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March 28, 2013 at 3:58 PMComments: 11 Faves: 0

Don't Be Like Me: How to Avoid the Suckery That Is Student Loan Debt

By Kyle McCarthy from SLN More Blogs by This AuthorFrom the Culturology Blog Series

"The modern implement of imposing slavery is debt." - Ezra Pound

The Myth of Upward Mobility

Nobody bothered to tell any of us this a decade ago (although I guess ol' Ezra deserves credit for at least trying long before that), but the perceived importance of a modern formal college education may be the most coercive tactic ever designed to ensure the permanent voluntary obedience of the populace. The accepted fairy tale is that earning an undergraduate or advanced degree through years of hard work and intense academic instruction will translate into immediate dividends in the form of a well-paying position with ample opportunity for upward mobility. The truth is not quite as romantic or imaginative as a modern day Disney reboot, but it's still just as effective at championing mindless conformity as any of the original Grimm brothers' tales.

Unfortunately, millions of 20-somethings have uncovered the lie of education far too late. Having already bartered away their experiences in favor of education, their little heads are now chocked full of useless little information, while their little wallets are now tasked with a staggering bill, leaving their little souls crushed by big money capitalism. They calmly sit at their cubicles silently fretting about their past due bills, or, worse yet, they wander through the virtual portals of online job sites, unemployed and desperately yearning for a call back for even the most menial and low-paying jobs.

The youthful, idealistic students of yesterday have rapidly decayed into crotchety cogs in the wheel within just a few short years of graduation. Karl Marx said that religion is the opiate of the masses (well, he kind of said that anyway), but it appears that student loan debt has become the hangover of the party; it seemed like a good idea at the time, but now our temples are pounding with one massive communal headache.

Competence Matters Not

Hate to break it to ya kids, but a Bachelor's degree is the new high school diploma, which, in turn, makes a Master's the new Bachelor's, and so on and so forth. Therefore, the premium that you place on your educational accomplishments no longer squares with the perception of most employers, and that's just the reality in which we live. For instance, I have a good friend who recently graduated with an MA in English, who is, coincidentally, the smartest person I know. This brilliant young mind currently spends sporadic six-hour shifts behind the register at a Family Video just trying to pay his rent. His competency matters not in today's workforce, unless you consider movie rental suggestions a career skill.

The sad reality is that there's a hopelessly clogged bottleneck for jobs in the corporate marketplace. This is due to a number of factors, including massive state budget cuts throughout the country, outsourcing in the global market, technological advancements that eliminate the need for a human element, and my personal favorite, nepotism - an age old practice that is rumored to involve handshakes, golf, and martinis.

I'm assuming that, for Wealthy White Male America, student loans are literally the coolest thing ever. They ensure the stasis of the middle class, provide huge profits for banks and other lenders, and don't affect their own offspring at all. The $100,000 check that Uncle Steve can cut as a birthday gift for for his brat nephew to spend 4 years at Yale is chump change for the capitalist elite. So, for the rest of us, it looks like it's either brilliant entrepreneurial innovation or college and the inevitable student loans that come along with merely trying to level the competitive field.

Based on my personal track record, you'd think that I'd be the last person in the world that you would want giving you financial advice, but I've learned a lot from my hellish experiences with student loans, and I've packaged that empirical knowledge with an article I discovered on Yahoo! News this morning that had several great tips for managing student loan debt in order to pass on a few words of "old man been-there-done-that" wisdom.

Managing Your Potential Nightmare

The first piece of advice I would give would be to stray from student loans entirely. I realize this is an impossible task for most who want to pursue their education, but it can be achieved (at least partially) by recognizing the importance of academic performance in high school. It's extremely difficult for a teenager to realize the importance of taking a shower in the morning, much less having the foresight to recognize that the decisions they're making in the classroom could potentially affect their bank accounts for the rest of their lives. Stellar grades can lead to lucrative financial packages at state universities and private colleges, so the first step in managing student loan debt would be to avoid it entirely by hitting the books early and often before a student even begins applying for schools.

