Saturday, September 4, 2010

Once More with Feeling: Debt = Slavery

Augustine DeCathage gave me a heads up on a post he wrote this afternoon since it concerned the potential consequences and complications of ignoring that Debt = Slavery.

The New York Times put up an article yesterday entitled, "How Debt Can Destroy a Budding Relationship."  An excerpt:
Nobody likes unpleasant surprises, but when Allison Brooke Eastman’s fiancĂ© found out four months ago just how high her debt was, he had a particularly strong reaction: he broke off the engagement within three days. Ms. Eastman said she had told him early on in their relationship that she had over $100,000 of debt. But, she said, even she didn’t know what the true balance was; like a car buyer who focuses on only the monthly payment, she wrote 12 checks a year for about $1,100 each, the minimum possible. She didn’t focus on the bottom line, she said, because it was so profoundly depressing.
But as the couple got closer to their wedding day, she took out all the paperwork and it became clear that her total debt was actually about $170,000. “He accused me of lying,” said Ms. Eastman, 31, a San Francisco X-ray technician and part-time photographer who had run up much of the balance studying for a bachelor’s degree in photography. “But if I was lying, I was lying to myself, not to him. I didn’t really want to know the full amount.”
First of all, pray excuse me while I go get a paper bag and breathe in it to relieve the anxiety of imagining being an X-ray technician with $170,000 in student loan debt.

Okay, I'm back.

Seriously?  $170,000.  In student loan debt.  For a degree in photography?  What is in the water, clueless sauce?  It was depressing to run those numbers?  I'd say.  Honestly, I feel bad for her because while it was unbelievably stupid to sign up casually for that kind of debt, the bank(s) that loaned her that amount and the school that encouraged her to apply for the loans should be held should be held complicit.  They conned her.  No one should extend that much in loans to a person so young with no assets.  Unless you're going to Hogwarts and majoring in Magical Muggle Money Spellcraft, you will be saddled with those loans forever.  FOR-EV-ER.  Even the aspiring ER doc the NYT goes on to interview in the same piece will be enslaved.
Ms. Tidwell feels no guilt about the $250,000 in debt she will probably run up, including some from a master’s degree program she completed in London, where she and Mr. Kogler met. “I didn’t acquire it because I go out and shop a lot,” she said. “It’s because I’m doing something that I’ll love for the rest of my life.”
While I appreciate the special knowledge my doctors have used in treating me over the years costs a lot of money to obtain, racking up 250K at the point at which the nation is skipping over the doorframe into socialized medicine seems - well, a trifle unconsidered.  I have a doctor in the family; my father-in-law.  He is getting out of the medical profession after a long and well remunerated career before the government via Obamacare can begin shafting him two ways: by lowering what he can collect for services rendered and taxing him up the wazoo for any money he does manage to make.  Already what doctors get paid for Medicare and Medicaid patients often doesn't cover their costs.

The pesky problem about not getting remunerated for the actual costs of services is that that means that you're working for free or even paying other people for you to do your job.  People tend not to sign on for that.  For the time being I'd hesitate before taking on loans to learn a medical trade.

Let's all say it together: Debt equal slavery.  You can't predict the future.  My mother got a degree in nursing, then slipped a disc her first year on the floor when a patient she was helping to the bathroom went dead weight on her.  She never worked on the floor again.  You may not be able to pay them, but those loans will still be there and they will affect which jobs you can take, where you work, when you can have children and how you can take care of them, or even - as in the first example - if you will be able to marry.  It's much less risky to pay as you go, even if it takes you a long, long time to finish school.

24 comments:

  1. And if this is helpful for anyone to know, student loans are NOT dischargeable in bankruptcy. So even if you file a successful bankruptcy, you'll still owe all that loan debt plus penalties and interest, of course.

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  2. This is all so horribly true. Student loan debt is scary.

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  3. "It's much less risky to pay as you go, even if it takes you a long, long time to finish school."

    I have to disagree strongly with you Grerp. Finish school quickly, to avoid opportunity costs. If you can graduate a year early, you'll have an extra 30 or 40k plus 1 year of experience. (Yes, I know it can be difficult to find a job right out of college, but 1 year head start means you find the job 1 year sooner.) You shouldn't work your way through college if it's delaying your graduation.

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  4. One of the things I adore about the UK is the great student loan system. It is run by the government. It used to be free and then much lower cost, but it's still great compared to the US.

    First of all, the tuition fees are capped. Although they're rising fast, and possibly doubling even though they've doubled already inr recent years. Still... the repayments are calculated as a low-ish percentage of your income, so that you don't really feel the pinch horribly and have to face the same choices Americans seem to face.

    At the same time, I don't think degrees that have no value for you as a person should be encouraged. There's been an industrialisation of education.

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  5. Debt is def. slavery, however some debt may be prudent in the pursuit of SOME degrees. Certainly not all and some of which are right out (wymyns studies is a prime example.) I would say that going more into debt than a single years income is beyond foolish with the exception of doctors as a 1/4 million is really the base entry cost. But even saying a years income is still on the overly high side. If that degree earns you 60/yr and you have 60 in debt, its going to take positively forever to pay it all back. Maybe a better rule would be one year's starting income minus 25k which is a fairly average, non-government, annual wage. I guess I still feel that is high but at least it is realistic.

