An 18 year-old with no credit history and no job walks into a bank and requests a loan to buy a $100,000 condo. What is the loan officer most likely to say?
A) Sure! Let's get that paperwork started.
B) Actually, why not go for a $150,000 condo?
C) Is this a joke? No way. No how.
I think we can all agree that in most cases the answer would be C. Yet year, after year millions of 18-year-olds essentially do just that -- take out tens of thousands of dollars in debt to buy something that they cannot afford, and will likely be unable to pay off in the near future or, in their lifetimes: an overpriced college degree.
Just to be clear, I am not calling college degrees worthless -- at least not all of them. But I am calling a system that allows people who are not legally old enough to drink, to incur endless amounts of debt on a choice that they may have second thoughts about shortly after making it, questionable, and borderline criminal.
By now we all know that the American student loan crisis is just that: a crisis. It's just a shame that it took those in power so long to wake up to this fact. Days ago President Obama announced executive action to provide relief to more than one million Americans struggling with student loan debt. The so-called "Pay As You Earn" proposal will allow 1.6 million students to cap their student loan payments to ten percent of their discretionary income, and to forgive the balance of their debt after 20 years of payments. This proposal comes on the heel of reports that for the first time ever, Americans owe more on student loans -- nearly 1 trillion dollars -- than they do on credit cards.
As I have written about extensively, I consider education the gateway to the American Dream. I am someone who is far from wealthy, but I've enjoyed greater opportunities for success than my grandparents (whom as I have previously written worked in cotton fields), because I have enjoyed educational opportunities that they did not. But increasingly education is becoming a luxury commodity in this country, much like a summer home or a really great vacation. Those who can afford it, enjoy it. Those who cannot, don't. Only the repercussions for limited educational opportunity are much more dire than going without that summer home. Financial aid, in the form of scholarships, grants and eventually loans, were supposed to even the playing field allowing those of us born without a silver spoon (or a spoon at all) to have a shot at the same American Dream that those born with a full set of silver utensils, were able to enjoy. There's just one problem, of course.
As we've come to learn, student loan debt has essentially insured that the rest of us could only rent the American Dream temporarily, but never really buy it in full. Like credit cards, student loans have allowed many of us to merely look like we were keeping up with the Joneses, but when that bill finally comes, the reality that you weren't ever really keeping up at all but merely pretending that you were, sets in -- often with disastrous results. Nearly a trillion dollars later and that bill is coming in full for our nation as an entire generation struggles to dig out of what's becoming a modern day version of indentured servitude.
So who's to blame? Well much like the mortgage crisis, there's blame to go around. Speaking as someone who has two costly degrees, both of which could be viewed as non-necessity degrees (as in I didn't major in pre-med or some other field of study in which my degree was an absolute prerequisite to pursue my eventual profession) I acknowledge that adults have to take responsibility for the financial choices that we make. Just like a person who buys a house that they know deep down inside they really can't afford, a person who takes out significant debt for a degree they are not sure they plan to use also bears responsibility.
But similarly, if we hold predatory lenders accountable for targeting low-income people for mortgages they cannot afford, then why are we not holding private lenders accountable for targeting students who take out loans that any reasonable person can recognize they cannot afford, and will likely never be able to? For instance, if there are only a handful of jobs nationwide in a field like Medieval Studies, then how is a lender who signs an 18-year-old to a $50,000 loan to pursue a degree in that subject, really any different than a predatory lender who targets a low-income widow? (Click here to see the 5 highest paying college majors.)
I'm not suggesting that no one should be allowed to receive loans to pursue higher education, or even to pursue subjects of their interest. I am, however saying that we have got to reform the system, and put standards in place so that just as not just anyone can walk in and get a loan for a mansion, not everyone can get a loan for any degree.
Perhaps a start would be requiring colleges and universities to be upfront about the job prospects of those who leave their institutions with degrees. There is already growing criticism of how colleges rig alumni employment data, but what if the government required schools to be more transparent? Instead of simply allowing colleges and universities to report general employment statistics on their graduates (which are notoriously deceptive because they rarely reveal whether that graduate with a PhD is waiting tables or that law school graduate is tending bar) what if schools were required to list the statistical likelihood of a new student at that school receiving employment in a particular field of study upon graduation? Think about it. If a potential college student were to go to the homepage of a particular department of a particular college and see that only 1% of graduates are working in his or her chosen field, he might think twice (or three times) before signing his financial future away for that degree. And you know, what? If he pursues that degree anyway? That's on him. At least he will have made a decision with eyes wide open, something too many young people and their families are not doing, because they are not being provided with the information necessary to do so.
To ensure the responsibility is shared equally, what if when signing loan documents the aspiring student was asked to sign a letter of acknowledgment that he or she is aware of the employment prospects related to pursuing this degree with this institution. Might make everyone involved think more carefully before embarking on a potential lifetime of debt.
As wacky as these calls for transparency may sound, just remember. Years ago people thought slapping health warnings on cigarettes sounded wacky too. But something has got to be done to stop the student loan crisis from demolishing the financial health of a generation, and with it the financial future of our nation.