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Phil-osophically Speaking: February 9, 2012

From Dreams to Debt

There are, in the human condition, many dimensions and shades of being that defy conventional expectations and trying to twist and hammer them into self-imposed categories is not only fruitless but also harmful.  Take the happy notion that everyone should own a house. Up to the end of WWII, most people did not own a home, but then someone decided it was the American dream and that all Americans should share this dream.

William Levitt, who developed America’s first suburban community, believed that anyone who had a little house, a backyard to plant their tomatoes and a lawn to mow will never become a Communist. During the “Red Scare” when the Soviet Union, the world’s largest country, and China, the world’s most populous country, were Communist, Levitt’s propaganda fit right into the tenor of the times. Home ownership gave people a vested interest in private property by making it their largest investment. That for decades real estate proved to be the best investment one can make only added to the mystique of holding it. As the humorist Will Rogers was fond of saying: “Buy land, buy land — they’re not making it anymore.”

For a long time, it was gospel that you can never lose money, at least in the long run, by investing in real estate. Many would come to rue that canard. But overall, real estate became the stuff dreams are made of. So enter Fannie Mae and Freddie Mac, who ignited an economic bonfire with a plethora of unsustainable loans whose burnt embers still litter the economic landscape of broken dreams.

Now we have another bubble. Not as huge or momentous as housing, but troubling just the same. Student loans, which have soared to more than $1 trillion, have become the new plague. Young wage earners paying back more than a trillion dollars is a tremendous task. I was not overly sympathetic to the “Occupy Wall Street” crowd, but the one grievance that resonated was the mountain of student loans they incurred. Many of these students cannot find jobs and when they do, they are often working in a field they did not study in college.

Why have these loans so dramatically skyrocketed? One reason is that the same philosophy that dictated everyone should own a house also says that everyone should have a college education. But not everyone is college material; in the same way that not everyone has the ability to be a professional athlete or a professional musician or for that matter a carpenter or plumber. There are many people attending college today who would be better off learning a trade. To torment them with the rigors of a higher education is neither fair nor profitable. Lacking the academic acumen, many either drop out or barely get by due to grade inflation.

Moreover, even if they do graduate they are plunged in an ocean of debt. All because someone told them that a college education is a necessity. It is true that a democracy presupposes a degree of literacy among its constituents. But a high school education (all students should be strongly encouraged to graduate secondary school) is sufficient without having to incur those wounding college debts.

Even those who show a level of competency in college are often drowning in debts. A wonderful young lady I work with recently shared her dilemma. She and her fiancé, both 26 years old, want to get married. This, I told her, is a good thing, a sign of maturity and one which, if they are seriously committed bodes well for the future. According to statistics, men in relationships clearly do better financially, socially and psychologically than their single counterparts. Such relationships, when solemnized by marriage, are a cornerstone of civilization.

She informed me, however, that despite the tax breaks marriage provides, they are reluctant to tie the knot because of financial concerns that compel them to live with their parents until they can scrape up enough money to start a life together. I replied that it shouldn’t be a deciding issue as long as both were employed, had a respect for money and understood the need for delayed gratification. I pointed out that when my parents were expecting their second child, some years younger than this young couple presently are now, the three of us were living in a cramped three-room apartment in Graveshead, Brooklyn. It was a difficult time; but they weathered that storm through a combination of industry and thrift that progressively bettered their circumstances.

That’s when she dropped the bombshell: “That might be true, but I bet they didn’t have to pay back the college loans we have. My fiancé owes the government a lot of tuition money and my debt is even greater, something over $100,000. Even worse, I have to pay this back during an economic recession. That’s why I’m working here because I couldn’t get the job I wanted.” Well, that was indeed true; neither of my parents went to college and while they had little money between them when they married, they had no debts either, except the usual living expenses. That was true for most of their peers who were working in a booming economy.

She went on: “Then there would be the rent money on top of our tuition debts and of course I would want to have children and that is also an expense. So we’re both fearful on how we are going to afford all of this and the emotional strain it would place on us.”

I felt sorry for her. Here is a couple that really should be married but they are saddled with these crushing debts and with families unable to help. There are many like them who were sold a bill of goods that college is the ticket to success and affluence. The notion of credentialism has prevailed and with a heavy price tag. Government should stop making student loans and guaranteeing them. This would put serious downward pressure on college tuitions and would make families of marginal students think more seriously about spending vast sums for an education that many will not put to use.

Frankly, the student loan program has failed to increase economic opportunity for the lower classes. In 1970, 12 percent of college graduates came from the bottom one-fourth of the income distribution. Today, the proportion of those graduating from college coming from the bottom one-fourth has fallen to a measly 7 percent. Moreover, students with poor prospects of graduating and obtaining gainful employment are usually borrowing at the same interest rates of those students with outstanding prospects. How is that fair? It’s time to change the rules, forsake our illusions and stop exploiting those who need help.