Archive for education
Owning Our Decisions
“Moral Hazard: In economics, the term “moral hazard” refers to a situation where a party lacks the incentive to guard against a financial risk due to being protected from any potential consequences; such as the consequences being borne by someone else. “
Lately it seems there is a constant volley of actions by the Biden Administration to shift other people’s decisions onto ordinary Americans who didn’t have a say in them. The latest is the attempt to cancel the student loan debt of millions of borrowers, for no apparent reason other than they have been paying for a long time.
I was very, very fortunate that my parents set aside money for each of their children to get a bachelor’s degree, at their alma mater. Graduate school was not explicitly in their plans, although my late father earnestly hoped that one of us kids would be a doctor, whereupon the money for medical school would somehow be found – that didn’t happen. It was clearly understood that college education was for professional pursuits, and although my fantasy was to be a journalist, I entered a very technical major.
I did end up going to graduate school and borrowing money to do so. The decision in part prompted by the terrible recession of the 80’s I was about to graduate into, and evidence that it would really help this Baby Boomer stand out in a sea of other job seekers. This was not part of our family’s plan and I could not look to them to fund this. College costs were rising fast, and the funds my folks had carefully stewarded looked like they wouldn’t last. for the rest of the kids In this context, my senior year of undergrad, and my brother’s freshman year, we took the plunge into guaranteed student loans.
At the same time, interest rates were also soaring and one could earn 18%, 19% even 20% on certificates of deposit. My grandmother came up with the idea for my parents to take us off their tax returns as dependents, put the remaining college fund in high-yield CDs pegged to mature with the loans, and use the proceeds to pay off the loans interest free before the first payment came due. I remember being at the bank with Dad, he cashed in a matured CD to pay off the $2,500 loan for my senior year. The banker, Nancy, was confused – most people would get a payment coupon book, not come in to pay a loan off. Nancy thought we had to pay some interest (nope) and after a long discussion we got that sorted.
Dear Reader, by now surely you have gathered that I grew up in a family with parents and grandparents and relatives who transmitted other important values and practices. When I made mistakes and life’s inevitable misfortunes befell me, I had my family to help me figure out how to manage through it. I am very aware that not everyone is so blessed. You also probably have done some quick math and determined the educational ecosystem I matriculated in, and in particular the guaranteed student loan program, is very different today from four decades ago.
Although had a teaching assistantship, a partial scholarship, a stipend, and part-time jobs, I still ended up with $18,000 in student loan debt for grad school, a large sum in those days. But I also graduated into an improving economy with these credentials. After nearly forty years, I can honestly say this was a great decision and made a huge difference the additional education has made over my career.
Paying back those student loans was not easy, especially early on. My first professional job paid $27,000 per year, which was actually a decent salary in the 80’s, but the payments were scheduled over 10 years and over $200.00 per month. Over time, my income rose, but in the beginning, I took a couple of deferments. Eventually, I made that last payment. I was trying to recall exactly when that was – it was over the original 10 years since the deferments extended the repayment schedule – maybe 15 years?
Whenever that last payment was made, at no time did I ever think, gee, I don’t make enough money and can’t or won’t to pay this debt I incurred. Nobody put a gun to my head to go to graduate school and borrow money. I couldn’t live with myself being a deadbeat – even if I could, student loan debt was not dischargeable in bankruptcy. No, I had to ‘suck it up’ and live with not being able to have this or that, because I have to pay my bills. Was it hard? Yes. Were some of my bill payments late? Yes. But I recognized how very fortunate I am, and that the decisions I made were mine to live with.
NPR recently ran a piece about Biden’s pledge to cancel student loan debt, and one of the people interviewed started out telling a story similar to mine – that her parents had paid for her undergraduate education. Her BA, was in the arts. She believed she needed an advanced degree, like an MFA, to ‘get anywhere’ in the field. So, she borrowed a very large sum of money – if memory serves, something like $130,000 – to go to a high-profile school, and then discovered that she cannot make enough money in an arts job, even a prestigious one, to pay off this debt. And so, she NEEDS to have her student loan debt canceled, because she made a series of decisions, perhaps miscalculations, that did not turn out as she hoped.
So, she thinks her debt is now the debt of the taxpayers, who were not a party to her decision to take on this debt.
I could see canceling debt for certain categories of students – medical professionals who agree to work in underserved areas (“Northern Exposure’, etc.); military service personnel and first responders; I could also see relief for bona fide low income students like Pell Grant recipients.
But whatever the framework, above all, there must be informed consent. This means, as has always been the case, that our representatives in Congress need to approve such relief, not the President unilaterally turning private debt into government grants. The Supreme Court already weighed in on his first attempt as unconstitutional, President Biden just ignores that, goes again, and uses language that suggests that these borrowers have been “victimized” and have to be “made whole”, because they have been “paying for a long time.”
There has been very little research on this, perhaps because rising student loan delinquencies are a recent phenomenon. Indeed, college costs rise at a rate far above other costs. Indeed, the government got out of the business of guaranteeing student loans and prescribing the terms around them (as they did back in my student days). Now the loans are private contracts between banks and borrowers, with few exceptions. Some of the relief has been directed at students at schools that were not accredited or used deceptive practices to get students to attend them.
There will be people who are in need of, and deserving of, student debt relief. My heart goes out to families trying to give their children a better life. I dearly hope that everyone who can and wants to pursue higher learning finds a way to do it. But making a decision that doesn’t turn out doesn’t automatically turn you into a victim deserving of a taxpayer rescue. We all need to own our decisions.
Purls Before Swine 