3.26.2012

Student Debt: The Ultimate Hustle

Let's start by admitting something we already know: student debt in America is out of control. And by "out of control" we really mean - It might already be too late. The latest news that student debt now exceeds credit card debt should underscore the seriousness of the issue. Without recognition, we're kidding ourselves. 
























Think about it, the student loan debt business now exceeds the consumer credit business. The latter is built upon a simple money making axiom: Allow people to buy shit they don't need with money they don't have. A hustle of the highest order if I've ever heard one. Before you shout, "But consumers are dumb and lack self-control, they should know better!" STOP! Because I agree. Alas there is more than enough blame to go around in the great higher education debt debacle that has consumed the last few decades. One culprit and one scapegoat would make for a much tidier story.


THE PLAYERS
  1. Students - Playing the role of the consumer here, students are surprisingly unaware of their role in their own indebted demise. Almost no students engage in the due diligence an investor would before forking over $$$. Students accept the notion that higher education will ALWAYS lead to greater wealth and therefore take the higher ed sales pitch hook, line and sinker. I'm not saying the claims and studies of greater wealth might not be well-founded. But for the 98 investments that are legit, there are 2 that go the way of Bernie Madoff and could have been avoided with healthy questioning and skepticism.
  2. Institutions - In the consumer credit analogy, they are the good that students covet. Lies, damn lies and statistics; US News and World Report Rankings and a host of other thinly veiled marketing tools make them impossible for the upwardly mobile to ignore. They respond to supply and demand and generally price their product according to market demand just like anyone else in a capitalist economy. We expect them to responsibly control costs, but we shouldn't. Oh yeah and the vast majority claim to be "not-for-profit". That last part confers a range of benefits that contribute to the hustle. 
  3. Lenders - The lender really is the enabler here. It's the credit card that makes the trip to Vegas or Cabo a reality even though you make $40K a year and spend $1500 a month on rent. Lenders and institutions work seamlessly together. The former makes the latter's product attainable to all (or most). So long as demand is strong, neither has any incentive to control lending or costs. Oh yeah, let's not forget education debt is almost NEVER erased in bankruptcy court. It's the herpes of debt products -  with you forever. 
  4. The Government - The right to an education is universally upheld in international law. In the US, the government's role in higher education is becoming more complicated by the second, not to mention that it holds the majority of recent student debt consolidation. Folks like Dan Prepas, a classmate of mine at Middlebury, know a lot more about this than I do, but suffice to say the Fed has the ability to change the behavior of the above three players through regulation and policy change. Let's not forget the Bennett Hypothesis looks more and more prescient today than ever before.


THE HUSTLE
The hustle is simple: Take a universally revered concept like saving fluffy kittens, buying a wedding dress or allowing access to higher education in this case; commodify and monetize it in a modern capitalist economy and wait for the profit (read carnage). This is where group think on a massive scale can be dangerous. It goes something like this. 
  • You need a college degree to be competitive and to earn enough money to live better than your parents did. (Parents help sustain this more than anyone)
  • America will continue to create jobs for new graduates in this service-based, innovation economy in which we live. 
  • You need the best (read most expensive) degree possible in order to compete. Taking out a loan is a small price to pay for this increased competitiveness. 
  • Education costs a lot because institutions are in a constant pissing contest to one up themselves instead of responding to market realities that might dictate more prudence. This is America - go big or go home!
  • Once you finish, get working and pay up. Don't worry, your degree will get you a job no matter what condition the economy is in.
  • Even if you fail and want to reset via bankruptcy, tough luck, you can't.



THE FALLOUT
Well what's left to say? People are pissed. Lawyers are suing themselves. Lenders are getting burned. Institutions are becoming the bottled water of the beverage industry (clip below). And the government is sitting on a powder-keg hurtling towards the sun. 

Let's face it we've failed as a society when we treat our students like credit card companies treat their slaves, ahh I mean customers. Students, shame on you too for not recognizing your fundamental power as a consumer - choice. Just because 99% of the country has been force feeding you a story about your future ever since you learned to listen, doesn't mean you have to conform and accept the reality of the graph below. My solution: Let's either treat higher education like the market based product it's operating as or treat it like the higher human right we claim it to be. This odd afterbirth of high moral ideals mixed with cut-throat capitalist realities is a heavily conflicted entity. And it should be no surprise we're seeing that now.





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