I had an interesting conversation with some young people the other night.
A bunch of friends and acquaintances of different ages were talking about the economy, housing and the financial markets and sharing some of our opinions and experiences as to how this has affected personal money matters.
A young adult was in the room. I guess she would have been 26 or 27 years old, just out of college. She asked the question about whether it would be better for her to 1) pay off her college loans or 2) put that money into some sort of investment, hoping that the returns she made would be bigger than any savings accumulated by paying off loans early.
She confided in us that the interest rates on the loans were pretty good. I think that one slice of her debt was slightly under four percent and the other was slightly above.
Then she confided in us the amount that she owed:
$78,000.
I was stunned.
This is a woman, fresh out of graduate school, with no job prospect in her field on the horizon. My mind sort of went into over-drive. What was she thinking? Who extended these loans to her? Was the college loan office in on this scam? Is there no oversight? How will she ever be able to dig herself out of this? Does she understand that she can never get rid of this debt, not even in bankruptcy (for Federal loans), without paying it off?
Some other people in the room were offering their perspective, but I was sort of holding back.
And then she said, "Well, the good news is that this is my cheapest debt. The interest rates on my auto loan and credit cards are much higher."
I took another deep breath.
Then a guy who was standing with us, maybe a couple of years older, whom I have known for some years says, "When I graduate, I'm going to have $120,000 in student loans. I don't even know what my payments are going to be like." He is a Seminary student at an institution here, hoping to be a Methodist minister when he graduates.
Not exactly a high-income profession.
I kind of wandered away from the discussion.
Just too grim.
Something is wrong here.
Here is an older article from the Christian Science Monitor that goes into some detail about the amount of money that students are borrowing to attend college.
Statistics are from 2004 and I would bet my (non-existent) house on the chance that conditions have gotten worse since then, as incomes have drifted slowly downward, tuitions kept increasing and predatory student lending has been on the rise since then.
Some facts from 2004:
* Average student debt on graduation exceeded $17,000
* Average private college student debt on graduation exceeded $21,000
* Interest APR on non-subsidized student loans topped 12 percent(!!!)
* A survey found that "38 percent of graduates held off buying their first house because of student loans, 14 percent put off marriage, and 21 percent delayed having children"
I found the last item to be especially interesting.
The New York Times had an article the other day that made an argument for the following:
In the Arab World, the costs of "getting started in life" -- finding a place to live, getting married, having children -- are so prohibitive for young people that these societies are finding themselves awash in large numbers of discontented, unsettled young men whose dismal future turns them to religious fanaticism. This being the New York Times, of course, we were led to conclude that the answer to the problems of the Arab World are Capitalism, Democracy and Westernization. (It ain't that easy, folks.) Still, I think that their basic argument was valid.
How are young Americans supposed to get started in life, when the average graduate with a four-year degree already has thousands or tens of thousands of dollars in student debt?
How are middle-aged and older Americans supposed to "retrain themselves" for the "jobs of the Next Economy" when doing so leaves them either impoverished or deeply saddled with indebtedness?
Is this really the best way for us to train the workforce of the future?
The young woman I talked to the other night did "what she was supposed to do" in order to establish herself as an employable member of the labor force.
She appears to have made some bad choices, been given some bad advice and was exploited, perhaps, in terms of how much credit she was extended along the way as well.
Young people make bad choices, especially about money.
I can forgive that.
But I find it hard to forgive the colleges that encourage this kind of student indebtedness and the private lenders who rip off these young people. The lenders might be rolling in the cash (for now), but our workforce of the future is finding itself in tight financial straights as a result ... and there is a social cost as well.