Gross Teen

However, if you were like me and struggled to fit your head on straight as a young buck, here's the single most important thing to remember when applying for loans: There are two types, federal and private, and opting for the former rather than the latter could save you a lot of stress in the future. Federal loans can be either subsidized or unsubsidized, but they always have lower interest rates than their venomous counterparts. In addition to several federal relief programs, they also offer the benefit of deferment or forbearance if you're unable to find gainful employment upon graduation. In my experience, dealing with federal loan representatives has been much smoother than the vampires parading as account managers with private lending institutions. Also, most private loans have fluctuating interest rates that can be hiked drastically at their own discretion. So, unless you absolutely have to borrow from a private lender, it's best to stick with Uncle Sam (at least on this one).

If you do opt for student loans, keep in mind that every cent you borrow will have to be paid back in some fashion, usually with rising interest rates. It's a pretty awesome feeling to deposit the remainder of those loan checks into your once-staggering checking account, but don't get too carried away. Remember that the money should be reserved for living expenses such as rent, groceries, car payments, etc. It's not a crime to order the occasional pizza with your loan money, but it's best to avoid buying shots at the bar for classmates whose parents are likely paying for their wasted semesters or splurging for those herbal studying supplements that I've heard so many college kids like to smoke.

Not everyone is lucky enough to land their dream job the day after they graduate, but there do exist safeguards to protect you from defaulting on your federal loan if you struggle to find the perfect job for a bit. Aside from deferment and forbearance options, federal loans offer something called Income-Based Repayment (IBR). This allows for the borrower to set their repayments at 15% of their annual income, provided they are dealing with "a partial financial hardship." This means that the amount owed is greater than 15% of your income. Furthermore, if you remain in the program, the remainder of your loan will be forgiven after 25 years of scheduled payments. Better yet, President Obama's "Pay As You Earn" program seeks to cap payments at 10% of your income and could forgive all the remaining balance after 20 years of payments. This may not seem like a probability now, but you never know what the future may bring, and, for many, this program has been a godsend.

In some cases, the profession that you choose could go along way toward lessening the impact of your student loans. For instance, there are dozens of public sector professions that use loan repayment forgiveness as a motivation to enter specific industries. For most of these, an employee is required to make 120 payments (or 10 years' worth) on their loans, at which time, the remaining balance will be forgiven. Participation in one of the Public Service Loan Forgiveness programs is usually limited to individuals working for a government agency or a non-profit organization such as the military or public education system. Therefore, if you know early on in your academic career that you want to major in education, criminal justice, or some other form of civil service, make sure to ask your financial aid advisor which loans will be most beneficial to you in both the present and the long term.

Pursue Knowledge, Not a Paycheck

As Socrates said, "Education is the filling of a flame, not the filling of a vessel." If it's facts you're interested in, I'd say that you can learn more from an episode of Teen Jeopardy than any anthropology or history course. However, if you value the pursuit of knowledge for the sake of understanding processes and stoking your creative fire, then you probably already have what it takes to be one of the true leaders of tomorrow; your education will only serve to get you in the door. And while many of our great leaders have historically been wealthy men and women, riches are by no means a prerequisite to making a lasting impact on the world.

Be careful in choosing what you really want to do with your life, and make sure to plan ahead for the financial hell that is student loans, but don't ever let something as meaningless as money keep you from pursuing your dreams - even if that means having to pretend to believe in the fairy tale that a formal education is the means to achieving a better way of life for four measly years. As you go about earning your degree, remember that learning truly is its own reward. If you forget that, the money you will have borrowed to realize your goals will truly have been spent in vain.

References:

http://news.yahoo.com/control-student-loan-debt-5-ways-161028360.html

http://theeconomiccollapseblog.com/archives/10-reasons-why-it-has-become-so-soul-crushingly-difficult-to-find-a-job-in-america-today

http://www.studentaid.ed.gov/repay-loans/forgiveness-cancellation/charts/public-service#what-kinds-of-employment

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11 Comments

  • Excellent article Kyle. If only someone had the foresight to teach us this when we actually needed it. By foresight I mean backbone, of course.

