© Kathleen T. Wright – Originally published on SchoolsRetooled.com on 5/27/2012
The student loan conundrum leaves a generation of college goers little to no economic end game. As Congress hits an impasse on interest rates and the employment market remains stalled for college students and recent graduates, a hidden culprit may just get away with all the money plus interest. In the meantime, the today’s twenty-something kids may have children paying student loans before they finish paying off their own 20-30 year refinanced college loans. How many times must you say, “Mortgage our children’s futures” before the message sinks in?
Thirty years into the era of supply-side economics, a period during which Wall Street ironically rewarded the divestiture of the supply side of domestic industries, there was too much money and nowhere to invest. Assets were created that blew up as bubbles, erupted when undisclosed risk was realized, or inflated investments in health care and real estate. In addition, there were the banks, no longer financing business investment for future employment and domestic production. Flush with excess cash, they loaned the money to kids to finance their college dreams. Profits followed, even as stock and money markets failed to underwrite the job creation that could have helped those dreams come true.
To make matters worse, at least some of the colleges created a nudge to keep the kids in the debt cycle without their parents’ knowledge. My husband and I learned first-hand how it worked. Each year, as guardians, we received a financial aid report from the college. We had chosen not to have the kids carry more than a modest debt burden…just enough to learn how to handle personal finance responsibly. So, we generally declined the loan portion of the financial aid package each year.
Each term, however, the child’s eligibility for bank loans was kept alive by the college. We would pay what we considered our portion of the college bill each term, assuming no loan. Then the college would reactivate the loan, creating a credit balance on the student account, and send a check to refund our overpayment…to the kid! And privacy laws meant we didn’t need to know about it. How’s that for a sweet deal among a college, a bank, and a newly minted young adult with a prefrontal lobe still in development?!?
Actually, I must credit the student…who did report the transaction and forward the checks back to us. We did not fully understand what was happening at the time (the multiple-click, self-renewing opt-out), but we held ourselves accountable when the unexpected debt showed up after graduation. But I also wonder just how many children kept the cash and had to pay later…cash the banks should have used to encourage sound investments with real adults…if we had had a supply-side investment strategy as job creators. Preying on the children was just too easy.
I have written previously about the convergence of forces to create the demand for college loans, which included some adults falling short on college readiness with the children, others raising prices unnecessarily, and others underwriting at predatory rates. The supply of loans was also part of a wildly flawed scheme. We gave banks and investment advisers our life savings and they gave us excuses and a world financial collapse. No one got richer except those who were extremely wealthy already.
Now Wall Street and their Congressional spokespeople ask us for more supply-side money. We, on the other hand, are asking them to give us back a piece of our money – from the profits they made while SHRINKING THE NATION’S SUPPLY FUNCTION – in the form of merely fair taxation. If, after 30 years, they have not created a supply side in net…why should we be fooled again? At least give back enough tax money to restore what should have become our own investment earnings so we can bail ourselves out…rather than the bankers (again) when the student debt bubble bursts.
PS, wonder how our reliance on these same kids to sustain our Social Security trust fund is going to work out. That next sandwich generation is now going to be a triple-decker paying for their kids, their parents, AND their colleges…while un- or under-employed?
Chapter 3 