Friday, May 10, 2013


Today, The New York Times published an article about the $1 trillion of student loan debt and the long-term economic drag that this creates as people put off buying homes, cars, and having children (children who lead to a lot of economic purchases).

The article also mentions the long-term psychological impact of huge debt as a normal factor in life for the “millennial” generation, not just the anxiety/depression but economic cautiousness that has changed the behavior patters of this generation, causing even more economic slump when these people actually start to make some extra money.  Essentially, they may end up saving it instead of blowing it on material stuff, which hurts the economy.  The psychological impact also creates permanent emotional damage for people who put off normal youthful activities and responsibilities like marriage and children due to worries about supporting loved ones.

As usual, the article leaves out the most important questions and tries to paint a rosy picture about how college graduates make substantially more income over their lifetimes than their non-college counterparts.  Yet, this claim is based on past data and predictions of future salaries, and it is entirely plausible that the college-educated of this generation will continue to remain in the same types of jobs with the same types of salaries for the foreseeable future.  Also, the higher employment rate that the newspapers always tout does not calculate the salary to debt ratio.

The key question that the article also blows past without investigating: what happens when young people just stop paying for higher education?  The article acknowledges what many of us know from personal experience when we see our non-college educated friends buying homes and going on vacations.  Two non-college educated people making $35,000 and having no student debt can live a comfortable life, one unknown to those of us who spent most of our 20s in school and only working part-time gigs.  Surely, many of us have wondered whether it was worth going to school.  And surely, many of the smart people of the coming generations will evaluate their options by looking at our generation and seeing that it makes little financial sense to get educated.

This problem applies with more force to many professional degrees, whether it be veterinarians, people in most health-related fields, pharmacy techs, Ph.D-academics, or lawyers.  Many people with these credentials end up with incomes that match (for the most part) the incomes of their counterparts with four-year degrees, but they have much higher debt and opportunity costs.

Essentially, our country is creating a huge disincentive for getting educated.  Even if salaries for the college-educated are $10,000 a year higher on average, the payment of perpetual debt cancels out this benefit.  As many of us know, debt and taxes makes our incomes much lower than many of our friends working in $12/hour receptionist jobs.

In the name of “access,” the government allowed an infinite spigot of student loan money.  This lead our “free market” academies to price gouge, exercise regulatory capture, and shamelessly promote their defective products with a government seal of approval and a bunch of propaganda about good debt and the inherent value of education.  In response, young people may start to act rationally by making one of two choices: 1) not going to school or 2) not living a normal life complete with expenses like houses, cars, and children (the next generation of consumers)!  We will become a generation of the dumb or the childless.


  1. The ever-punctual Law School Truth Center also has an interesting take on this Times article in his post from just a half hour before this one (great minds and all that).

  2. Brian Tamanaha addressed this issue in his recent article. According to him, universities personnel, including professors and administrators, feel justified in exacting a heavy toll from students because these students, especially law students, are on their way to make such high incomes as the servants of Corporate America. This money allows the university personnel to live a happy, care-free life of agitating for social justice and other stereotypically liberal causes, with a little bit of article writing thrown in for good measure. Any pain suffered is what those greedy students deserve for trying to get onto the corporate teat.


    1. As for student loans, recent growth has pushed debt levels to nearly $1 trillion, meaning it "now exceeds credit-card outstandings and has parallels to the housing crisis," the council said after its Feb. 3, 2012, meeting. The bankers told the FOMC that student lending exhibited characteristics similar to those seen in the housing crisis, including "significant growth of subsidized lending in pursuit of a social good" -- in this case, higher education rather than expanded home ownership.

      Just as the mortgage lending boom pushed home prices upward, student loan lending has put upward pressure on tuition. The bankers said both examples showed a "lack of underwriting discipline."

      Bernanke has dismissed parallels between student lending and the subprime mortgage crisis. "I don't think it's a financial stability issue to the same extent that, say, mortgage debt was in the last crisis because most of it is held not by financial institutions but by the federal government," Bernanke told a Bloomberg reporter on Aug. 7.

  4. I mostly agree with the post, but I'd quibble over whether we'd really become dumber if fewer people went to college. Along of learning in college is useless, like the classes on comic books, dog psychology, wine-tasting, etc. These and other classes may even be mentally deforming. I can imagine some people being smarter without going to college, especially if they read books in their spare time or at least watch educational videos.

    But the part about us being childless, car-less, and house-less -- that's spot on and true for me and many of my friends.


  5. if high schools did a better job, there wouldn't need to be as many people going to community college and earning useless associate degrees.

    there was an article discussing the high number of remedial classes taken at community colleges. I know wayne state, an above average 4 year college, in Detroit has lots of people taking remedial classes. very wasteful

  6. choice 3: work and go to community college or night school - don't borrow money you can't pay back. Result: no (or little debt), a job and a degree