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The American Dream is on life support… and fading fast April 16, 2010

Posted by ev0rev in Uncategorized.

I grew up believing that with hard work and dedication, anyone could find success in our society.  Education, I was told, was the key to that success.  It was the natural progression of things.  You went to school, you studied hard, you graduated, you got the great job, you settled down to raise a family in your four bedroom house with a two car garage and life was good.  End of story.  Everyone lives happily ever after, right?  Not so fast…

Just as with the mortgage/housing bubble that so crippled this economy over the past 14 months or so, we face a crisis with our student loan system that has even greater long term repercussions.  Make no mistake, just as with the mortgage/housing crisis I believe responsibility must be shared by those who TOOK the loans as much as those who approved them.  Look, we have to take responsibility for our actions.  If you sign a loan for X amount of dollars at Y percent interest rate and a total repayment of Z, then you are liable for that decision to accept that loan.  I have no problem with that.  When I read some of the testimonials from people who write in regarding their mortgage or student loan situation so many claim “I didn’t know”… and THAT is where I have a problem.  They should know.  Sign a mortgage with an adjustable APR on a house that you really can barely afford the payments on?  Then realize that if that APR goes up your payments go up accordingly.  Stop trying to buy that $220,000 home and settle for that $150,000 one or the $120,000 one.  It really and truly is that simple.

I feel the same way when it comes to education loans.  We signed the agreements; we are obligated to pay the loan back.  Again, it’s that simple.  Where I do have a problem with the system in place is that short of being able to pay for college through savings… or through a trust fund… or some other means where a loan is not necessary, we essentially need education loans to advance in our respective careers.  Or at least that’s the sales pitch.  Up until recently, I would agree with the premise that an education loan was a way to “invest in yourself” (how many of us have heard THAT little gem?).  Interest rates and college costs were low enough that it actually made sense to take on the risk associated with the loan.  Today, however, an education loan too often provides very poor ROI.  From a business standpoint, it’s a risk that outweighs the potential reward.  It simply does not make economic sense for too many of us to take on a student loan at this point.  A recent graduate, making $45,000 a year that owes $50,000 in student loans is likely to be paying $500-600 a month toward that loan… over the next 10 years!  If he/she runs into trouble with repaying that amount, even for a very brief amount of time, that monthly total can climb dramatically as can the length of the repayment.

In short, it’s becoming much harder to justify taking on a loan to pay for our education.  Going forward, our children are likely to be saddled with even greater problems as fewer of us have any kind of nest egg to help with the costs.  So the problem balloons geometrically.  Our children take on a greater portion of their education costs in the form of loans… they feel the crushing burden of these loans and can no longer afford to purchase their own house or, in some cases, a car or other items (food?…health insurance?).

Maybe the trick is to find something that we enjoy doing and worry less about what makes money.  Assuming that at least a portion of an education will need to be financed through a loan, at least make that investment something you care about and can see yourself doing for a long time.  Going to school just to get a degree is simply flooding the market with unhappy, albeit educated, workers.

Unfortunately, I don’t have any solutions short of a government takeover of the student loan industry.  This is one case where, because the funds being used to finance the system comes straight from the taxpayer anyway, I might have to concur that it’s the best solution.








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