A decade ago I was in my second year of college, funding my education in part by student loans. I vaguely recall warnings about having to pay back student loans, but I didn’t give much though to them. I was at a good school getting a good education. I was taught that student debt was good debt, and I knew my actions were making my future brighter. What I didn’t realize was how much I would be spending each month once I finished school.
Today, the warnings about student loans are louder than ever, but it still isn’t enough. Our high schools are still heard for and judged upon their ability to send kids to college. Our leaders still harp upon the value of a college education, and the importance of an educated workforce. In many ways, the necessity of college attendance has never been as ubiquitous as it is today. We can’t push our kids into college and expect them not to incur any debt. Not when college prices are at an all-time high. Not when the average college grad walks away with 33k in student debt.
What about personal responsibility?
A large segment of the American population subscribes to the view that if you sign your name on the dotted line, you are responsible for the consequences.
To a certain extent, they are right. If people are not held accountable for the agreements they make, our country is in serious trouble.
What the hardliners fail to see in this debate is that there is a huge middle ground. We have many limitations on financial products aimed at protecting consumers. It is the reason you don’t see credit cards with 40% interest. It is also the reason that homeowners cannot be evicted for one late mortgage payment.
Adding some common sense
In many ways student loans are the wild west of personal finance. An 18 year old, who is not old enough to buy a beer or rent a car, is allowed to sign for debt that could follow them for the rest of their lives. Unlike credit cards, mortgages, and most other forms of consumer debt, student loans lack standard bankruptcy protections.
Have you ever noticed that your credit card bill shows how much it will cost you if you only make the minimum payments, and it also shows you how paying a little extra can make a huge difference? This fact isn’t because the credit card companies are looking out for consumers, it is because they are required to disclose that information. Student loans could easily come with similar warnings. Lenders should be required to share with borrowers what their expected monthly payments will be, as well as how long it will take to pay off the loan. This information shouldn’t be a surprise for students once they finish school.
Student loans and college financing in general need some major changes, but there is very little consensus on how to get it done. While the big picture debate rages on, Congress could make some minor changes to consumer finance laws that would force lenders to better inform borrowers of the consequences of student loans. It won’t fix every problem, but it could prevent a few from ever being created.