aloud, “How in the fuck can we afford to hold interest rates where they are?!”

Who’s gonna pay for this?

Well, Democrats and Republicans have the answer. Let’s hear them out.

 

I’ve said it before, and I’ll say it until you tell me to find a better quote, but:

There are no solutions…there are only trade-offs. ~ Thomas Sowell

Someone has to be responsible for returning principal and interest on student loan debt. Or, at a minimum, the portion funded by taxpayers. (I couldn’t give two rat turds about repayment of private student loan debt.) Who better than the folks who borrow the money?

Being that I paid off my student loans years ago, I might be a teensy bit insensitive to people who’re crying about the pending interest rate spike. I acknowledge, yet refuse to apologize for, my indignation.

What’s your position? Do you think the government should block the interest rate increase on student loans?

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{ 21 comments… read them below or add one }

MLISunderstanding May 4, 2012 at 4:38 PM

I paid off my undergrad loans in 5 years (4 years of payments and a year of forbearance). I'm currently halfway through my grad degree, with plans to graduate debt-free, because I am working full-time and have been saving since I applied to the program. I did it a lot smarter the second time around, and I WISH that I knew as much when I was 16 and headed off to college. I would have cut my costs, known more about the details of my loan, and not have had to pay as much overall.

I don't think most students get the necessary education — about finance in general, but also about loans and debt — to understand their responsibilities. The federal loan folks do a lot to try and hammer that through people's heads, but there are still LOTS of people who are using their student loans to live on as well as pay school expenses, and racking up interest.

I think that borrowers should be responsible for repayment. I also don't think it's fair for existing loans to have a hike in interest rate. But this change is for new loans. It means that students about to start college (and their parents) are suddenly facing high total costs. I bet a lot of them, knowing this ahead of time, can make changes to keep their costs (and later debts) down.

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Shawanda May 4, 2012 at 5:37 PM

I've always said if I had to do it all over again, I wouldn't have borrowed as much as I did on student loans. But even still, a 6.8% interest rate is still pretty reasonable. As long as students realistically consider their future earning potential and borrow responsibly they won't have to spend the rest of their lives repaying student loans.

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Andrew May 5, 2012 at 3:20 PM

I'll join you in the mostly insensitive corner. I have a shred of sympathy for financially obtuse young people being fed the crack of easy loans by college tuition advisors. But only a shred. .
Lefty pinkos want to tax the rich, righty wingnuts want to cut off young nursing mothers on welfare … It fits.

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Shawanda May 7, 2012 at 8:02 AM

I think financial literacy should be a required course in middle school and high school. I also think that PRIVATE student loan debt should be as easy to discharge in bankruptcy as credit card debt. That's about it. After that, people have to take full responsibility for their decisions.

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YFS May 6, 2012 at 5:52 AM

I oppose all government bailouts. I hated when they bailed out the banks and propped up the housing industry and I will not agree with a student loan forgiveness program, rate cut or any manipulation. I feel that if you do "save" the students you undermine everyone who paid off their student loans or went to a lower costing school. It's not my fault that you can't find a job, just like it wasn't my fault that you could not afford your home or that banks gambled. Secondly, where were these students whey the bankruptcy laws were changed so that student loan debt is non bankrupt able? They should have been out like gang busters to make sure that law didn't pass. Lastly, if people did any cost benefit analysis prior to jumping into a formal education they would realize the job market and earning potential of the degree, so they can make an informed decision to pursue it or not.

TL, DR

I DON'T SUPPORT IT
OR ANY BAILOUTS

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Shawanda May 7, 2012 at 12:03 AM

I couldn't agree with you more. I hate this attitude that if you make a mistake, someone else has to pay for it. We did what we agreed to do. We loaned you money for a college education at a super reasonable interest rate. Now, pay it back based on the agreed upon terms.

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thefrugaltoad May 6, 2012 at 10:55 PM

I am opposed to bailouts also, especially since we just spent over 6 Trillion and counting bailing out banks and Wall Street. The current default rate for student loans at for-profit schools is 15%. Are we really saying that we we can give trillions to Wall Street but we are not willing to invest in our children's education?

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Shawanda May 7, 2012 at 6:12 AM

We shouldn't have bailed out Wall Street and we shouldn't bail out students who can't afford to repay their loans right this very second. Although it's unfortunate the Wall Street bailout ended up costing taxpayers billions of dollars, I think we should stop there. There's no point in continuing to make the same mistake repeatedly.

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Eric May 7, 2012 at 9:15 AM

I'm in your position. Totally paid off!

I think the key is to look at how we charge for education. In a lot of the world, you can go to University for free. They are encouraging higher education. We charge kids so much that they go broke when they make it through. That is a fundamental problem in our system.

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Shawanda May 7, 2012 at 10:21 PM

I might get in trouble for saying this, but I don't think every one should have their college paid for or financed by tax payers. I don't see much value in education just for education's sake. What can you produce for your country after you're done educating yourself?

I'd actually be in favor of a merit based award system for student loans. And if the nation doesn't need anyone with the skills you're about to obtain, then we shouldn't loan you the money to get them. We've got to be more wise with how we spend our tax dollars in every sector, including education.