    Also, long live herbal study supplements.

  • In my experience, a lot of college kids aren't sure what to do when they need more credits for a semester, so they just take 'whatever' class. I'm not sure they realize they are going to pay for every credit, whether it be calculus or tennis. Why not take something that will help you toward your goal rather than taking 'an easy class full of hot girls' (a direct quote from a college associate who had no interest in art but needed the credits)?

  • You have to wonder why college is so expensive though? Does it really cost $10,000-$13,000 for a good instate university that's already receiving state funding to pay for 24 hours of class a week for half the year? Of course it does! It couldn't possibly be the basic law of supply and demand driving up the price up. That wouldn't make sense at all. It also couldn't have anything to do with Deans and Board members making 6 figure plus incomes working 2/3 the year. Nope definitely couldn't be that.

    That leaves only one group to blame. The greedy evil bankers hiding their barbed tails in their Armani slacks. Blame them for making college that expensive when they have absolutely nothing to do with the costs of tuition, food, books, parking passes, etc. Funny thing is if it wasn't for them you wouldn't have your degree at all. Soooooo you hate the people who funded the education you chose to receive, but you don't blame the people who set tuition prices? It's interesting how lopsided that is.

    It comes down to supply and demand. The government prints money to subsidize loans which allows more students to attend college in turn artificially manipulating the market and increasing demand. When demand goes up so do costs. Also this manipulation of capital allows banks to issue loans that they normally wouldn't. Government is the real reason behind why these kids are able to incur these debts. The amount of people gaining access to college by accruing debt destroys the advantage of having the degree. If everyone has a degree than what makes it special? Nothing! That's the basic economic principle of scarcity.

    Blame it on big business all you want, but you're intentionally ignoring half the pie. After reading a lot of your stuff it's clear why. You just view the private sector as a mass of evil pigs trudging through piles of stolen money. At the same time government sits bathed in glorious light promising you prosperity even thought they simultaneously watch you toil for scraps. You're so blinded by your faith and love in government that you fail to realize the real source of these huge mounts of currency that the pigs lavishly enjoy.

  • As usual, Garchow, 99% of what you said is complete nonsense, and the 1% of what you said that did resonate, is nothing more than common sense. Of course supply has gone up, and this has to do with the ability for everyone to attend school now based on the manipulative practices of independent lenders that are backed by large banking institutions who set exorbitant interest rates.

    Do I think that tuition rates are out of control? They're certainly getting there, but the costs of running a university must be absolutely astronomical, so I don't really know if I can speak intelligently about the compared costs of tuition and university overhead, and I doubt you can either.

    Who am I going to blame here... the 18 year old with no world experience or the person who is manipulating them? This has a lot more to do with common sense than politics, but in the same way that I consistently demonize spoiled brat fat cats, you feel the need to blame liberals for all the world's problems... as if wanting a better world for EVERYONE is an evil notion.

    I would really love to see some concrete evidence that the government is intentionally printing money at a rate incommensurate with regular rates of inflation just to subsidize loans, especially considering the minimal interest rates that most federal loans offer.

  • I don't know if 99% is an accurate figure Kyle. I brought up the law of supply and demand, and the basic principle of scarcity. So if I had made an additional 98 points than I'd still have a total of 2% that should resonate. You're figure was just part of your belittling intro attempting to discredit my argument by labeling me as a lesser, but hey we'll go with it.

    If you want concrete evidence that the government prints money "just" to subsidize loans I can't give you that because it's only a slice of the Chicago deep dish pizza. So what you were asking for is evidence that you know doesn't exist in a creditable format. Once again in an effort to make me out to be some uneducated dummy because I can't provide on your impossible request. At the same time you know it is true. The FED has been keeping artificially keeping the economy afloat since 2008. The government's artificially manipulating loads of industries. Student loans are just a portion.

