Amortizing Liberty or Educated Enslavement
"There are four things every person has more of than they know: sins, debt, years, and foes."
My family was pretty well educated and I was fortunate. My dad was a U.S. Naval Academy graduate, and my mother was a talented concert pianist, who also went to a legal secretary’s school back in the 1950s. My grandmother was a graduate of a teacher’s college, and her husband went to a boarding school where he learned a number of trades.
My brother, sister, and I were taught the value of an education, but none of us were forced to go to college. The choice that was offered me was military enlistment—an option many of my friends in Junior ROTC took. For me that meant community college, because my grades in science and math didn’t get me into a great university. My grandfather, a hard man, said I might end up digging ditches (honorable, back-breaking work) but I would need to keep my nose to the grindstone if I wanted to make it through school.
Being a history and social studies geek as I am, community college afforded me the chance at some scholarships in student government, without student loans, so I dove in head long. This was back in the 1970s, when the cost of going to any kind of college is substantially less than it is now.
By the time I graduated with my Bachelor’s degree in 1980, my total student loan debt was slightly less than $3,500. You read that correctly, and there are no zeroes left out. That was for financing two years in two universities, after matriculating from a community college. My last year was spent hurrying out of the University of South Florida. Shortly afterward, I joined the U.S. Navy and became an officer. All of my student loan debt was paid in full with my income, before settling into a career of any kind.
In the 43 years since, there are now 43.5 million Americans with federal student loans. In 2021, about 14% of all Americans have student loan debt. Of those with such debt, over 10 million of them have between $20,000 to $40,000 of student loans outstanding. About 3 million borrowers owe more than $100,000. I hope they have great prospects for a huge income, and great financial discipline.
Now for the Big One—no, not the H-Bomb, though to those who are paying it may seem like it—as of last year the total debt owed by everyone who had any in the United States was a whopping $1.76 Trillion in federal and private student loan debt! That is $500 Billion more than car loans, and double the debt incurred by credit cards. Student loan debt has more than tripled since 2006 and far outpaced the other two types of consumer debt.
How did we get here? In my father’s day, a college education was a rarity, and even more so in my grandparent’s day when it was reserved for wealthy families who could afford a college education without financing. There was none available, anyhow. I honestly don’t know how my grandmother did it.
After World War II, the federal government started taking an active role in paying people to further their education. This started with military personnel in the form of the G.I. Bill in 1944. This was a great boon for the economy but came with a great many problems and hurt many Black soldiers and sailors who returned to segregated life in the south, and in the slums in other parts of the country many of them came from before the war. Jim Crow laws prevailed in the south until 1965, but the effects have survived to this day.
Now, servicemen and women are still afforded the G.I. Bill with many other federal programs added on for various specialties related to national security. This started with the Sputnik scare back in 1957 and continued at an even higher pace with Viet Nam. Since Viet Nam, Congress has passed a myriad of programs, including Pell Grants which do not require repayment at all. From the 1970s through 2010, when President Obama killed the program, the Federal Family Education Loan program guaranteed or subsidized private loans. Obama ended it by arguing that it was more of a handout to commercial lenders. In general, federal funding has been outpaced by the costs of the schools themselves.
According to the Council on Foreign Relations, student loan debt is making college much less affordable, and artificially inflates tuition. Furthermore, it shields universities and colleges from market pressures that would otherwise keep costs lower.
By far, minorities have always borrowed more than whites to attend. They also fail to complete degrees at a higher rate, and default on their loans more often.
Here’s the rub: Financial institutions, with the aid of laws that allow for the amortization of student loans, make it easy for them to take a basic loan amount and make the debt much higher through amortization. It can be a never-ending loan, virtually impossible to pay off. It’s a complex problem, even for math and business majors. Politicians are trying to tackle the problem but likely will be able to do little.
Basically, amortization is the process of paying down a loan on a schedule. If you have a car payment, you make your monthly payments. Same with mortgages or credit cards. Miss payments, and you lose your house, car, or credit card. If you drop out, the payments continue.
Student loans are divided into principal (the amount borrowed) and interest (the finance payment every month over the principal). Obviously, if you pay the same amount every month, you pay longer over time because it takes longer to pay off the principal amount of the loan. The goal is to pay down the principal amount. This way, the lender doesn’t own you forever even if you drop out of school.
Banks love your money and want to hold onto your money as long as possible. This is the curse of many student loan borrowers. They fall into the trap of “negative amortization” where the amount of the loan actually increases rather than decreases—this happens when students get into financial trouble and can’t even make minimum interest payments, then the lender adds the unpaid interest to the principal. If you have a $35,000 loan and your minimum payments are $350 per month but you miss 5 payments, that gets added to the $35,000 principal at the same interest rate. That $35,000 loan just became $36,750 and you might not even know it!
Most of the brightest, wisest people I know never attended college for a degree. They may have gone for certification courses or other specific, job related reasons to keep current or advance in their fields. I am unconvinced that a college degree is what is needed to advance our society and keep the infrastructure, and other things our culture and civilization need to survive.
My son will be 29 soon. He is one of a handful of hybrid-diesel mechanics for one of Florida’s largest transit systems. His mom and I are bursting with pride in his accomplishments in life. He’s married and a trainer of other mechanics at work and went through a three year certification program to get to where he is.
He had great SAT scores in high school. When I asked him where he wanted to go to college (he had been on a class tour of several colleges) he chuckled at me and basically told me, “Nah, I want to be a mechanic.” I thought I would die. Later, my wife told me she would have fought me on it, if I forced the issue. She would have been right.
It was a good thing he did what he did. His income is now as high or higher than mine (with great benefits) as a manager with 11 years’ experience in my state agency, 20 years from retirement.
Are their too many college graduates? I don’t know. I do know there is too much financial enslavement to banks because of student loans that might not be necessary if young people can find fulfillment in a career that doesn’t require unneeded university degrees.
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