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shopping2saving May 7, 2012 at 12:46 PM

I agree with you and people should pay off their student loans, but I am not totally against bailouts or student loan forgiveness. I graduated undergrad with zero debt but I will be taking on a ton of debt to pursue a higher education. It's my choice to go and I know how much it will cost, with the high interest and all. I know what I'm getting myself into and I fully intend to pay it off as quickly as I can. The prices are always increasing and the interest rate is as well. I think in some cases loan forgiveness is acceptable such as with the IBR program but I don't know all of the logistics, but I do know that my future monthly loan payment will be almost double of a mortgage on a nice 2 bedroom condo. What I think is happening is that people are not planning ahead. When they take out loans, they don't know what other expenses they will have in the future. Thus the path that has been laid out for many such as school, work, buy a house, have kids… is not the most logical path anymore.

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Shawanda May 7, 2012 at 10:30 PM

I'm okay with some student loan forgiveness programs. I don't remember all of them specifically, but I vaguely recall one where you can go work in a disadvantaged neighborhood for a certain number of years and get $X of student loan debt forgiven. I'm cool with that. I don't think most people would consider that a bailout. In essence, it's like you're getting compensated with debt forgiveness instead of directly with cash.

However, I don't think we should forgive student loan debt because people later decide they don't like the interest rate they agreed to pay. Or, the profession they chose doesn't pay as well as they hoped. Or, they decided they wanted to tutor Algebra on a part-time basis instead of practice medicine.

We have to put the burden on the American people to be good stewards over the nation's wealth.

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Lauren May 7, 2012 at 9:18 PM

I’m with Eric. I paid off all of my undergrad loans, but now I’m in grad school for Speech Pathology, which requires a Masters for entry in the field. I’m working full-time, I saved for two years before starting, and I’m still struggling. When you have STATE school administrators who are paid more than $300k in salary alone (for a Midwestern, not prestigious state school) and athletic directors who make the same amount, that’s when I have a problem. I don’t think there is an easy answer to this, but I do think that if people don’t start questioning this more, we will have some serious problems. Student loan debt is a symptom of a much bigger problem.

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Shawanda May 7, 2012 at 10:32 PM

I think the bigger problem is we're sending a bunch of people to college who shouldn't be in college. Either because they're unqualified or they're costing us a ton of money to obtain a skill that no one needs. They're driving up the prices for everybody.

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Jean May 8, 2012 at 9:00 AM

I'm generally in agreement with the other voices on this thread. The big number approach (1 trillion dollars!) to framing this issue is typical of how the media has degenerated to inciting fear and confusion instead of providing careful and contextualized analysis.

I had 20k of student debt that I'm still paying off (will be done in 2017). What that "big number" really means is that I have a payment of $215 per month. That's sounds like (and is) a much more manageable number.

It does mean that I have to save a bit longer to buy some things that I could get right away. It also crowds out some other items that I would normally consume, but as part of my lived experience, it doesn't really make me feel impoverished.

In return for that payment I have been able to find work as a technology product manager. It's a field that I didn't originally think I would be in but came about as part of the trade-off I had to make to find a career that was interesting enough but also paid the bills.

Many of the stories that are cherry picked to highlight this "problem" either don't go into the details of a person's personal budget and the choices they made along the way that led to their situation OR it's some crazy outlier situation that is not typical.

My feeling is that if we dig under the surface of the manufactured controversy you would find something less sensational or sympathetic.

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Shawanda May 15, 2012 at 12:16 AM

I was listening to C-SPAN, and I could've sworn I heard someone say the interest rate jump will result in an additional $1,000 of interest over the LIFE of the average loan. That's a few bucks a month. If students borrowed the max in government loans, they'd pay an extra $5,000 in interest over the life of the loan. Over 10 or 20 years, that's still not terrible.

This link sort of backs up what I just said.
http://www.c-span.org/Campaign2012/Events/Preside

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MyMoneyDesign.com May 8, 2012 at 1:03 PM

I’ve said for years that student loans were going to balloon into our next big bubble. While I certainly think all people should be responsible for any loan they get themselves into (student debt, mortgages, credit cards, etc), I do think there is going to have to be some concession on the interest build-up. As a lender, I’d rather get most of my money back then none at all.

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Shawanda May 15, 2012 at 12:21 AM

If the borrowers don't pony up all the interest they owe the American tax payer, let's just seize whatever property they accumulate. I wouldn't negotiate with able bodied, mentally healthy people who have trouble repaying their student loan. It's like negotiating with a deadbeat to pay his taxes. You live in this country, pay up. It's one thing to be unable to pay. But I want to make sure I take every dime that you're able to pay.

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Rick May 8, 2012 at 5:44 PM

I still think that student loan is a good debt. Nothing beats a top of the line education. But there are a lot of high paying intern jobs that a good student can get to pay off the bills.

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Shawanda May 15, 2012 at 12:23 AM

Just because something is expensive, doesn't mean it's high quality. Contrary to popular, and terribly unwise, opinion, you often do not get what you pay for.

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