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  6. I sincerely hope that higher education is the next bubble that is going to burst. Things can't go on this way indefinitely.

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  7. GudEnuf - A lot of risk has to be referenced against the degree you're getting, and women tend to go for the liberal arts over the hard sciences or stuff that actually will make money. My degree wasn't completely useless. I did learn Russian, but it turned out to be more or less useless to me because after a year in Russia I knew for certain that I didn't want to live there for any length of time and that it was important to me to live near to my family who are my support system and touchstone. Also, I'm just not aggressive or gregarious enough to make a success of myself via networking. I just wanted a job I could do quietly that made enough money to support myself. I found that in librarianship, but I had to get another degree to do it. Fortunately, I was able to get a scholarship/work deal for my master's degree and didn't go into debt at all to finish.

    One of the reasons I would recommend young people, and especially young women to take it slow is that if you have got to cough up the cash for each class first, you may consider more carefully how that women's studies class will advance your interests. Taking out loans makes it seem like it's not costing anything (in the short term) and people don't do the cost/benefit analysis well when they perceive something as "free."

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  8. David - I read through your post and the thread at Chicago Boyz. I have to wonder where the money is going? Costs are rising astronomically and, as you say, lots of courses are taught by TA's and adjunct professors who are not full-time and do not have benefits. So who gets the money generated by Big Ed? I'm sure there are a bunch of books or websites on this; I'll have to look it up. Back when I went to school, it was expensive, but it wasn't big business yet.

    I would like to also clarify that I think education is important. College was instrumental in informing the way I look on the world and I would likely not be able to think or write as I do without it. But if the cost of thinking and writing is 250K in debt and the opportunity to slave all my days paying it off, well that seems a trifle high.

    Thanks for the linkage, by the way. :)

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  9. A lot of the $$$ goes to overgrown administrative staffs. Much of it goes to "the edifice complex"--buildings. Some of it is a de-facto subsidy to the non-teaching activities of professors: ie, research. And some of it is a subsidy for campus sports programs, whose claims to be profitable seem often to be based on incorrect or even misleading accounting.

    I'd like to see every university which receives public money or which benefits from tax deduction required to submit detailed and intelligible financial statements for public distribution, analogous to 10-K forms for publicly-traded corporations--and sworn to by top administrators under penalty of perjury.

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  10. where is all the money going - pensions for the unionized workforce

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  11. Another great post. I'm not sure if I mentioned this on your site before or not, but my first job out of college was mortgage lending. Part of my job was to review the borrower's credit report. I never saw a credit report with student loans showing paid off (paid loans do show). Everyone who came across my desk who ever had a student loan was still paying them, even 10 to 15 years after graduating. It is really nuts.

    This is harsh but a corollary to this advice for women would be that men should be careful about marrying women with degrees. They should avoid marrying women who got degrees with student loans. As you said women tend to get degrees with questionable economic value. I think many women take out loans for college with the tacit assumption that one day they will marry and their husband will pay it off.

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  12. Excellent topic, Grerp. I wonder,are people really doubting the value of higher education for women if women tend to get degrees with questionable "econonic" value?

    As an economics graduate, I think women should choose careers carefully, of course, but not be put off from financing their higher education through low cost loans. The benefits are not purely economic. We should not simply regard traditional arts degrees as being of questionable economic value. There are enough lawyers, accountants and marketing bods on this planet. Employers welcome applicants who can think.

    While everyone should be aware of the potential debt burden of their spouse's student bills, I really think women should be extremely cautious with men whose marriage/ relationship CRITERIA extends to how she financed her education. Imagine being a liability instead of an asset because of your post grad studies. Would anyone actually choose a partner whose parents financed them through university over someone who was self sufficient? Or settle for someone who decided not to bother being educated as it was the expensive option? What is the answer to student debt for graduates entering employment? Entering LTRs and marriage? Only select a partner with the same amount of student debt as your own? As I said, great topic to raise, thanks.

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  13. Re: the benefit of a Women's Studies class...there can actually be one very pragmatic reason to take one of these. Namely, an easy "A". Many universities have distribution requirements to insure a "well-rounded" education (ha ha ha, I know), even if you major in business or STEM. A "Studies" class can be an easy way to pad your GPA because they require so little academic rigor.

    One very popular "American Studies" class at my alma mater was peer-taught. From what I could tell (didn't take it, but knew many who did) merely consisted of reading various articles or excerpts full of the usual anger and kvetching and regurgitating the allegedly pertinent grievances in free form "journal" entries. As long as you were willing to toe the party line and nod in agreement with the latest outrage due jour, it was an easy "A".

    Of course, if you dare to raise any objections to the status quo, you are almost guaranteed a bad grade in these type of courses.

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  14. Oh yeah, I remember the name of that class now. "Critical Issues in Contemporary Society", or "CICS" as it was popularly known. Somehow, the critical issues always turned out to be Racism! Sexism! and Homophobia!

