The dark side of student loans

In his keynote address for a digital education conference we held in 2013, our trustee Michael Saylor talked about how graduating college debt-free was a major factor in getting his start in business.

You could call me a risk-taking entrepreneur, but the truth of the matter is I got incredibly lucky […] [H]aving no debt emboldened me to take a risk.

As they say, the plural of “anecdote” is not “data”, but the story Saylor told seemed to ring true for a lot of people in the audience that day and for many others in the year since.

Saylor’s story jibes with the observations of William Elliott of the University of Kansas, who outlined the individual and collective perils of high student loan debt in an interview with NPR (“Paying Off Student Loans Puts A Dent In Wallets, And The Economy” 11 April 2014).

Student loan debt impairs the building of personal wealth:

People with outstanding student debt who’ve graduated from a four-year college have about 60 percent less net worth [than those without debt] […] [T]hese people aren’t investing in the kinds of assets that also produce income in the long run.

Student loan debt is a drag on the economy:

If we know that people aren’t accumulating assets and that the wealth gap is growing, partially because of student loans, that’s going to have an effect on the overall economy.

A few months out of college, students’ loans enter repayment and begin to count against one’s credit, making it more difficult to secure affordable loans (like the unsecured $5000 loan that helped Saylor launch his business). Student loan debt, then is a double-edged blade: it inhibits savings, investment, and consumer spending, and simultaneously squashes the productive risk-taking that is necessary to entrepreneurial endeavors.

This, Elliott say, “has the potential of breaking down not only the economics of our society, but the drive that people have to succeed in life.”

Certainly, with the ballooning nominal tuition rates in the United States, students loans appear to be necessary. Their easy availability means that anyone who wants to attend college can do so, and one can even choose to buy more college than one would otherwise be able to afford.

There is no guarantee, however, that a student’s education will match the available jobs, nor that his or her income will be sufficient to retire the loan debt in a timely fashion (typically ten years). If not quite a bum deal, it is not above serious critique. Student loans have done a tremendous amount of good, but with total U.S. student debt above $1 trillion, we cannot ignore that our reliance on easy loans to cover high costs carries serious perils for borrowers and for society.

Further reading:
NPR’s “Paying for College” series
Michael Saylor’s 2013 DigEdCon keynote address
Student Credit Pathways at the Saylor Academy

Image credit: StockMonkeys.com via photopin CC BY 2.0 | www.stockmonkeys.com

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