A Generation Deferred

Yes, I’m writing on student loans. Again. I’ll keep writing until conditions improve. This will be extremely long, and mildly ranty, but that’s my usual style.
So, considering I’m coming up on 30 years old and making an okay income between my day job and my business, I got the idea of buying my own place. I went through the steps of the pre-qualification for a mortgage, and at the end of that particular rigmarole was a long talk with my mortgage broker, who told me, “Unfortunately, you don’t qualify for much, and it’s the student loans that are why.” Though he sought to reassure me that the fact that I basically paid 1/3 of them so far is a huge step above my peers’ situation, this was a downer. These student loans have been sucking my (limited) finances dry effectively since my graduation.
I work in the finance industry, though I don’t have a degree in the field. I know how to stretch a budget to where Nadia Comaneci would be jealous. And I will be honest, there have been more than a few points where I very deeply considered going into bankruptcy, which I mentioned to my broker. But, per him, the treatment of student loans under federal law has been fluidly changing and getting more restrictive, and after 2005, they’re no longer exempt from bankruptcy, and are considered to be in the same debt category as a mortgage. Yeah, thanks, Dubya.

I’m about to be Capt. Obvious for a second here and state something few people are willing to admit: all colleges are a business to some degree or another, whether or not they have a 501(c)3 nonprofit status. Whether or not you view them as such, they operate as a business. They receive income in the form of grants, loans, and tuition payments, and pay the expenses necessary (facility fees, property taxes, professors’ salaries) in order to generate a product (education/diplomas) and cut a profit for the director (because college administration is not a task undertaken for free). Tuition expenses go up every year to meet the rise in expenses and to maintain the profit margin. That’s just how a business operates, and you see the same model in everything: retail stores that raise prices when wholesale product costs go up because they want to avoid taking a loss. Same here. 

When a student takes out a student loan, where does the money go? To the school, yes. It’s part and parcel of the income flow. But the lender issuing the loan is also charging interest on it, usually well above the market price for most qualified loans (it was 6.8% fixed rate when I went to school; variable rate I managed to shrink down). Indeed – that’s how the lender makes a profit: off the interest. They’re getting the principal back plus a little extra, and the college only gets the principal.

Part two is the actual price of education. The cost of college tuition is absurdly high, and there’s no hint of it being capped or reduced anytime soon. Compare costs across a couple of decades if you don’t believe me, I’ll wait.

If you’re of the millennial generation and you’re in college right now, there’s a good chance your tuition costs about $22,000 a year on average, depending on whether or not you’re a commuter or a resident, you go to a private or a public college, live in a big city or suburbia, and whether or not you have any financial aid in terms of scholarships and grants. About a decade ago, when I was starting college, costs were maybe $15-$20K a year. Since I went to a private university as a commuter student, this was pretty much my tuition price: I didn’t have to pay up for room & board until senior year, when I worked nights, plus I got scholarships and grants, which cut that price down a good bit. But the rest of it has to get covered somehow, and the easiest possible way to do that is with student loans. No credit score? No problem! Get a cosigner. No cosigner? No problem! Here’s a program by Sallie Mae that will get you the loan, but hey, there’s a higher interest rate (Tuition Answer Loans, which had an average rate of 8% – and I had to take out a couple of those if I wanted to stay in school).

Plus, you can’t discharge the loans in bankruptcy proceedings anymore. ThinkProgress has written on this topic multiple times, and this article is illuminating, in all the worst possible ways. I recommend reading it just to you have an idea of how things got to be the way they are.

While my example isn’t typical, and amounts and mileage vary, the situation is still the same: for whatever scholarships and grants don’t cover, someone’s gotta pony up the dough. Considering that Pell, TAP, and other government grants have been getting slashed every year, students affected by those cuts usually have to make a choice: pay out of pocket, take out a loan, or drop out of school.

Unenviable, but when you’re constantly told that a college degree is an effective requirement if you want to get anywhere in life above poverty, you’re going to do whatever it takes to get that degree, yes?

