Thursday, October 20, 2011

Student Loan Debt, Blaming Wall Street, And A Lack of Intelligent Solutions.

I am not trying to diss this Occupy Wall Street movement too much, as some of their concerns may be legitimate, but I find it silly that one of their "concrete issues" may be that student loans are soaring:
Politico reports that student loan debt now exceeds one trillion dollars, an amount that should impress even Dr. Evil. Politico further reports that this is one of the more concrete issues driving the OWS protests and provides some enlightening examples of their particular gripes.
Really?!?!   Wall Street is to blame for your student loan problems?  Didn't your university warn you, as they are supposed to, that you better not take out a lot of student loans as they are risky? (And if you are sooo intelligent that you deserve a fancy college degree, do you really need to be warned of the obvious??)

  To me, this seems like a "concrete example" of people trying to blame someone else for their own problems.

And sure, Wall Street has played their part in the current recession and in that sense maybe they have played a role in hurting the job market.  But if you take out a massive amount of student loans, and don't have a plan B in case you don't get your preferred job, then you should perhaps be protesting yourself.  

And don't accuse me of being the rich guy pointing the finger at those I can't empathize with.  I am supporting a wife and two children off of a graduate student salary and the thought has never occurred to me to blame Wall Street for any student loan problems I may or may not have!!!

And if their goal is to "receive a student loan bailout", why protest Wall Street?  Wall Street is never going to pay the student loans of angry protesters.  Only the federal government has a chance of excusing student loan problems and so I am a little confused why, given they apparently payed soooo much to educate themselves, they can't seem to figure out who in reality is the right group to be petitioning/protesting.

I'm pretty sure these people need to:
  1. Realize the responsibility of taking out too much debt, without a plan B when your preferred job falls through, lies first and foremost on you. (Don't forget... you were warned going into these loans!)
  2. Use some of the education they apparently payed so much for to realize that only the federal government can deal with student loan relief, Wall Street will never care, and therefore they should pick up their signs and march down to Washington if the only solution they are intelligent enough to come up with is to demand someone else will bail them out of the risk they knowingly took on themselves.
Seriously!  (Now back to research.)


  1. Joe, here's the problem with your argument - while it may be true it's lacks truthiness.  Sure bailing out banks and major companies with tax payer funds averted another great depression and in the end benefited the average person, but it feels like the government was more concerned about the fat cats.  Occupy Wall Street, and ironically the Tea Party movement, are more about thinking with one's gut than thinking with one's head.

  2. Hmm ... Maybe I'm missing something (or just misunderstanding the details), but I think the OWS point about student loans has more to do with two weird quirks of student loans that make them different from other kinds of loan -- like, say, home mortgages: (1) you can't default on student loans by declaring bankruptcy, and (2) the government "guarantees" student loans, so lenders have no incentive to say, "No," to a student loan request.  Those feel like they are in tension, but the upshot is that a lot of people took out loans that they cannot repay, and they also cannot get out from under them.  (A separate, difficult discussion is about why they are not in position to repay their loans, and also whether the education they purchased was necessary, etc.)

    Do the people who took out loans deserve some blame?  Well, maybe blame is too strong, but yes, part of me wants to say that they made bets and have to live with the outcomes.  However, it seems to me that the banks deserve some blame here as well.  What they were doing is a kind of predatory lending, which the government should try to restrain.  And I'm not sure that the people who took out student loans knew -- or even could have known -- how risky their bets were.

  3. I agree that there is a fundamental problem with allowing banks to make loans that come with essentially zero risk to the bank and then expecting them to exercise some self-restraint in issuing them, but I take issue with the idea that "he people who took out student loans knew -- or even could have known -- how risky their bets were".  Some high school math combined with a little bit of research about average salaries and other career data could have told these student exactly how risky their bets were.  Is that too much to ask of college students?

    As with the housing crisis, there is plenty of blame to go around and not all of it should fall on the lenders.

  4. First of all, great post.  I've been thinking about this for a couple of days since I first saw your post and the referenced articles. 

    On one hand, I agree that there is some level of "they made the choice to take a chance, and they lost."  People need to take responsibility for their own choices and actions. 

    On the other hand, this doesn't really seem very charitable, and I don't think this really captures the details of the situation.  Most of these people would have started school (and taken out these loans) before the economic downturn, when the "bet" seemed a lot risky.  I don't think this is as much a matter of people who didn't get their preferred job and didn't have a plan B, but more a matter of people who can't get any job, of which there are many in this economy.  This doesn't really absolve them of any responsibility, but I think it presents some extenuating circumstances that need to be considered. 