    Yes Universities are expensive to run. That's why they get help from our State tax dollars! So even if I don't attend that school my state taxes go to help run it. Just because they're expensive doesn't mean their efficient. In fact I think its clearly the opposite. Let's pay $25,000/yr to the aid of the assistant's aid to the dean. Still even thought they receive state funding they charge exorbitant amounts of money per semester to instate students and even more to out of state students. Here's UofM's Institution rates.

    http://www.finaid.umich.edu/TopNav/AboutUMFinancialAid/CostofAttendance.aspx

    In four years they can make $200,000+ off an out of state student. 36% of their students are out of state.

    http://www.collegexpress.com/lists/list/percentage-of-out-of-state-students-at-public-universities/360/

    I wonder what the largest portion of their overhead is? Check this out! who are the fat cat here

    http://www.umsalary.info/numbers.php

    Again you're trying to discredit me and simultaneously exemplify yourself by making me out as an evil human who hates the poor. I'll tell you one thing Kyle making the world a better place isn't just a liberal agenda, and the real successful way to do it doesn't include taking money from others. Using force to have other people's money pay for your self righteous intentions doesn't make you a Saint. Robin hood was still a thief no matter how noble he believed his intentions were. The difference between us Kyle is that I believe when people earn something they respect it more, and they learn more from it. You believe people just need a hand out, but what normally happens when people are handed things? They waste it, and have no respect for it!

    This discussion between haves and have-nots has been going one since the dawn of time. It's not going to change here, but at least I acknowledge all parties in this matter instead of choosing sides and starting a war.

    I know the banks are in it for profits, (which their is nothing wrong with) but that doesn't make the Universities and government any less at fault. I actually feel like they're a great first line. My point is basically quit being so one-sided. I know they teach you that junk in college, but that's not how you make friends or progress.

  • Once again, I'm embarrassed by my terrible lack of grammar. I really wish there was an edit feature on here.

  • "Quit being so one-sided" is an interesting statement coming from you, Garchow. I wrote a blog about how to avoid student loan debt, then I was passive-aggressively attacked on a political issue that really had nothing to do with the substance of my article... not a good way to win friends or make progress.

    "evidence that you know doesn't exist in a creditable format" Thank you! Of course it doesn't! Further, if there's not empirical evidence for this, then it seems strange to state it as fact in your attack.

    I appreciate you trying to tell me what I believe, but seeing as how your brain fits in your head, and mine in mine, this is an impossible task. I don't believe that anyone deserves a handout, but I do believe that taxes should be collected and allocated for basic human services. I suppose you don't think that we should have a police force or a military? How about public education? Is that also a sin orchestrated by big government?

    How do you claim to "acknowledge all parties in this matter instead of choosing sides and starting a war" or in any political matter whatsoever. I really hope that you don't actually believe that you're "fair and balanced" when it comes to politics. I always try to see all sides of an argument, which is why I chose to entitle this piece, "Don't Be Like Me..." I know I'm to blame for my student loan issues, but that doesn't make it right to steal money from 18-year old kids that everyone knows usually don't know any better.

    Of course they charge more money to out-of-state students... They don't pay state taxes to assist in the state university they attend? Where's the argument there?

    Did you bother to read that list of UM faculty that you included? Every single person on that list is in charge of developing the future talent of the most gifted kids in the world. They've truly earned their positions as opposed to having them handed to them by mere circumstance or some act of familial generosity. What's more, they're not just making money, they're sculpting the future of thousands of individuals, which will, in turn, sculpt the future of this country. Why shouldn't they make good money? They've acquired years of education and experience, and now they can impart that wisdom to their students to help create a better world. If you want the best in the world to be a part of your university, you're going to have to pay them. The administration understands this, the faculty understand this, and the students will be thankful for it when they're earning one of the best educations in the country.

  • So first off I want to say that you're article is very informative and is a solid read for people preparing to embark on this potential expensive journey.