What cheesed me off a while ago was an article wherein the financial talking heads were discussing that student loans are the reason that people aren’t buying their first homes. That article almost made me punch the screen. Seriously? You’re going to tell us the obvious? Where were the same financial talking heads when student loans were being made exempt from federal bankruptcy laws? Where were they when education costs have been inflated to where anyone from the working class automatically can’t afford it? Where were they when TAP and Pell were being slashed in Congress? And where were they when all the jobs that do not require a college education – construction, factory work, building, call-center service, tech – were being shipped overseas?

Moreover, if you’re being told that you absolutely must have a college degree if you want to amount to anything in life, you’re going to feel that you have no choice but sink yourself into the hole because you get the thought hammered into you that there is little to no other way.

Come on, folks, you and I both remember those talks in high school and college. In high school, it was all about “Get into college! That’s the only way you’ll have a good job!” In college, it’s all about “Get this unpaid internship so it’ll look good on your resume, and you’ll get this great job and pay off those loans in no time!” – BULL. All of that is bull, start to finish. And who benefits from the spin? Certainly not the hopeful students who think about what they’ll do after college, and looking forward to college life and living, only to discover that they have been, for all intents and purposes, duped into at least 10 years of debt with no guarantee of anything after college.

No one bothers to tell you that in today’s economic climate, a Bachelor’s degree is the new high school diploma and only serves as a demarcation of the minimum salary you should be paid at your first “real” job, which at entry level falls between paltry and laughable. No one tells you that cost of living and salaries hadn’t kept pace with each other for about a decade and that disparity only continues getting worse, and you will very frequently have to choose between paying your loans and paying your rent, with no way to do both unless you want to give up eating. No one ever tells you the incredibly unpleasant and blunt truth that there are just not enough “good” jobs to go around, and not everyone can get work in their field, and until you find that job in your field, even a paltry entry-level position, there’s a pretty good chance that you’d either be 1. unemployed for a stretch or 2. taking literally anything that’s offered to you if it means that money comes into your pocket. This is why college grads work fast food joints, clean toilets, and/or live at home well into their thirties, and all the while the talking heads in the financial newspapers scratch their heads at why there’s a decline in new IRAs being opened, what it means for the economy and the future of the hedge funds, and wonder just what these college grads are doing and why they’re not “starting their own independent lives and families”. 

Simple answer: there’s not enough money to go around, therefore they can’t afford to. And probably won’t afford to until they’re well into, or even past their thirties; if it takes ten years to pay off your degree, then an average college grad is 32 by the time their debtload is gone, if you consider the current salary market. It takes a while to save up enough for a deposit to buy one’s own place, so let’s ballpark that to about…37, 38 before you buy your first home. If you want to retire, then a good time to start saving is when you get your first job, which is right out of school if you’re lucky, but since that income has gone to pay off all those loans, you’re now about 15 years behind a savings plan for your later years. Which means even more of your income has to go to retirement to catch up. Which leaves you…where? Living hand-to-mouth. Exactly like when you graduated college.

Suppose you do get married and have kids while you’re still battling your education debt. Congratulations! You still have to make payments. Your spouse is now also part liable for your student loans too, a little quirk about communal laws governing marriages. If your spouse has student loans too, then not only are you jointly liable for both, but it’s also double the debt and monthly expense. The only consolation is that there’s two incomes now, which will at least ensure that you’ll make rent and payments. However, what about your kids’ education, if you plan on having kids? At the pace that education costs are inflating, if you’re sending your kids to college, there’s a pretty good chance that you’ll be paying student loans – whether theirs or yours – well into your retirement, that is, if you don’t get the idea of gutting your retirement fund to pay for their tuition.

I can only wonder how many high school grads in Class of 2014 got the reality check for what life after college entails from their financial aid guides or their parents. I can also only wonder how many college grads from this year’s class will have 1. jobs lined up that can allow them to survive and pay back their debt, or 2. are walking across their graduation stage with a little knot of panic in their stomachs at how the hell they’re going to survive.