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  15. Grerp: I have a suggestion for you regarding posting on a topic up your alley. Namely, contemporary weddings and the uniquely female narcissism they bring out.

    Discussing the "wedding industrial complex" is germane to the debt slavery issue, because many couples these days take on debt to finance a wedding. The average cost of a wedding in the US is going up faster than inflation much like the average cost of an education. I think the latest # I saw was on the order of $25-30K for an average wedding. Often the costs are driven up by the bride's desires (read: greed) and/or that of her mother. Celebrity culture has also driven up the stakes for what people expect out of weddings these days. You have to have a videographer, limos, music, dancing, drinks (including a couple's signature cocktail, of course), and a full meal (typically dinner). It all adds up. What a better way to add to your student loans and start your new life as a couple than to rack up an additional $10-$20K on wedding expenses!

    And some of the designer wedding gowns are now starting to cost as much as a Smart Car. Some of the priciest Vera Wang gowns retail for over $10K for just the gown alone.

    Oh yeah, and then there's the inflated expectations for what constitutes an acceptable engagement ring. Gold was acceptable in the 80s, but only platinum suffices now. At the very least, the ring requires two months' worth of the guy's salary...that would be gross, not net. One of my friends spent about $70K on their 2004 wedding. Granted, he is a highly paid attorney and his family is wealthy, but still...that's a helluvalot of money to spend on one single day. At least that's what I thought.

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  16. Ehh I think a lot of people these days are overlooking public colleges in their respective states.

    They all wanna get away from their parents and party, and that's worth the out of state tuition.

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  17. I've been in and out all day because of the holiday, but, PuffsPlus, the wedding idea is a great one. I will definitely opine on it.

    WRT debt as a commitment buster, I think you have to factor it into the equation esp. if by marrying a heavily indebted person, you will be held liable for it. I actually don't know how debt is divided up in the situation of a divorce, but it would affect the marriage itself in the same way being married to an extreme spendthrift or a gambler would - someone else gets your money before you do. Not a great way to build a future.

    It goes both ways, however. When I married my husband, he had about 20K in loans and I didn't have any. I thought 20K was doable. We were really thrifty and it was gone within a year, but it took almost exactly what I brought home after taxes the first year we were married. It was worth it, though, long run!

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  18. It's amazing to me the amount of debt people end up having to into for school. I count myself very fortunate that my debt from school is minimal (about $11,000 for 5 years and two degrees - a BA and a B.Ed). It will likely be paid back within a year as any left over money I've had the past few years I've ended up making some smart investments on in terms of Mutual Funds and the like.

    I'm also very fortunate in that my debt is through the Ontario Student Loan people so the interest is significantly lower than if I had taken out a bank loan.

    I don't really understand how people could rack up such crazy debt, but then again I live in Canada. Our tuition is significantly lower.

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  19. I transferred to one of the big private schools in DC my soph year, and while I applied for financial aid, it was denied because my parents' income was too high. Immediately after starting school, my father lost his pension, but even subsequent changes to my FAFSA made little difference.

    The result? 3 years, $100,000 for a practically useless undergraduate degree. Aside from the dream jobs everyone tries to get in this area (big federal contractors, gov't, agencies), average starting salary for a recent grad is around 35k/yr in an area with one of the highest costs of living in the country.

    I'm managing, but I don't see my loans being paid off anytime soon, unless I can get the military or government to do it for me. I had no concept of the debt I was racking up or the realities of the job market. Parents and guidance counselors need to step up here IMO.

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  20. Part of the problem is that most high-school and college kids have very little idea of the kinds of jobs/careers that are realistically available and what these require. TV/movies portray certain fields---medicine, law, crime, crime-fighting---very repetitively and usually unrealistically. I doubt if very many guidance counselors or teachers have much experience of work outside the educational field. Parents can sometime help, but their knowledge too is likely to be limited. "Career guides" usually consist of badly-repackaged data from the BLS, and often encourage people to drive with eyes firmly fixed on the rear-view mirror by emphasizing fields that have *already* gone through their big growth period.

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  21. grerp, I don't know if you've seen this WashPo article, but it's a very interesting look at the option of foregoing college and its debt:

    http://www.washingtonpost.com/wp-dyn/content/article/2010/09/09/AR2010090903350.html?sid=ST2010090904227

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  22. This is all a symptom of peoples' lack of understanding about what money is, what is connotes. We've extracted it away through many many layers, but it's really just a means of saying who's obligated to do labor and who's obligated to call in that labor... So when one goes so deep in debt like this, it IS slavery, *literally*. Signing to accept a $170k loan means you're agreeing to do a whole assload of labor in return for other people (college profs, TAs, administrators etc.) working for you. Nobody sees that, all they see is numbers on a piece of paper, until it's too late...

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  23. Susan, that article was an interesting read. Thanks for passing it along. And thanks to everyone else for weighing in. The lie that a college education is an immediate and assured step up for everyone who matriculates is SO entrenched that it's going to take millions of voices to shout it down. Meanwhile the debt slavery escalates amongst our young people.

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