

Student Loans: The new indentured servitude? - abscondment
http://www.dissentmagazine.org/article/?article=1303

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scottw
Sorry for being dense, but how are student loans bad/worse than any other
debt? My wife and I had maybe $15k worth of student loans. We paid them off in
7 or 8 years (the interest rates were ridiculously low, iirc) and got the
monkey off our backs. It was a choice we made.

We could have taken on a lot more debt, but chose to work most of our way
through college instead. Graduation took longer, we never went out to eat, and
drove a crappy old car. Isn't that what "having no disposable income" is
supposed to look like?

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pw0ncakes
You can't discharge student loans in bankruptcy.

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yummyfajitas
If you could, every college graduate would go bankrupt. Then there would be no
student loans.

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pw0ncakes
Which is why student loans were a dumb-assed idea in the first place.

Unlike with a car or house loan, there's nothing to guarantee the loan except
for human capital. Which means that we have to choose between an inhumanity
(using a _person_ as collateral, which is effectively what the current system
entails) and student loans turning into bad debt on a system-wide scale.
Neither's acceptable, so let's get rid of the whole thing.

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sokoloff
What exactly is inhumane about allowing an individual to take on personal,
non-dischargable debt in exchange for an education?

How would the world be a better place if no one had access to this (generally
very low-interest) source of funding for their education?

I may be biased because I put myself through college on a combination of ROTC
and loans, both of which were in different ways using my own time and labor
(present and future) as a way of investing in my future. There was no other
way I was going to be able to attend MIT, a dream I'd had since I was about 8
years old and saw a PBS special about the 2.70 design contest.

Sure, some people take loans and don't spend the money wisely (fail to
graduate, choose an expensive school for a very low paying career, max out
their loans and gamble or fritter it away). Those are all personal choices and
I don't have a problem with those people suffering the consequences in
exchange for what I perceive to be the greater good: that a motivated kid from
middle or lower income family (such as I was) is able to attend MIT, thrive
there, and as a result go on to have a substantially more fulfilling life. Oh
and by the way, as part of that life, you'll have to pay back that money that
someone fronted you when you were penniless, unemployable outside a mall
context, no credit history, no significant employment history, etc.

Taking that opportunity away from all such kids, in exchange for having no one
be able to make a poor choice specifically around student loans, is not a good
trade, IMO.

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timwiseman
Beautifully put, and I fully agree.

There is a flip side though. There are people who made every effort and did
everything right and still did not graduate because of things such as major
family issues, accidents leading to disability, or simply failing out despite
their efforts. They are then shackled to student loans without the benefit of
the degree. Granted, these tend to be a very small minority but in discussing
the system the edge cases should not be forgotten.

~~~
sokoloff
You make an excellent point there, and I have to admit that I don't have a
good answer. Your username is apt, and I wish I could double up-vote you for
reminding me of the outliers on the downside.

The cold-hearted realist in me says "Well, some people are going to struggle
and fail in life, ulimately dying in debt and this is just a different
mechanism that manifests in that sliver of folks with stupendously bad luck."

The compassionate human in me says "There ought to be a way to let people not
have to suffer the rest of their life for stupendously bad luck when they were
young."

The realist then worries about how to make that almost as gaming-proof as the
current system where you have to die or at least fake your own death and
create a new identity (either of which would "game" _any_ system).

I would go so far as to donate to a charity setup to payoff the loans in those
exceptional cases you describe (ideally at a negotiated discount, reflecting
that those loans were unlikely to be paid anyway). Perhaps requiring that the
person declare "normal" bankruptcy as well, and then that "qualifies" them to
apply for a hearing of some sort before this new charity's board where they
can state their case and answer questions. The forcing of "normal" bankruptcy
as a qualifier is intended not to punish the individual but rather to ensure
that it's not undertaken lightly and that the charity is hearing few frivolous
cases.

You ahve shaken my belief system enough (in a good way), that you may have
literally given me a direction to focus my future charitable endeavors. Thank
you...

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philwelch
This guy took an unnecessarily long paragraph to express his central point,
but it breaks down pretty simply.

 _College student-loan debt has revived the spirit of indenture for a sizable
proportion of contemporary Americans. ... Because of its unprecedented and
escalating amounts, it is a major constraint ... binding individuals for a
significant part of their future work lives. Although it has more varied
application, less direct effects, and less severe conditions than colonial
indenture did...and it does not bind one to a particular job, student debt
permeates everyday experience with concern over the monthly chit and encumbers
job and life choices. ... [Lenders subsist] off the desire of those less
privileged to gain better opportunities and enforc[e] a control on their
future labor. ...the planners of the modern U.S. university system...promoted
equal opportunity in order to build America through its best talent. The
rising tide of student debt...counteracts the meritocracy. ...the current
system of college debt ... leads those less privileged to bind their futures._

I think you can meaningfully divide student borrowers into two groups. One
group consists of those who reasonably estimate a positive ROI on their
student loans. For these people, it may be somewhat troubling that you can't
discharge the debt, but it seems at least somewhat fair since you can't divest
yourself of the education, either. These students have no rational reason to
complain: they made a financial investment and rationally expect to profit. In
their case, the meritocracy is not only intact, but even helped by their
ability to raise an investment.

The other group consists of those who can't rationally estimate a positive ROI
on their student loans. If you're really serious about wanting that education,
it's your call whether to blow tens of thousands of dollars on it and realize
you will never repay your investment. You have to know you're impoverishing
yourself for the sundry benefits of spending years of your life getting a
college degree. Maybe it's still worth it. Maybe it's not. But if it isn't,
it's not the lenders who are at fault, it's the cultural expectation to get a
college degree, even in a field that doesn't increase your earning power. The
lenders may benefit, but so do the universities, which get a glut of Ph.D.'s
to string along for cheap adjunct positions and millions in tuition.
([http://chronicle.com/article/The-Big-Lie-About-the-Life-
of/6...](http://chronicle.com/article/The-Big-Lie-About-the-Life-of/63937/))
(This very glut _also_ means that, as an example, the humanities have at least
the potential for greater meritocracy, in practice.)

Student loans--and for that matter, colonial indentures--are probably a great
opportunity for those with the capability to make something either out of an
education or out of a trip across the ocean. And they're probably worthwhile
for someone who seriously believes their life would be improved by a stint in
college or a change of continent, even if it doesn't directly pay off. So I'm
reluctant to criticize the system just because it has certain dangers.

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holograham
Student loans are also related to universities raising their costs
substantially. I think it would be very hard to pay full tuition at Stanford,
MIT, Harvard, etc without student loans even working full time in college.
Part of the blame can be an educational system that has costs spiraling out of
control