Tuition is rising, as I said, and let me give you a personal example once more, in more detail. I went to Pace University with an annual undergrad tab of $19,000 per year at the time of my admission, which right now, 11 years after I walked through its doors the first time, is $38,200 in tuition alone. A twenty-thousand-dollar spike in costs in just a hair over 10 years. Are you fucking kidding me?! That’s basically a luxury vehicle every year. That’s a mortgage, if you think over the full cost of the degree. Salaries didn’t change much over those ten years, but tuition costs doubled. So of course, this means that if Pace isn’t giving them financial aid (I got lucky there), then what does that leave John Q. Freshman of the Class of 2018? Ass-over-teakettle in debt upon graduation, with lenders only too willing to give out the debt shackle that they know full well that the student will never be able to get out of. 

There are two ways for a student to front this sort of a cost. Either they take out the student loans, or their parents get a home equity loan (provided they own a home), which is additional debt leverage against the home, which also gives them a loan usually at a cheaper interest percentage than the usual suspects at Sallie Mae.

But guess what: neither source of money is real. 

This is the thing about home equity loans: the home value that backs the mortgage and the equity loan, regardless of what the loans against it say it is, will still have to get verified at appraisal or tax assessment (and if you’re contesting your property taxes, an appraisal is a must), the home is serving as collateral for both liabilities, and the side effect of the HEL is that it kills whatever equity you manage to build up. And this is the interesting part: if the home value – the actual home value at fair market – is appraised at less than the total debt leveraging against it, the bank will have every opportunity to foreclose on the house if it’ll feel that the owners won’t pay up. The house basically has two mortgages behind it at that point – $38K over 5 years of college education equals out to 190K and that’s without the interest, regardless of how low it is – and if a bank feels that it’s too much risk to have the original mortgage and the home equity loan, then yes, they’ll foreclose. And if you recall that banks are very eager to foreclose in general, then this should make you worry. A LOT.

Now, the student loans. This is the catch to them: student loans have no collateral behind them whatsoever. The HEL has the house as collateral. Student loans have….? Zip. Zilch. Nothing. Sure, the federal laws now allow the lenders to hold your credit and sometimes your wages hostage if you default, but again, at origination of the loan, there’s nothing backing it but your promissory note. This, to a lender, is dangerous. This is why the current laws effectively leave you up a certain creek without a paddle when it comes to repayment.

The student loans have only one thing that could be considered collateral: the degree itself. Considering that most large-volume loan notes usually have tangible assets as collateral – your house, your car, your business – the degree you are working on now takes on the position of an asset. Except it isn’t, really. It’s not tangible property. Education is intrinsic and empirical, but definitely not tangible material, which is typically what collateral boils down to. It can’t be taken away from you if the student loan lenders suddenly demand the full amount, which has been known to happen for various events, and which they have every right to do. It can and often does fuck up your credit to beyond recognition if you default on your loans, but your financial future is not collateral, even though your wages can get garnished for nonpayment, though thankfully, that still requires a court order. If you have no real and tangible assets, then there’s nothing that the lenders can go after or put a lien on if they won’t be getting their money.

Student loans are, in that consideration, what I like to call shadow money. It’s money lent, yes, but it’s money that’s changing hands based on nothing but promise of repayment. There’s a massive risk of loss on the lender side, because as college costs skyrocket and students and their families end up borrowing more and more without salaries keeping pace with inflation, there’s a much bigger chance that a lot of those loans are going to end up in default. Considering it’s next to impossible to refinance the loans at a lower rate – some are lucky enough to have a 2.75% rate, and try finding a lower or comparable refi to shrink the payments a wee bit, hmmm? but try finding any private lender willing to consolidate for that rate – default is a very, very likely possibility.

Who profits? The lenders first. Colleges second. The colleges care little, as it turns out, about the students who may or may not be able to afford their diplomas. Where does that leave the students?

