10 Reasons Why Student Debt is a Complete Scam
One of the topics du jour in the United States is student debt cancellation. This list is not intended to be for or against cancellation. My view is both sides are flawed, and the debate distracts us from the real issue:
Children and teenagers are brainwashed by teachers, guidance counselors, college marketing departments, mass media, and sometimes even their parents, to believe that a worthwhile life can only be achieved by receiving a college education - at any cost.
Young people have this message beaten into their heads from an early age. The favorite trope is that college graduates make more money throughout a lifetime than non-college graduates. In reality, this is not always the case. According to a 2019 Georgetown University report, "at 1,233 postsecondary institutions...more than half of their students 10 years after enrollment are earning less than a high school graduate." (https://cew.georgetown.edu/cew-reports/roi2022/).
As for the student debt cancellation issue, those who say, "They borrowed it, so they should pay it all back!" probably do not understand the inherent challenges built into the extraordinarily flawed student loan system in the United States that essentially forces people into debt bondage for decades. Most borrowers want to pay off their debt, but the system that is supposed to help them is preventing them from paying it off. These people often forego having children, purchasing homes, and in many cases are dealing with stress and mental health issues related to their debt. It's not as if these people bought too many large-screen plasma televisions, too large of a house, or too expensive a sports car, and now they expect someone to take care of their debts for them. They did what they were told all their lives to do: they took out loans to go to college and try to better their lives. Do we say "fuck you" to millions of people who pay their bills, work hard, and contribute to society, yet for no fault of their own are being prevented from escaping the death grip of student debt?
On the other hand, those who say, "Cancel all student debt now!" are only seeing things from one side, and can't imagine the enormous resentment felt by those who worked hard and are successful without the advantage of a high-priced education. And, what about those folks who paid off their student loans? Were they just lucky to get good jobs? Did they already come from financially healthy families and therefore didn't have to borrow much money? Or, did they work themselves to the bone for years to pay off their loans, only to see that if they had simply waited and not worked so hard the government might have gone ahead and canceled their debt anyhow? Will they get a refund?
This is a complex issue, with no easy solution, yet it's a problem that can no longer be ignored.
Children and teenagers are brainwashed by teachers, guidance counselors, college marketing departments, mass media, and sometimes even their parents, to believe that a worthwhile life can only be achieved by receiving a college education - at any cost.
Young people have this message beaten into their heads from an early age. The favorite trope is that college graduates make more money throughout a lifetime than non-college graduates. In reality, this is not always the case. According to a 2019 Georgetown University report, "at 1,233 postsecondary institutions...more than half of their students 10 years after enrollment are earning less than a high school graduate." (https://cew.georgetown.edu/cew-reports/roi2022/).
As for the student debt cancellation issue, those who say, "They borrowed it, so they should pay it all back!" probably do not understand the inherent challenges built into the extraordinarily flawed student loan system in the United States that essentially forces people into debt bondage for decades. Most borrowers want to pay off their debt, but the system that is supposed to help them is preventing them from paying it off. These people often forego having children, purchasing homes, and in many cases are dealing with stress and mental health issues related to their debt. It's not as if these people bought too many large-screen plasma televisions, too large of a house, or too expensive a sports car, and now they expect someone to take care of their debts for them. They did what they were told all their lives to do: they took out loans to go to college and try to better their lives. Do we say "fuck you" to millions of people who pay their bills, work hard, and contribute to society, yet for no fault of their own are being prevented from escaping the death grip of student debt?
On the other hand, those who say, "Cancel all student debt now!" are only seeing things from one side, and can't imagine the enormous resentment felt by those who worked hard and are successful without the advantage of a high-priced education. And, what about those folks who paid off their student loans? Were they just lucky to get good jobs? Did they already come from financially healthy families and therefore didn't have to borrow much money? Or, did they work themselves to the bone for years to pay off their loans, only to see that if they had simply waited and not worked so hard the government might have gone ahead and canceled their debt anyhow? Will they get a refund?
This is a complex issue, with no easy solution, yet it's a problem that can no longer be ignored.
1. Students borrow against an asset (education, degree) but they have little idea of its financial value.
2. Financial terms are not disclosed.
3. Student debt cannot be refinanced.
4. Students are the ultimate high-risk borrowers, yet they are allowed to take out massive amounts of student debt.
5. Student debt puts all the risk on the borrower.
6. Many student debt holders faithfully pay every month, sometimes for 20+ years, only to watch their principal increase.
7. Bankruptcy is a tool for people to recover from almost any debt. Except student debt.
8. Forgiven student debt is counted as taxable income.
The four income-driven repayment plans offered by the federal government allow for debt forgiveness at 20 or 25 years (depending on the type of loan) as long as the borrower pays every month during that period. However, that amount is then considered taxable income. Let's do some math.
Suzy borrowed 100,000 in student loans. She registered for one of the income-driven repayment plans and paid every month for 20 years.
Suzy never made more than $50,000 a year, so she averaged $500 per month in payments for those 20 years.
Let's assume a 5% interest rate for the entirety of the loan. That means Suzy paid $120,000 toward her student loan ($500 x 240 months).
But, with the interest rate in this plan, using a simple interest formula (this is not exactly how it would turn out, but we're just roughing numbers here ), the loan will generate an additional $100,000 in interest ($100,000 principal x .05 interest x 20 years).
Therefore, when Suzy gets the balance forgiven (Which she probably won't. NPR recently reported most servicers aren't even counting payments: https://www.npr.org/2022/04/01/1089750113/student-loan-debt-investigation) she'll have $80,000 of taxable income added to her $50,000 actual income. Meaning she'll have to pay taxes as if she made $130,000 that year. How fun is that?
No comments.