Student loans make up 65% of our current debt. When I think about that, all I feel is rage: at the people who make them sound so appealing, and at myself for being so gullible. Now, before we get too carried away, I don’t dislike the student loan program. I think it’s a valuable opportunity for some people who need it, and there are several situations where it’s necessary. But I’d bet that for a large part of us, it’s only enabled us to be irresponsible to some degree or another. And do you want to know why I know that?
Because I have never heard someone look at their student loans and say it was worth it. Instead, most of the time you hear something like, “I had to in order to get an education” or “I had no idea what I was doing.” Personally, I felt like I did know what I was doing. And for the most part I did. I didn’t take out my first student loan until almost three years into my schooling, right before my wife and I were married. I had been working full-time before that in order to avoid them, but my wife knew that I had very little free time and that I was getting into the more time-consuming stage of my major, so she asked me to go part-time so we could see each other more. In hindsight, I don’t regret that decision, but that doesn’t mean we made the best decisions moving forward.
Student loans are too attractive
There is no other way to go into debt that is more attractive, and there is no group of people more ill-fitted to that offer than kids who are getting the first freedom they’ve had in their adolescent lives. Think about it. These kids have absolutely no credit experience and no plan to pay them back. And unless I missed something, they don’t really educate you on what you’re getting yourself into. The thing that got me was that the government would pay my interest until 6 months after graduation. That was still two and a half years away! Out of sight, out of mind. And you can use that loan for anything. It doesn’t even have to be related to school. You can’t do that with a car loan, and if you want to get a personal loan, the rates are ridiculous. In fact, they even say you are “awarded” a loan. Sounds a little skeevy to me. I don’t recall my bank calling my auto loan an award. They call it what it is. A giant iron shackle that is going to live with you for years to come. Or something along those lines 🙂 And let’s not forget that student loans are a source of revenue for the government and private companies, and whenever someone else is making money off of you, don’t expect their motives to be pure when they’re advertising.
They give you a false sense of security
When I was in school, I got into a habit of thinking, “We can do this or that because if we end up needing more money, we can just get student loans.” We weren’t too crazy from day to day, but I twice convinced my wife to take trips because a) I love traveling and b) we had the money (thanks to student loans). We went on a cruise to the Bahamas in 2011 and took a trip to Anaheim in 2012. Both times she fought me on it, but I convinced her with my charming smile and whispering sweet nothings into her ear. We were pretty frugal and only spent about $3,000 total, but ultimately that amount was added to our student loans. I had that sense of security then, but now I feel the weight of the loans and it’s driving me insane. I still find it hard to regret taking the trips, but it would be nice to not have to pay interest on it.
Debt begets debt
In the moment, there’s not a whole lot wrong you can think about with getting student loans. Education is a worthy cause and the terms really are hard to beat. But the hammer doesn’t hit you until much later. Right now, for example, we have a 12 year old car and a 15 year old car that are still running pretty well, but if one of them bites the dust, we don’t have any savings to buy a new one with cash because we’re paying off the student loans. We’ll have to go more into debt. The payments really limit us to how much we can save up for the things we want to do. And for us, the payments are still doable. I can’t imagine having a loan amount ten or even five times what we have. There are people in their 50s and 60s who still have student loans, and they can never get a handle on it because they keep adding more and more debt on the other things they can’t afford because they’re constantly making payments.
Where’s the return on investment?
Some people argue that student loans are good because you’re making an investment, but how do you calculate the return on that investment? Sometimes things come up and people never graduate, but they’re still stuck with the debt. Sometimes it’s a choice but sometimes it’s out of their control. Sometimes the job they’re counting on to help them make the payments never materializes. There are too many people in this country who are grossly under-employed. Since I’ve been a bank teller, I’ve met other people like me who graduated with a degree and can’t seem to find a job they’re qualified for. A couple of weeks ago I met another teller who has a master’s degree and she’s stuck earning less than $10/hr. She told me she keeps requesting deferments on her loan payments because she can’t afford them.
Student loans are toxic
The crappy part about all this is that I’m writing this now and not 4 years ago before I took out my first loan. There are obviously no one-size-fits-all solutions, but all my solutions fall under the umbrella of being responsible. You know—get a job, live on a budget, that kind of stuff. Lucky for you I had an article published just yesterday that discusses some solutions in more detail. So if you’re interested, bounce on over there and enjoy 🙂
p.s. I want to give a shout out and a huge thank you for all of my personal finance blogger friends for sharing my stuff! Here’s a list of all you awesome people.