Growth, Not Gifts! A Solution to Student Loans
By: Dr. Joseph J. Horton
President Obama has been arguing for a number of plans to reduce the burden of student loans such as artificially low interest rates and allowing for some loans to be discharged through bankruptcy. Many young adults are struggling with student loan debt. The president’s solutions may temporarily help some, but it will help neither students nor the country in the long run.
I have personal experience with the challenges of student loans as I finished grad school with significant loans. Borrowing for college should not be taken lightly. In my role as an academic advisor, my students often talk with me about student loans when they are considering graduate school. Considering debt before jumping into things is prudent.
I tell my students that student loans are like power tools. With a nail gun you can shingle your roof more efficiently, or you can nail your hand to the roof. So often when discussing student loans, we hear about the people who seem to have nailed a hand and both feet to the roof—$100,000 borrowed for a bachelor’s degree in women’s studies? Where were the parents? There is no bachelor’s degree from any school that is worth that kind of debt.
Most students do not graduate from college with a six-figure debt. The typical student has just over $25,000. Is a typical level of debt a good investment? Most people focus on earning potential. Earning potential is important. Without a good salary, paying off debt is challenging at best.
Another consideration, however, is whether the loans allow for an enjoyable career. When I finished my Ph.D., my student loan debt was a bit higher than my starting salary. The debt definitely cramped our style. The upside was that I had a job I loved. I was happy to get up for work every day. I had the joy of doing just what God called me to do and was probably a better husband and father as a result. From a purely financial perspective the student loans might or might not have been a good investment. From a life satisfaction perspective they were well worth it!
We did make sacrifices. In addition to controlling our spending, I did extra work when I could get it. Sometimes this meant teaching a class during the January intersession between semesters. For two summers I worked weekends at the local pool. I had supervisor in my title, but among my tasks was scrubbing toilets. Yes, as a Ph.D., I scrubbed toilets to help make ends meet. Now, with my loans paid off, I no longer professionally clean toilets, but no honest work is beneath me just because I spent a long time in school.
The challenge for today’s graduates is finding well-paying, honest work. With the economy in shambles it is hard enough to get a full-time job, let alone some extra work to help pay off student loans more quickly. In addition to the poor job market, the Federal Reserve is keeping interest rates artificially low. This makes it harder for colleges to invest prudently and generate money for scholarships. Yes, low interest rates make student loan payments smaller, but scholarships do not have to be repaid.
Allowing young adults to discharge loans through bankruptcy would remove weights from their backs. However that bankruptcy will follow them for years. Therefore financial goals such as buying a home will not be made easier by bankruptcy. Furthermore, if student loans become easy to discharge through bankruptcy, fewer students in the future will be able to borrow money for college. They will have the choice of whether or not to use the power tool of debt taken from them. Students from poor families with parents who cannot cosign loans would be hardest hit as they would not be able to invest in themselves to create economic opportunity.
There is a solution to the student loan problem for typical borrowers—economic growth. As young adults and those who love them consider the presidential race, I hope they will consider that a low interest rate on student loans is not helpful when people cannot find good jobs. People who borrowed prudently do not need wealth redistributed to them. We need leaders who will create conditions in which graduates can get good jobs and have the satisfaction of using their God given talents. People go to college to make something better of themselves. A thriving economy will let people accomplish their goals and pay off their loans.