If anyone would have told me that I would get stuck with a $70,000 plus student loan, I would have told them they are crazy. but as it turns out, I have a student loan like millions of Americans and we are struggling. The question is can we as a nation continue down this road of heavy lifting. The student loan tsunami is mind-boggling. Some researchers have indicated that the student debt load is creeping up to a whopping 1.3 trillion. Yes, 1.3 trillion. This by the way is an estimate.
This then brings me to look at the way student education has been looked at from the beginning… as a financially viable vehicle to make money. Do not get me wrong, I am all for free enterprise; but when a system of capitalism fails to include social responsibility hooks rather than cold revenue generators alone, the red flag goes up. This is unsustainable. If this continues in its current trajectory, we have the next impending imploding bubble.
I am not a practicing economist but an ardent student of economics. I understand how Capitalism works and it works well in developed nations to encourage businesses to thrive and entrepreneurs to create the next big thing and create more jobs. This is the beauty and mystery of Capital as Hernando Soto calls it. It is okay to go to institutes of higher learning and acquire targeted education that will or at least is supposed to lead to higher earnings. That is no longer the case. Higher debt accumulation in the well-oiled machinery of the West creates an interesting problem.
When we consider how cyclical markets are by nature and they are driven by economic activity not by magic; debt is not like water that turns a ship's turbine engine or acts as an enabler for electricity. My definition of debt is a stark reminder of what really happens when we accrue debt. "Debt is not accumulating wealth for the poor or uninformed, it is spending future earnings." So here I am a student fresh out of college, hopeful because I did the American thing. I acquired a college degree which twenty years ago was the initial step for higher earnings. I get an education, get an entry level position, move up the ranks in a few years, get promoted and consequently make more money as I move along. I get married buy a house, have children buy a minivan because the car is now to small for a family of four. I am an economic driver. Even if I have student loans, they get paid because I am working and generating revenue in my own personal economy. My spouse might be working so we both are economic drivers and participating in economic activity.That is no longer happening with rapidity.
Here is what we have instead: I finish college, I have six months reprieve ,(student loan companies call it the grace period) before I start paying my student loans. The six months come and I am still unemployed or underemployed. I am unable to start making payments on my student loans so the interest starts piling up. Then the rates go up and I am still unable to make satisfactory progress because the monthly payment becomes like a millstone around my neck. I have now become a deferred consumer. I have to defer getting married, purchasing a car, a house all the things that are relevant and pertinent to my participating in overall economic activity.
I am a representative microcosm of millions of other college students who are now a burden to economic activity. We are not generating any economic activity except accumulating interest, while student loan companies and the banks that support them are salivating over my accumulating interest. Here capitalism does not work for me but against me. Capitalism fails dreadfully when creative social responsibility is left out of the equation. There are a number of organizations that are trying to help push the student debt juggernaut to a place where the debt can be treated as a mortgage (and frankly some student debt are as high as a mortgage). The objective is to help reduce the indebtedness and provide some relief. This in my humble opinion is noteworthy but woefully inadequate. My understanding of economics make me cringe when I think of these efforts.
The real losers here are the uninformed or under-informed students. Student loans are really intended to be used to pay for tuition. Instead students use student loans for housing, spend the checks that are sent to them from the school instead of banking it. When a student applies for a loan with the FAFSA process, there are some incredible financial processes at play here. The college is informed of the application by the Department of Education, (that is why one has to put the school code,) the loans are now administered by private banks such as Wells Fargo, Citibank, and every other bak in between. This is hug business. The interest that is generated from student loans is astounding–– beneficial for banks, ruinous and detrimental to students. In the final analysis what really happens is that Sallie Mae who makes students feel that they care, but they are really looking out for revenue. So the banks get paid and uninformed students gets played.
Mark Hernandez
