Dealing with student loans

By Felix Salmon
September 3, 2009
Anne Marie Chaker's story is a little bit too alarmist, I think, but there's still a serious problem here:

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Anne Marie Chaker’s story is a little bit too alarmist, I think, but there’s still a serious problem here:

Students are borrowing dramatically more to pay for college, accelerating a trend that has wide-ranging implications for a generation of young people.

New numbers from the U.S. Education Department show that federal student-loan disbursements—the total amount borrowed by students and received by schools—in the 2008-09 academic year grew about 25% over the previous year, to $75.1 billion.

What Chaker never even hints at until much further down in the piece is that a lot of this is good news: students are moving from expensive private loans to cheaper federal loans. But the fact is that young students are not very good at judging what’s a reasonable amount of debt for them to carry. The dean of Hofstra University has it right:

“I don’t know if we can take it for granted that a 22-year-old knows what it means to borrow $100,000,” said Nora V. Demleitner, the dean of Hofstra Law School, where enrollment is up a relatively modest 5 percent. “They look at the $100,000 in loans, and then they look at the $160,000 salary. And they think, ‘Well, that’s not so bad.’”

At least with mortgages, people have a reasonably good idea of how much they can afford to pay back. With student loans they don’t — especially not with something like a law degree, where either you get that coveted $160,000 job as a first-year associate, or you don’t. And if you don’t, you’re very unlikely to make anything like that kind of money, and your student loans are likely to dangle over your head for decades hence.

There’s a strong case to be made that the government should not be in the business of making it easy for students to go massively into debt even when their chances of repaying that debt are slim. It’s not hard to come up with anecdotes such as this:

Lillian Russell graduated from law school at the University of Pittsburgh last year with $181,000 in debt from her seven years in school. She has spent much of the past year looking for work. In recent weeks, she found a job clerking at a small law office. While she settles into her job, she has deferred payments on most of her federal loans, though interest continues to accrue.

“I wish I had considered the long-term impacts of what I was getting into,” Ms. Russell says. When she entered school, “the idea was I’d take out the loans, get a job, and pay it back,” she says.

Realistically, most graduates from the University of Pittsburgh law school are not going to waltz into $160,000-a-year jobs: Russell’s experience, where she’s clerking for something close to a normal living wage, is surely quite normal. It’s ridiculous that colleges can charge pretty much whatever they want, and the federal government will always be there to provide loans. One good way of decelerating the inflation in tuition fees — and the concomitant rise in student debt — will be for the federal government to start getting much stricter about the kinds of sums it’s willing to countenance.

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