From TikTok and other social media posts, many of those who took out student loans did not understand that they need to re-pay their loans, nor how the loans worked. A consequence is perhaps 20% made “minimum” payments, not realizing that total interest owed was continuing to grow. This has led to posts such as someone saying they borrowed $29,000 but now owe $100,000 – and not understanding how that happened.
All told, the nation’s nearly 43 million student loan borrowers hold a collective $1.6 trillion in debt, according to the Education Department. Agency data indicates that over 5 million of these borrowers have not made a monthly payment in over 360 days, while only 38% are on track with their repayment plans.
Am guessing that many who were borrowing money for college education did several things wrong:
- A lack of understanding suggests many probably should not have pursued college – some took on large debts for degrees in subjects that had limited return on investment. High school guidance counselors probably failed them (particularly those that said study what you love). Many who were likely pushed to a college path could have found success and happiness on other career paths – but pressure from parents, counselors, peers – and the general societal push for “everyone should go to college” sent them down the college path.
- Some borrowed too much in order to attend an elite school – versus doing the community college and/or 4 year public college route. This was an expensive error for pursuing degrees in subjects that are known to pay poorly.
- Corollary: Many did not work and/or start saving for college when younger. Rather than save and forego today, they borrowed from their future earnings.
- They did not understand how loans work
- The Covid era nonsense persuaded them they never should have to pay off the loans they took out. Many now think they are entitled to not paying off loans and having others pay them off for them.
- College loans are not discharged in bankruptcy because there is no collateral asset to take over. If you stop making payments on a car or home, the bank repossesses the asset. About 20% of these loans may default.
Much about college loans – except perhaps loans for some grad degrees – makes little sense.
On my old Social Panic blog (about media and social media propaganda – that blog is now private) – I began collecting backgrounds of “Who Reports the News“. Much to my surprise, many if not most reporters whose backgrounds were available, attended expensive and elite universities, and often did study abroad programs as well. These elite universities are not cheap – with unsubsidized 4-year tuition, fees and housing running $250,000 to $400,000. With graduate degrees (typically an MA or MS in journalism thrown in), some attended programs with an unsubsidized cost over $500,000. For a degree or degrees in a field that the BLS says pays an average of about $52,000 per year. This makes no economic sense.
It could only make sense to “rich kids” from wealthy families – or those foolishly taking on very large debts – to earn a BA in English Lit or Creative Writing, for a field with low pay – at a cost of hundreds of thousands of dollars. These choices were not economically sensible for many who pursued this path.
Unfortunately, many students chose this approach – taking on large education loans to finance degrees in subjects offering a low return on investment – complicated by not understanding how loans work, then given false hope that taxpayers would pick up the tab for the loans they voluntarily took upon themselves for personal benefit.
Update: Federal student loans are due again. A record percentage of borrowers are seriously delinquent | CNN Business – when so many students are in default and others intend not to repay their loans, should we issue any education loans at all? This seems like a failed program.
Ending student loans would, surprisingly, likely lead to a lower “market clearing price” for college education. That is how markets work.
