Monday, May 28, 2012

How Did We Get toThis?

Students have been staging riots for the last few weeks in Quebec over a proposed rise in college tuition costs.  While the fees would nearly double, tuition in Quebec is the lowest in Canada.  Here in the US, students recently gathered on the grounds of Sallie Mae (the leading guarantor of government backed student loans) not to protest the proposed rise in interest rates on student loans, but to demand that their college debt be forgiven in full!  How did we manage to raise a generation (some may say two) that has come to see their wants and desires as the obligations of others?

The reasons for the rise in college costs' out-pacing the general rate of inflation are many and varied.  However, I believe one of the largest factors is the great impact of government guaranteed loan payments.  You've got a perfect storm of naive (ignorant) students that have been led to expect a career paying 6 figures upon graduating with a degree of any kind (Major is irrelevant) racking up huge amounts of government guaranteed debt, you've got universities leveraging their status (claiming that having Yale, Harvard, Cambridge, etc in your pedigree will enhance employment prospects) to simultaneously justify their high tuition and attract high school graduates, and you've got the government guaranteeing payment to these universities while promoting the fantasy that everyone has a "right" to a top-level education.  All of this is compounded by the financial illiteracy rampant in our society.

I actually hope they are successful in getting their debt forgiven.  It'd be worth the price to see their collective faces when the IRS informs them that the $100,000 of student loan debt they had forgiven is treated as income, subject to taxation (as well as penalties and interest if not paid).  I wonder what the IRS is gonna say when these students refuse to pay "their fair share".  The hard economic lesson would be worth it.

Our children, and to some extent we, ourselves, no longer know what our parents knew: "There is No Free Lunch".  After the deprivations of the Great Depression, followed by WWII, the prosperity of the 50's & 60's led to an explosion of consumerism.  While this also led to the expansion of the middle class and an improvement in the over-all standard of living, many went overboard in embracing the new prosperity at the expense of the hard-won wisdom of their parents and grand-parents that advised "saving for a rainy day" and the concept of delayed gratification.  Today, it's "I want it all; and I want it NOW".

We can't hold these young people completely at fault.  They only know what they've been taught (or not) and what their life experience has been.  They've been raised by parents who, with all good intent, have done their best to soften all of life's hard edges and sharp corners and to shield their children from the "trauma" of failure.  As a result, their children grow up lacking the ability to cope with difficulty and disappointment when their expectations aren't met.  As all young children do, they lash out.


  1. I'd been reading a fair bit about the student loan stuff lately and pretty much all the articles I've read seem to agree that probably the biggest driver of tuition increases has been government financial aid. It has led to something of a spiral effect as increased aid leads to increased spending at the schools and thus higher tuition which in turn leads to more financial aid. Another interesting fact is that at many universities, undergrad tuition is "profitable" for the institution and the profits are used to subsidize other offerings of the school.
    On the interest increase that has been in the news a lot lately, I was surprised to learn that for an undergraduate, the maximum difference they might have to pay in interest if the rate were to double is about $65 per month and this is if they maxed out the one loan program that would be affected (Stafford loans I believe). Oddly enough, the limit on the Stafford loans for undergrads is pretty close to the average student loan debt for graduates, ~$23,000. So for most students that have a lot of student debt, the change in interest rates is hardly a make or break deal for their finances. And to think that the interest on my student loans from 30 years ago was 9% and somehow I paid them off.
    But I guess the sound bite of "their interest rates will double" sounds a lot better than "they will have to pay $65 more per month in loan interest."

    1. That's exactly their aim. Announcing the coming "crisis" of "Oh my God! Rates are going to double!" while conveniently omitting that the rate increase wouldn't affect loans already outstanding, only loans made that one year, they give the impression that the doubling of the interest rate applies to the entirety of the load balance. An absolute falsehood, it nevertheless gives them the cover they need to initiate even greater government takeover of the education funding system. As you found out, the actual impact is a negligible $65/mo, max.

      The fact that the students are so easily (eagerly) mislead points out the financial illiteracy involved.

  2. Thought you might find this article interesting in regards to higher education and the costs to society.