    I am also pleased to be able to say I should be able to get through a PhD, having never taken out a student loan, and I can support a small family on my graduate student stipend, but this is the result of a number of factors.  (Not everyone is so fortunate.) 
    (1) I was able to get an excellent education at a university that was, frankly, dirt cheap.  BYU has about as much bang for your buck as any place in the nation. 
    (2) I was fortunate enough to get two academic scholarships that supported me for all four years. 
    (3) I was able to finish in four years.  (Even the "best laid plans of mice and men so often go awry.") 
    (4) I had parents who were able to help finance my education.  (If the parents hit hard times while the kids are in school, this may not be the case, even if it started out as such.) 
    (5) I never had any astronomical expenses.  (One case of appendicitis, or one child with birth defects can wipe out a bank account pretty quickly.) 
    (6) I am fortunate enough to be in a program where I am actually paid to go to graduate school -- and paid enough to live off of. 
    (7) Numerous other factors that I don't feel like I need to list here. 

    So, while I completely agree that people need to take responsibility for their choices, and I have fortunately ended up on the winning end of this game, I cannot fault people who did not.  It's true that a large number (if not the majority) of the people with this problem were either willfully ignorant, financially reckless, or inexcusably unable to take personal responsibility for their situation, but I don't think that justifies blowing off the protesters concerns completely. 

    Finally, what to do about it?  Honestly, I don't know.  Having a PhD (whether it's in physics, comparative lit, political science, or whatever) doesn't necessarily mean that you are really able to solve some of the hardest social, economic, and moral issues that our society faces today. 

    So, in the end, my thoughts are:  "There, but for the grace of God go I," Take responsibility for your own actions, and Get up, get involved, and vote.  (Perhaps they aren't as contradictory as they at first seem.)

  5. I would definitely agree with you if the economy had been stable over the time that these people went to school.  But that's part of the problem.  Many of the people now in trouble did exactly what you suggest: they looked at what people with degrees like the ones they were getting earned and how much their loans cost.  But when they graduated, they couldn't find a job because the economy had tanked.  My point is just that with catastrophic market failures, especially in today's U.S., where companies typically solve *their* problems by firing workers, predicting with any reliability what the economy will look like and what the value of your degree will be is very, very hard to do.  (It doesn't help that there is a steady mantra from high school guidance counselors to the effect, "Going to college means making x dollars more over the course of your working life ...")

  6. "It doesn't help that there is a steady mantra from high school guidance counselors to the effect,". 
    Yep, Im not saying there isn't problems, just saying concerns like this are not Wall Street's fault.  Pretty sure Wall Street had nearly no bearing on what guidance councilors counciled me.

    The reality is *there is not a job market to support the amount of education everyone wants.*  
    But again, this isn't fundamentally Wall Street's fault.   Even if Wall Street was booming and poring hords of money into the US economy, not every American can be a doctor/lawyer/etc... even if everyone is successfully educated to become such.

    The harsh reality is, as I said and I don't think mathematically it can change, there is not a job market to support the amount of education everyone wants.

    And this is again not fundamentally Wall Street's fault.

  7. Where we agree: the market does not require and so does not support college education for as large a percentage of the population as currently seek college education.

    I think one might have one of two reactions to that situation.  Your reaction appears to be that college education should be for (a) those who are talented enough to participate in the market afterward, and (b) those who are wealthy enough to eat the cost.  Is that right?  The burden, then, is on the people getting the education to decide whether they are talented enough, whether the costs of education are worth paying, etc.  My reaction is that the government should step up and pay for everyone to have a college education.  Just as a hundred years ago, the government stepped up and paid for everyone to have a high school education.

    I agree that the advice of guidance counselors cannot be blamed on Wall Street.  What can be blamed on Wall Street is crashing the economy by taking ridiculous risks (much worse risks than the underwater college students we are talking about) and offering investment instruments that were obscure at best and outright fraudulent at worst.  Why is this relevant?  Well, you want to say that the people who took out student loans should have understood their risks.  When the economy is stable, that is a very fair demand.  But when the banks break the economy, I'm not convinced that anyone, let alone the average college student, is in a position to understand how risky a student loan is going to be.  So, Wall Street's action had no bearing on what your counselors told you, but it does have bearing on whether what your counselors told you was actually good advice.

    On top of that, you have to consider the facts that (a) Wall Street has enormous lobbying power, (b) they have been fighting for deregulation for thirty-some years now, (c) the deregulation that they fought for allowed them to cause the economic collapse, (d) they have seriously resisted reforming following the economic collapse, (e) with only a few notable exceptions, they were bailed out on their risky bets, and (f) as a direct result of their actions, the people who owe them lots of money in student loans cannot find jobs of any kind to pay back those loans.  On point (f), we're not talking about people who can't find their Plan A job.  We're talking about people not being able to find their Plan C job.  I mean, just look at the unemployment rates in historical perspective.

    One further consideration.  It does not follow from the fact that not everyone could afford the education they want -- even in good times -- that a large percentage of those who cannot now afford their education would not have been able to afford their education had Wall Street not tanked the economy.  That is, among the people who are underwater on their student loans, some would be underwater regardless, but many would have been comfortably paying off those loans had the economy been stable from 2008 to the present.


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