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Accountability regarding student loans

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This is in part a response to the following post on Facebook:

http://www.facebook.com/#!/OccupyPhiladelphia/posts/129579780478231

In this post some share their enthusiasm about the idea of student loan forgiveness and/or a protest involving withholding payment of student loan obligations.  Some share how they have student loan debt totalling over $200,000 and they talk about a desire to have that obligation forgiven and paid by the US government (i.e. the US taxpayers).

To boot, I just received an email from moveon.org asking me to sign a petition asking the US government to forgive all current student loan debt for Americans.  And 600,000+ have already signed. 

Here’s why I said “No thank you” to signing this petition.

This constitutes my case for accountability on the part of all who have contributed to today’s financial situation, and is a warning against the temptation to forgo our financial obligations as a means of “protest”.  I think this is a very bad idea, and if done ‘en mass’ would only contribute to the problem. 

I do feel strongly, that those of us in a position to do so, should use our financial capital to effect positive social and political change.  See my post “How the OWS movement gets teeth” for my thoughts on how this will work.

One thing is clear from reading some of these comments – we owe it to future generations to educate them in a way that gives them the tools to use critical thinking to evaluate the value of any undertaking that involves such a large financial commitment.

I want to be sensitive to the plight of those with the $100,000+ in student loan obligations.  Obviously those who took on such huge financial obligations had high expectations of the future job market, and I can sympathize with their frustration.

My own situation is somewhat different.  I went to a state school and obtained a BS in chemistry.  I took out the maximum student loan that was available to me through the PHEAA program.  My final student loan debt after 4 years of undergrad and 1 year of grad school was only about $30,000.

I did not attempt or need to take out any private loans.  This was not because I was well to do.  It was simply a matter of the fact that the state school option was very economical.  In addition, due to the fact that my parents total income fell technically below the poverty level, I was also eligible for the maximum financial aid at the time (which to be fair was also considerable higher in terms of a percentage of the total cost of my tuition). 

Don’t believe for a second that we were “poor” because my parents were slouches – my Dad worked full-time + OT either in the steel mills, at a quarry, or lumber mill.  Mom was at home doing all the “domestic” stuff plus both took care of our small horse farm, w/chickens, & the occasional steer or pig, plus a sizeable garden (we did a lot of freezing and canning of the food we grew).  While it may sound like I must have grown up in the first half of the last century, that’s not the case – this was the 70’s, 80’s and 90’s.

My wife came from a similar economic background, and she was even more frugal with her student loans than I was.  She had maybe $13,000 in debt after completing her four-year degree in education at the same school.

We were both very fortunate to land jobs within a few years of graduating.  My wife was employed right after graduating, it took me a little longer to get rolling but with her prodding me along, I landed a job within a year of graduating.  It wasn’t the job I dreamed about before and during college, the one where I made $50-$100k a year while creating some new material that would revolutionize life as we know it.  No, it was a humble lab position making ~$13 an hour to start.  That comes to about $27,000 per year if you figure a 40 hour work week times 52 weeks in the year.

I think our combined income in the first year we were both employed might have been in the range of $60-65k/year.  We still, after 10 years, each make less than $50,000/year.

During college and since we never ran up any credit card debt, and even once we were both employed didn’t get bogged down in expensive electronics, or insane monthly cell phone or internet plans.

We both also had small car loans at the time we graduated college or shortly there after.  Combined about $17,000 in auto loans.

So roughly speaking we had about $60,000 in combined auto and student loan debt after college.  Aside from rent, utilities and other basic necessities we made paying off these financial obligations one of our top priorities.  By 2002 (about 4 years after we graduated college) we purchased our first house at $135,000. 

Within about two years we had finished paying off the auto and student loans (we would sock extra payments into the smallest loan, then once one was gone we would take the money saved from not having that monthly payment and put it towards the next).

We now have 3 kids who themselves will be entering college someday.  We are in a position to have what was originally a 30 year mortgage, paid off in about ten years since we bought the house.

I should mention that squeezed in there we did purchase a new vehicle to accommodate our growing family.  That was a five-year interest free loan of about $25,000 that we just paid off this year.  And the ~$400 mo. payment we no longer have for that loan WILL be going towards paying down the rest of the mortgage.

Personally I just don’t buy the financial argument some make about “the money you will save in taxes due to the mortgage interest deduction” meaning you should wait to pay off your mortgage.

I look at the fact that we will easily save about $20,000 in total interest payments on this mortgage by paying it off early.  Not to mention the reduction in financial pressure we will feel when that monthly mortgage obligation is no longer there and we can start putting that money towards our children’s future education.  Anyway that is not really the point of this post…

So counting the mortgage, the auto loans and the student loans our combined debt obligations over the past 10-15 years comes to about $221,000.  And we are currently down to just the mortgage with about $40,000 to go. 

Now we could be like some young couples who are in a financial situation similar to ours.  They go for the much bigger house, much nicer car, fill their house with the finest in home furnishings and electronics, have the fastest internet connection available, have a cable bill that gives them a zillion channels, and probably to boot a cell phone plan in the range of $50-80 per mo. (personally I have a prepaid phone that costs me about $120 for the year!) and stretch their debt obligations to the max. 