~~~
sokoloff
Taking away student loans would remove some of the upward pressure on tuition,
but frankly those schools would have the luxury of accepting only rich kids.
(If you're turning away 90% today, and your applicant pool is cut in half, you
still have to turn away 80%.)

I won't go so far as to say that arguing against student loans is directly
arguing to reserve elite colleges for the wealthy only, but I am one kid who
wouldn't have been able to go without loans. Perhaps that makes me "too
involved" or "too passionate" about my own experience to be fully objective,
but I'm glad every day, workday or not, about the choices I made and the fact
that loans were available so I could make that free choice to take them.

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jessriedel
If the collateral is human capital (not a house or car), why don't they offer
loans where you pay back a percentage of your future income, rather than a
fixed amount? This seems like it would automatically smooth over the worst of
the variance resulting in default.

~~~
potatolicious
This seems like it will break down badly:

\- I'm poor, I need to take a student loan and get educated if I ever hope to
get out of my poverty and jump into the middle class. I sign away X% of all
future income.

\- I've graduated and luckily have a decent job. I pay X% of my income monthly
to the government (isn't that just a tax?), and thus my family's quality of
life suffers, in particular compared to rich families who never had to take
the loan to begin with. In fact, by the time I die I would've paid this loan
back several times over.

\- I cannot afford to bankroll my children's educations, because I am X%
poorer than someone else who has this job but never had the loan. My children
will end up signing away X% of _their_ income also for life.

This smells like a recipe for increasing the wealth gap by _drastic_ amounts.

~~~
houseabsolute
If you still have a balance left of the loan when you die, then by the time
value of money you have actually never paid it back. Plus with inflation it
seems very unlikely that you will ever have to pay back the real value of the
loan if you spread the payments over your lifetime.

~~~
potatolicious
But that's not the system proposed - what you're describing is already what we
have - i.e., pay it off over however long period and then you're done.

What I was responding to was the notion that instead of signing up to owe a
particular sum, you sign up to owe a portion of all future income - and thus
remove the risk of being bankrupted by your student loan (e.g., if you're out
of work, you owe nothing, because you make nothing).

The trick here is that by removing your risk from that end, you are committing
to essentially an unlimited mountain of debt. No lender will give you an easy
out from a loan without a steep downside on the other end - like a big, nasty
private income tax for the rest of your life.

~~~
houseabsolute
Sorry, I totally missed that. Thank you for pointing it out.

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sigstoat
i seriously doubt we'd see the end of student loans, in the event that you
could default on them. the banks would expect cosigners, a credit history, and
maybe they'd actually look at whether or not the career options for your field
of study could actually support the kind of loans you were taking out.
(loaning a kid tens or a hundred thousand dollars so that they can get a
degree in english lit in four years is just cruel, even if they can default on
it.)

maybe kids would have to work for a year or two, to save a bit of money, and
build a credit history before they'd be loaned the funds. just as well, imo.
most 18-19 year olds aren't ready to be in college, anyways.

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jcromartie
> maybe they'd actually look at whether or not the career options for your
> field of study could actually support the kind of loans you were taking out

The problem lies in the fact with our unemployment situation there are plenty
of people in "good" fields that are still screwed.

~~~
akgerber
And those people might default. But factoring that risk in is a bank's job.

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lutorm
The annual payment on my Swedish student loans is calculated from my income
(it's 4 or 5%) and when I hit 65, the debt is forgiven. They still accumulate
interest though, so it's not until last year, 12 years later (but on grad
student/postdoc salary) that I've started paying off even the interest.

Apparently the government realized they will be stuck with a huge hit around
2035, because they have since changed the terms of student financing to
constitute a larger fraction straight grants, but if you do take out loans,
the terms are much more strict.

~~~
whatusername
In Australia the repayment is 4-7% of income (going up as income increases).
Interest is charged at CPI.

I think it's honestly a pretty good system.

