Chaya Stern was determined to attain an educational designation to help her secure a higher-paying position. But after learning the price of the program she wanted to pursue, she wasn’t so sure anymore. She had some savings but was reluctant to pour it all into a degree. On the other hand, taking on student debt seemed to be even worse; after reading about the trouble people had gotten into with never-ending student debt, she was scared to fall into the same trap. What was the best course of action?
Should she wipe out her savings or play with fire by taking out student loans? Or maybe it was best if she would abandon her plan of pursuing a degree altogether?
Student Loan Hype
I am split between amusement and annoyance at the politicization and journalistic hysteria over student loan issues. US student loan debt rose rapidly in recent decades mainly because the number of Americans going to college rose rapidly. Judging by the median amount of debt owed per person upon graduation ($27,000 for BA completers) and the size of required debt payments ($250 per month), it’s clear that we are not talking catastrophic numbers. Certainly, some people can get into debt that is wasteful or burdensome, but in general, Mrs. Stern needn’t fear student loan debt any more than a home buyer has to fear their mortgage.
Student Financing is Fundamentally Good
It’s politically convenient for politicians and journalists to hype up anecdotes of people overwhelmed by student loans, but fundamentally, student loans are economically and socially advantageous. Many educational certifications offer graduates a significant boost in income which lasts for decades, an excellent investment. The government makes this investment in career advancement extra accessible by offering education financing with easy terms and reasonable interest rates. If someone gets a certification that allows them to earn much more money every year for decades, borrowing to make that happen is a good investment, not a waste or burden.
Great ROIs
Say Mrs. Stern would have remained at a job earning $50,000 (plus occasional raises) but then gets a certification costing $45,000 that allows her to earn $75,00 or even $100,000 annually (plus occasional raises). It is obviously worth spending $45,000 once to earn an additional $25,000 or $50,000 extra for 30 or 40 years. Even though you can’t bank or sell an education, “buying” a huge bump in salary is securing an asset. Assuming one can’t get that asset for less, it’s well worth spending money on it by digging into savings or even taking on debt.
Ten-Year Repayment
Say she takes on $45,000 in student debt in order to secure a projected $15,000 or $25,000 bump in salary. Student loan rates have gone up a lot recently but even at the current 6%, payments to get rid of this debt over 10 years would be $500 per month, or $6,000 annually. That’s obviously a chunk of money, but it’s still a lot less than her projected added income. If she really wants to, she could keep her expenses steady and pay off the loans in a much shorter time frame, but there’s no need for that; she can pay the $6,000 annually and keep the net in her pocket. After 10 years, it’s hakol revach.
Mushrooming Debt is Possible
Newspapers and liberal politicians like to highlight anecdotes of people whose student loan debt accrued to well above what they originally borrowed. How did that happen? The government allows borrowers to choose repayment plans based on a maximum percentage of their income. That way, someone who loses a job or fails to secure a good job post-graduation won’t get overwhelmed with ongoing loan obligations. So, loans can indeed accrue and mushroom. Should someone spend an inordinate amount of money on a degree with little income growth potential and not make steady payments, they can indeed get saddled with massive sums of debt.
Overpaying for a Bad Asset
Student loans that blow up are not unlike any other debt-financed investment gone bad. If you borrow too much and overpay for an investment property that turns out to be a churvah, you will end up in a heap of debt. So too, those who pursue degrees that don’t yield boosts of income can get saddled with burdensome debt without the funds to repay it. And since, unlike other debts, student loan debt can be easily borrowed but can’t get discharged via bankruptcy, people can indeed get trapped. Which brings us to the crux of the issue.
The Root of the Problem
The main problem for students in America is wasteful and poorly designed courses and degrees. The government pushes everyone to go to college, even those who may not be cut out for it, and offers colleges a blank check to encourage them to accept anyone and everyone. Many who enter these programs drop out in the middle or end up “underemployed,” which is a fancy word for having a useless certification.
Alternatives Abound
It’s never been easier to get an affordable education, and many don’t need to spend a nickel to learn what they need to be gainfully employed. Or, they might be better off with targeted courses taken on an as-needed basis instead of sitting peering into books and listening to dry lectures for years on end. Education could be cheaper and more hands-on, even if that means fewer college seats are filled. The government should be improving and trimming education, not obfuscating the issue with a focus on excessive loans which are just symptoms of a decaying, bloated college bureaucracy.
Self-Funding
In frum circles, those who do have significant student loans may be extra pressured with repayment obligations because our cost of living is much higher than average. For their sake, I’m glad that debt forgiveness and easier repayment terms are coming down the pike. Many may even choose to borrow more if they think the debts will be forgiven. But if Mrs. Stern thinks the certification has a good ROI, she can be comfortable borrowing for it. Paying for it out-of-pocket is fine too as long as it’s a degree with a strong ROI; she’ll save some interest and have more cash flow upon graduation.