But when the unexpected happens where is their financial wiggle room?

Recently I read about a survey where the question asked was “Do you live paycheck to paycheck?” and not surprisingly a large percentage of respondents said “Yes”. 

But there is a big difference between a person or family earning only enough to afford the basic necessities who lives paycheck to paycheck, and a person or family earning considerably more but with debt obligations and luxury amenities pushed to the max and living “paycheck to paycheck”.

I am not saying that those who have posted about what is, from my perspective, huge student loan debt have been irresponsible.  I don’t know the full story behind their situation, what the cost of living is where they are, or other factors that would make a raw comparison between the total $ amounts unfair. 

It is just hard for me to imagine if my wife and I had student loan debt of that magnitude.  Even being both gainfully employed as we are, had we had $200,000+ combined student loan debt, I dare say we would be in desperate financial straits as well!  I consider my wife and I to be very fortunate. 

And I’m not sharing all this to brag or rub it in the face of anyone out there who is struggling under a mountain of debt.  Each person’s situation is different and I don’t consider it my place to judge any person for the choices they made.  I think that each of us, rather, has both the right and the responsibility to be our own toughest critic in this regard. 

Of course, living in a civil society there is of course place for expecting accountability and all of us to play by the same rules and at the end of the day to be responsible for the choices we make and the consequences of those choices.

I do believe that it is important for every responsible person to weigh carefully both the risks and responsibility involved in taking on debt.

I wonder what expectations did someone who took on that much debt have about what their financial situation would be after college?  What type of salary did they expect that they would make after college?

Did they consider what they would do, if the “ideal” situation didn’t happen?  What if they made considerably less than what their “ideal” career choice had to offer?  Would they consider taking a job for a lot less than that?

Pause for perspective: I absolutely sympathize with the fact that the job market today is dismal for many of us.  And that in large part this is due to the greed of a variety of different people, perhaps foremost the extreme risk taking on Wall Street (credit default swap etc.) that contributed to the current recession, high unemployment and dismal job market.  Predatory lending to blame as well?  Yes, absolutely.

We should demand accountability for these irresponsible behaviors.

But we must also keep in perspective that another segment of the population did contribute to this situation and that would be the people who took on more credit card debt, more student loan debt, and primarily those who took on more mortgage debt than they could really afford.  Those that bought into the “interest only” home loans so they could get the biggest mortgage and corresponding biggest house possible?  Yes, I think it is fair to say that these folks share some of the blame.

The idea of student loan forgiveness seems nice on the surface.  We certainly seem to need some kind of reset or at least an adjustment to restore fairness.  We know that the financial landscape has been altered permanently for so many, and that the manipulations of the markets on Wall street are in large part to blame for financial loss that has a real, painful impact on the day-to-day lives of so many.

That’s why I fully support the Occupy Wall Street movement and the core of what it stands for.

But forgoing our financial obligations, or expecting someone else to pick up the tab is not in my opinion a real solution.

My wife and I would often toss around the notion of “If we could just win enough from the lottery to pay off our loans…”.  Well now we are in the position to have actually paid them off ourselves, and that feels pretty good. 

If such a government policy were to be enacted, such that current student loan debt was forgiven as the petition I alluded to is suggesting, well it would be just like all those people with student loan debt won the lottery (some big time!) and got a free pass on their student loan obligations.

What those struggling in this position should really want is not an escape from the obligations that they willingly and consciously chose to take on.  Rather what they should demand be restored is the opportunity and the privilege to be able to meet those obligations in a responsible way.

Bailouts of the banks was wrong in my opinion because it was really a bailout of those who took excessive risk, and in the end didn’t have to own up to the consequences of those risks.  Too big to fail, in my opinion, simply means too big to exist and the government was in the wrong for willingly and consciously chosing to allow the dismantling of the regulations that post depression era kept banks in check. 

For the same reason I think it is wrong to give welfare checks to able-bodied citizens who are fully capable of working and contributing to society.

And for this same reason I would object to a bailout for those of us with large student loan debt.   For the same reason that welfare without accountability and bank bailouts without accountability are bad ideas, student loan forgiveness of this kind is a bad idea. 

It will only invite greater excesses and risk taking on the part of those who are considering taking on the obligation of student loan debt.  After all if the government is going to bail me out if I get in over my head, why worry about whether or not I’ll be able to afford to pay of this debt in the future.

We need to fix the problems and demand truly sustainable economic solutions. 

The Occupy Wall Street movement has the power to unite us to effect exactly that type of change from both our government and the corporations and financial industries.

Hold on to hope that real change is coming. 

But first we have to discipline ourselves.

We have to maintain civility. 

Left and right must unite!

We have to resist the urge for quick fixes like expecting someone to bail us out.

Another dangerous path is the one that involves the use of violence.  The fact that this movement is strongly opposed to violence is very encouraging.

The power to take the powers that be (government, corporations, the financial sector) by the balls and see real meaningful change is within our grasp.

And for that we look to things that are already in progress…(see “How the OWS movement gets teeth“)

Written by mindopenwhy

October 23, 2011 at 10:22 pm

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