Shackled by the price of their own degrees, which everyone around them, specifically those from the older generation, told them that they absolutely had to have.

I heard a lot of comments from people who are of my parents’ generation, all of which had only served to prove to me that they are very unaware of what the students and grads of this generation have to go through in their quest for the “American Dream”. Back in the previous generation, college tuition was rarely above $5,000 per year. This was great – it meant that with a job, one can reasonably put themselves through school, live on their own, and come out with minimal or no debt. Quite obviously, that’s no longer the case. Salaries had not kept pace with inflation, and tuition costs have outpaced it. What used to be a $5K/year degree on a 16-credit schedule is now $40K. That’s not counting living expenses, transit, food, toiletries, books. And they don’t become aware of it until their own kids present the with the tuition bill.

“Go to college, you’ll have a great job, and you’ll have a better life” – right. Okay. Sure. Tell that to me after seeing the foreman of my last job’s construction team make twice what I make. He has no degree, no college education, but he has all the licenses necessary to run a construction project, licenses that cost less to acquire than any college degree I know of, and he makes twice as much money as a career bookkeeper per year.

Which brings me to another, related point.

Explain to me please exactly why we, as a collective society, began to look down on tradespeople or anyone who works with their hands. Plumbers. HVAC repairmen. Construction crews. Bus drivers. Subway train operators. Why? Because they “didn’t get a degree”? Really? Think about it: they make a living doing what  a disproportionate number of people think they’re “above” doing. And in quite a lot of cases, they make more money, and enjoy far better job security than those of us with desk jobs and diplomas. There’s always drains to unclog. There’s always a train to run or a bus to drive. Someone will always need something built, demolished, or fixed. There’s a lot of money and job security in those fields, and very few of them require a college diploma. They do, however, require training, and apprenticeship in some cases, of which there’s comparably little, but there’s a college or a degree program at every other turn, so it seems. The people who forgo the college route and go to trade schools or apprenticeships end up making a hell of a lot more out of their lives than those of us with degrees. Why? They don’t have the debt to think about, number one, and two, there is always a dependable supply of work. Everyone needs a mechanic, a dry-cleaner, a carpenter, a repairman, a phone tech, an electrician… Everyone.

It used to be that if you worked in a factory, you knew you had your work and could expect a comfortable retirement on a pension, but because it became more profitable to ship the factories to China and to India, where workers are paid pennies on the dollar, these jobs and these days are gone. And who benefits? Again, not the high-school grads.

The fact is this: for all the head-scratching that the talking heads do about the lack of new retirement plans opening for college grads, that they’re not buying new homes, that they’re not putting money away, that they live at home again after graduating, there’s a simple answer: there just isn’t enough income to go around to make all of these independent-living milestones happen. We graduated college at 21-22, my peers and I. We’re now approaching and entering our thirties. The thing is, we’re still living like newly minted grads: in tiny closet-like apartment with two per room to make the rent, struggling to make the bills, struggling to put money away, why? Because the degree that everyone told us to have in order to get that magical “better job” had weighed us down with more debt than what we could handle with the income we receive in the current economy.

And what no one wants to admit, whether on the employee or the employer side, is that all those “better jobs” are a nonexistent myth. A nice little illusionary carrot on a stick. Starter salary with a Bachelor’s is 30K per year on average, or less if the employer can get away with it, and contrary to popular belief, they will not give you a raise just because you work well if they can manage. If you think 30K is a survivable wage, then I have to truly question where, and how, and also have to question exactly what you constitute as survivable. That was a survivable wage when my peers and I were in high school. We’re now working these jobs, and finding out the hard way that surviving on this with the student loan weight on our shoulders is impossible.

