Student Debt

Student Loans: Burnt Worms for Dinner Again Tonight

By Thomas Hansen, Ph.D.

 

Of all the current troubling topics facing our nation, including COVID-19, the hungry student loans constitute one of the biggest problems.  The truth is, many borrowers are finding it almost impossible to make the high payments in this topsy turvy economy—and COVID-19 has hurt many workers in a wide variety of ways.  There are some borrowers—college graduates, most of them!—who simply cannot make their monthly payments on their student loans.  Messy can of worms.     

This is especially true if the borrowers do not have jobs.  And the pandemic has helped fan the flames of the worms bubbling over, by adding a steady stream of gasoline in the form of shorter hours, shorter checks, and disappearing part-time and full-time jobs, gigs, consulting jobs, assignments, and professional positions.

Despite some glowing employment figures being cited out there, it is important to remember that there are a great number of people working in “lower” jobs than they are qualified for right now and working fewer hours than they would like (September 28, 2019, The Differences Between Underemployment and Unemployment (thebalancecareers.com). 

Also, figures are NOT being kept on a growing group of Americans: those who have become disheartened and frustrated and who are therefore no longer actively seeking work.  The Economic Policy Institute provides figures and they are high… they speak of the missing workers—those not seeking jobs—who make up what the institute has called the “missing part of the unemployment story” (Missing Workers: The Missing Part of the Unemployment Story | Economic Policy Institute (epi.org). 

Many, many people are working part-time jobs at low pay to avoid having to pay on the student loans.  There are NO figures on this, of course, because this approach to dealing with the loans is not only unethical but illegal.  Citing low pay and difficulty finding a full-time job in their field, these “part-time strugglers” do not have to pay much – or sometimes anything – on their loans during their tight times.  Their payments are in “deferment” or “forbearance’ status.  Tricky can of worms.

This under-use of their talent – and their education – is another example of how government-driven systems provide a disincentive to success, hard work, advancement, and of course the full realization of professionals who feel they cannot make the payments on the student loans and therefore give up trying.  The system allows them to live this way, year after year, making a tiny sliver of the pie they could be baking.  The loss of their professional talent in the workplace of this nation is an intellectual travesty.

Another loss is the business growth that does not occur.  Because they are working part-time for low wages, these part-time people cannot participate in a growing economy – in fact they hinder it.  They cannot buy a new automobile, go on a vacation, purchase a new television, or buy a new boat.  They live hand-to-mouth.

Another common pattern is graduates applying for only the highest-paying jobs in their field.  They have to do this – knowing they will have to make those high payments.

So how much is owed?  Zack Friedman reports in Forbes that “There are 45 million borrowers who collectively owe nearly $1.6 trillion in student loan debt in the U.S. Student loan debt is now the second highest consumer debt category - behind only mortgage debt - and higher than both credit cards and auto loans (February 3, 2020, https://www.forbes.com/sites/zackfriedman/2020/02/03/student-loan-debt-statistics/?sh=494fc996281f). 

Friedman also reports that the average debt is $29,200 -- a slight increase over the previous year but an increase nonetheless.  This is a good chunk of money for most people to have to pay off… compound the difficulty now when you realize that younger people tend to not have as many resources as older workers, and you have a whole generation of people really scrambling.  Frustrating can of worms.

Said one colleague of mine, “Younger people do not have paid-off cars, furniture or homes – no capital.  Everything they are paying on is in the process of being purchased or used up.”  He goes on to say that younger people are sometimes working several jobs to make all these payments (personal conversation, November 29, 2020).

Some older graduates are burning the candle at both ends to make payments and to survive.  There are no figures – just the constant comments I hear on this in conversations with professionals who go back to college later in life.             

One friend, who used loans to get through his undergraduate degree, is now trying to pay back the money.  However, “Mark” is having a lot of difficulty – has had for years.  The line of work he is in has turned out to be intermittent in terms of income.  Some months, he has had to choose between paying his rent and paying on the loans.  Luckily, he has found some good “side hustles,” including playing extra gigs to get cash.  “If I had known how hard repaying the loans would have been, I would have never signed for them,” he admitted.  He now thinks he should have worked full-time and gone to school only part-time, he states (personal conversation, November 29, 2020).

Where did these darn loans come from in the first place?  They were generally signed for by persons wanting to improve their education, leading to higher income, making a better life.  A colleague of mine in higher education, whom I’ll call Victoria, states, “As long as tuition and other costs are not monitored or limited, colleges will charge whatever they want, and people will have to borrow money to be able to afford living costs, school fees, and tuition (email communication, December 13, 2020).     

Should the loans be erased or reduced?  Joe Biden has proposed reducing the loans by $10,000 each.  Although this is only part of his plan to do something about the student loan crisis, he has gone on record with this figure (November 25, 2020, Biden could cancel $10,000 of your student loan debt: Here’s what we know so far (msn.com). 

Of course, $10,000 to a lot of borrowers represents a big chunk of their loan.  However, some people feel strongly that the $10,000 “discount” is not even worth talking about.  If somebody owes over $100,000 the amount of interest over time – with interest rates not being guaranteed or closely watched – such a small discount makes what seems to be almost no difference at all.  Cheap can of worms.     

Green and colleagues in the New York Times remind readers “While many Black students would benefit greatly from even modest loan forgiveness, debt relief overall would disproportionately benefit middle- to upper-class college graduates of all colors and ethnicities, especially those who attended elite and expensive institutions, and people with lucrative professional credentials like law and medical degrees” (December 10, 2020, https://www.nytimes.com/2020/12/10/us/politics/biden-student-loans.html).

To use the disgusting worm imagery further: although the can is on a back burner so far it is starting to bubble madly.  Who wants burnt worms for dinner?