Student Loans Are Bad Business
By Constance A. Dunn
*Opinions expressed belong to Constance, they do not reflect everyone who works for or with Ghost Rock. Duh, but disclaimers are so hot now.
Who applies* for student loans?
Students apply for student loans. For example, an 18-year-old who has barely touched a credit card and just finished up a couple of years of a part-time job on the weekends. This undergraduate hopeful has never paid rent, utilities, a personal loan, or car payment. They most likely were not taught about money management unless they had the good fortune to have parents with foresight.
Parents take out student loans. Those who do not have the savings or income to cover the cost of school, but have been told all their lives that kids go nowhere without a college education.
Who applies for business loans?
Business owners and entrepreneurs. In other words, people with some kind of financial backing, knowledge or plan to bring in revenue.
Assuming all loans carry risk, based on the above mentioned groups, who would you loan to? Any reasonable person who was not running a charity would choose the business, if for no other reason than a business by its very nature makes revenue.
The student will not be making any revenue for at least four years. There is no guarantee that they will bring in enough income to pay for their education after school is finished. In fact, according to a study released in 2019 by think tank Third Way, over half of them from half of schools won’t bring in the required income in the first six years of working.
Now, what if I told you that I would back the money to the student. So, if that student doesn’t pay, go ahead and report them, ruin their credit, teach them a lesson, but I will continue to give you money to cover the cost so you don’t lose much. In fact, I’ll pay you more. I am the taxpayer.
To keep the lights on, universities need the federal funding they get by filling classrooms with students who would not be able to afford the tuition but for loans. But to fill classrooms, recruiters must assure teenagers that they will make money studying 18th-century English poetry, or whatever random subject, following graduation. Parents must believe that their child will not be able to compete without a degree. Any degree will do, as this one study they read this one time shows that a person will make 63% more with a degree - nevermind that that the study is nothing but averages.
The Brookings Institute stands by the adage “a college degree – in any major – is important for advancing one’s earnings potential…” they back this info with another study that shows the average earnings of all majors. So an engineer making $300,000 per year is lumped up in the same group working as a waitress with a degree in Mongolian throat singing making $25,000 per year.
Should graduates hold up their end of the bargain? Sure, but maybe they should also sue for false advertising and predatory recruiting tactics. Maybe the institutions - using taxpayer money filtered through students - that don’t deliver should be held accountable. Maybe a lot of schools should shut down. Maybe parents and students should stop propping them up.
The Justices are not likely to let student debt forgiveness pass. As a person with student debt, I could care less either way. I'll pay mine as I can and $10,000 barely puts a dent in it anyway. I've made my choices.
What's getting under my skin is the frequent examples of some of the nation's most powerful figures not knowing the first thing about what it's like to run your own business in 2023.
Just today, Chief Justice John Roberts gave a hypothetical example of a person who decides not to go to college. Instead he starts a lawn service with borrowed money. He said, “Nobody’s telling the person who is trying to set up the lawn service business that he doesn’t have to pay his loan."
First off, no bank is loaning money to a teenager to mow lawns. What kind of example is that? The federal government certainly doesn't and that's what we're talking about your honor, taxpayer money. Not a hypothetical entrepreneur who thought outside the box and decided to mow lawns instead of sleep in the back of a psychology class.
What I mean to say is, Chief Justice Roberts' example of the lawn service business is flawed in a number of ways.
Many banks no longer offer new business loans. Some proof of revenue is necessary, which requires at least one year in business. Many banks won't loan to businesses who don't have owners with other income streams outside the business. At the very least an individual would need to have generated personal income and used credit enough to build financial history.
In summary, no one is lending to barely legal new voter who passed on college.
Time and time again lawmakers on both sides of the aisle prove that they have little experience in small business and what it takes to build something from the ground up. Basing arguments with far reaching consequences on shaky information, (more on that to come).
Some are arguing that forgiving the PPPs is no different than student loans.
Anytime free government money with little restriction is available, corruption is rife. But during shutdowns leaders were staring down the barrel of economic collapse, so they donned the costume of benefactor to play tyrant.
Student loan holders, on the other hand, made a personal choice during the good times. Likely they were naïve, misled and optimistic, but they made a choice they could walk away from, unlike business owners during the pandemic. This is true, but also oversimplified.
Bigger picture - small businesses and students are both victims of government overreach. Student loan holders were sold a bad deal by recruiters to pay for education that too often proves unfruitful. A lot of bad actors make a lot of money off the educational system.
Smaller businesses who missed out on the PPP, closed down while large companies took advantage. Now that the PPP money is spent, the long-term side affects of shutdowns continue to squeeze the small businesses left.
The common denominator in both of these loan programs - large amounts of taxpayer money being wielded by a few.
Why are we subsidizing an educational system that has bankrupt our kids? What are we actually paying for? Why are parents still being sold a story that higher education is a must if they want their kid to thrive?
Gen Z has seen the turmoil student debt has caused with their parents and they’re not going to college. They get it. Millennial employers could care less about your degrees. We learned the hard way.
Encourage your kids to start a lawn business. F**K college.
*I’m using the word ‘applies’ loosely, because the qualifications are basically nonexistent. You have to be accepted to the school and have a certain level of family income to qualify for specific types of loans, but other than that a pulse will do.