I won’t go so far as to compare the student loan situation with indentured servitude or worse, but to be very frank, the student loan lenders have my entire generation by the short-and-curlies and they know it. Until those loans are paid off, there’s little else to do but survive the best you can. Wages get garnished for student loan nonpayment – good thing is that this can’t be decided outside a court order, but the bad thing is, it’s easily possible to do so – and there’s a very finite number of times that a student loan can get deferred or put into forbearance. What happens when that runs out? What happens when, as I discovered the very hard way, the reduced-repayment period runs out well before you generate the income needed to make the higher payments? What happens when, even though your tax return says your AGI is somewhere between LOL and WTF, your minimum “income-sensitive” payment is still more than what you can manage to scrape together? What happens then? The student loan companies don’t care; they’ll seize a cosigner’s assets, if any present, or have the full amount come due at the first hint of inability to pay, and not one of the collection admins will think twice about it. They can take any collecting action they see fit, including but not limited to liens and garnishments. You can’t get rid of them with bankruptcy anymore. In other words, you’re stuck paying, whether or not you’re actually able to, and you’re stuck, period, living in the same state of finances as you did when you just graduated, until you’re done.

In part, this reminds me of the Langston Hughes poem, “A Dream Deferred”. So many of us have deferred our dreams, or even basic life milestones, in order to pay for our education. Live on our own? Make enough money to put something away for retirement? Get married? Travel? All of those things have been put on the shelf. Why? Because everyone told us that we need a college degree to get, well, anything that’s a part of the American Dream. A dream deferred? We’re a generation deferred.

This meme has cropped up recently, and you know something – it’s pretty damn accurate. Of course, our veterans also get PTSD as part of the bargain, and that PTSD can go untreated for years, but that’s beside the point.

Really, when we went to college to get an education, so we could have the so-called “better job” and so on and so forth, we honestly banked on a lot better than what we’re getting now. I mean, really. We’re graduating colleges, there’s little to no jobs in our field to go around if we’re not a business grad having done an unpaid filing-and-retrieving internship in a Fortune 500 company, we’re taking whatever comes along, and have to put everything on hold for a decade just so we can pay off the education we were told we had to have – at the price of a luxury vehicle every year. We deserve a lot better than chronic un- or underemployment and debt.

My generation is basically stuck living as though we’re still college grads, even though we’re well past that point. The American Dream has morphed into something that only those with enough money or family support behind them are able to reach. The rest of us either go home and take whatever’s available to pay off these loans until we get that one job that we wanted to get when we were still working on that degree, or live three per one-bedroom apartment and do whatever the hell we can to survive and get that debt mountain chipped away at, and look forward to the day when it’s finally paid off. So that amounts to a decade of our lives just set aside and devoted to paying off something that took us only four, maybe five years to achieve, and the worth of which is debatable if you look at the long-term cost.

And all I can think is that while I was not ready to go to college at the time I went, on the longer view of things, I am glad that I went when I did. I shudder to think about just how much worse my financial situation would’ve been if I went to college 4-5 years later than I did. I shudder to think about how it would be if I were to go for further education; I’d have loved to get a Master’s or a Ph.D. even, but the cost alone would’ve guaranteed debt for the rest of my natural life. I have my Bachelor’s, I’m not working in my field, and I’m very glad for my degree’s worth in terms of its intrinsic value, but if I had to break it down to just dollars and cents, then I’d be seriously questioning if it was worth it.

NEWS: To note, I’ve been working on this post for about a week, and imagine my surprise when I found this on my newsfeed: an executive order capping repayments at 10%.

Considering I am staring down the barrel of having to repay my last deferred student loan at a monthly payment I can very ill afford, even with my increases in salary over the past 7 years, this could not have come at a better time. Considering one of my best friends, who graduated from my college and went on to get a Master’s, has 90K of debt that she somehow has to manage at a salary not that different from my own, this will likely save her budget. And considering that the both of us got off very lucky, because Pace’s debtload is usually in six figures, give or take, this will make a lot of people sigh with relief.

But honestly, this would be a lot better – a LOT better – if the colleges, private and otherwise, did not have their tuition rates jacked up to almost 40K per year.

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