    My issue was tonality I guess. You can't deny that you worded the article in a way that show an absolute resentment toward wealthier people. As for me not being balanced I'll agree. You can call me bias, but at least I'm acknowledging the banks aren't innocent and they do make these loans for profits.

    This article (I feel) does a good job at summing up what subsidies have done to the higher education system. This is the governments role in the over team effort that is massive college student debt.

    http://www.downsizinggovernment.org/education/higher-education-subsidies

    To make it super simple this is how I'm breaking it down.
    The School sets the total cost.
    The banks fund the costs and add interest.
    The government funds Schools and banks to provide more loans which drives up demand, and in turn drives up costs, simultaneously devaluing degrees by increasing the supply.

    Who's the really the culprit? All three of them!

    The banks have nothing to do with how much colleges charge. They have nothing to do with what school you choose to attend. All the banks have control of is the interest rate and providing the loan or not. 6% on $10,000 isn't that bad, but 6% on $100,000 is. Who sets that $100,000 price tag?

    Schools are increasing costs because of higher demand. Higher demand means more faculty and staff which means more costs. More student means more housing, more food, more equipment. All adding up to increased overhead costs.

    Government is explained much better in the article listed above. Please refer to that to see their role.

    All three have a hand in the pot and all three are to blame, but if you remove one the other two will operate more efficiently.



    As for my opinion on Military, Fire, and Police. These forces should be taxpayer funded because these industries are market failures. That being said I do think these industries are overly bloated and wasteful.

    Public schooling up to 12th grade is also something that I consider a public need and a market failure to those who cannot afford education. Now does the quality of the schools need to improved? Yes, but I don't blame that on a lack of funding. I blame that on how poorly the funding is spent. Superintendents making 6 figure salaries and teachers making $30,000 is off balance to me. I blame the faults of public education on bloated and wasteful spending as well.

    If you look at the track record for government involvement you notice a common trend. That trend is lower quality with higher costs. Even the US military spending is overly bloated and wasteful.

    Once again your article does a great job of informing readers what to prepare for, but its written in a way that vilifies one participant when all three are truly at fault. Yes yes I am bias I do think the government is the most at fault.

  • Well said, Garchow. Civil rhetoric is far more advantageous than silly bickering. As for the tone of my blog, you're exactly right. I'm extremely distrustful of the financial elite, much like you are of our government. I think we probably both have good points, as well as certain biases, but there are systemic problems in all facets of socio-economic policy... I think we can definitely agree on that.

    Like you (if I'm hearing you correctly here), my main issue isn't necessarily with taxation, but rather the gross misallocation of said funds. With that said, I feel that if students were only allowed to borrow from independent lenders and our government ceased to fund public universities, our institutes of higher learning would be in shambles within five years and would cease to exist in ten. Not to mention the impact that this would likely have on curriculum.

  • I feel like rushing our students off to college right after their out of high school is ridiculous. If you get rid of this notion that college, or the military must come directly after high school you can help the system 10 fold.

    How many 18 years old know what they want their career to be? I sure as heck didn't have a clue. How many of them are rushed into college unprepared and thus paying for education that they don't even have a goals set for yet? How many college students get extremely expensive degrees and realize that the degree is for a career they don't want anymore?

    If kid out of high school weren't forced into this collegiate rush then they would have time to:
    1. Work, and figure out their goals and career of choice
    2. Save, and figure out how to pay for school without loans, or how to minimize loans.
    3. Gain more from School (Not partying as much) and wasting credits.

    It was like the point you stated earlier. These are 18 year old new Adults. Why are they being rushed into college when they don't have any taste of the real world. A lot of people find that private trade schools are much more efficient, cheaper, and catered toward their goals.

    This keeps them out of the Universities and thus lower the demands and costs, which means the loan principles decrease.

    We need to stop this forced focus on turning college into High School 2.0.

  • Yeah I get the jest of this article - I can't speak for myself but my sister graduated from U of M and a couple of her first real jobs out of college was working as a manager at Hot N Now, and she worked at the Children's Place in the mall. Far cry from her major!

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