The lead story in the August 2016 issue of Consumer Reports highlights the financial stresses of higher education with the cover blurb: “I kind of ruined my life by going to [university].” That was from Jackie Krowen, 32, in Portland, Ore., who owes $152,000 in student debt. “You didn’t have to meet with anybody,” she says. “You just clicked some buttons on the computer and you had a huge check.” When she finished school in 2011, she was $128,000 in debt, now up to the aforementioned $152,000, the magazine says.
There is no question that student loans can overburden the borrowers, often to the point of despair, and there is no question that student loan marketers are reaching a relatively naïve target group. As much as they’d like to deny it, university-bound hopefuls tend to focus more on potential returns and little on actual costs. The idea of repayment is remote and unreal.
As we have discussed before, the main pressure on solving the student debt problem has, as usual, focused on “the government,” as if the government has a trove of free money to be tapped by anybody with sufficient cause. The fact is, to the degree overburdened students are relieved of their debt by the government, that portion of the debt is shouldered by taxpayers, again, and often taxpayers that are themselves paying off overburdening student loans of their own. Strange this is not taught in universities.
Once upon a time, long, long ago, I was in bad need of a loan, so I went to a lender. As we went through the paperwork, the lender had me initial an interest clause that stated the loan was based on the Rule of 78. I had no idea what the Rule of 78 meant, but I was young, and I believed the government was protecting me, so how bad could it be?
I found out when my first payment did nothing to decrease my debt, and I looked up Rule of 78. According to the Rule of 78, you calculate the total interest earned over the life of the loan and divide it by 78, so you have 78 equal amounts of interest in the total. Then, you apply the interest at the rate of 12 parts on the first payment, 11 parts on the second payment, 10 parts on the third payment, and so on, until, you pay 9, 8, 7, 6, etc. parts of interest. The sum of all the numbers from 1 through 12 equals 78, hence the name.
This made it very unattractive to pay the loan off early, for one thing. For another, exposure to late penalties, etc., extended throughout the life of the loan, even when the interest had been paid off or reduced to nearly nothing.
I went back to the lender to complain, pointing out the unfairness of the terms. He pointed at my signature and said, “You signed this. Look,” he said, “you are an adult. We are both adults. We made a deal and you agreed to the terms. There is no fair or unfair about it.”
He was right, and I was right. The terms were unfair, and I agreed to them. Welcome to reality.
Don’t get me wrong. I don’t think we should fleece young people, but learning a hard lesson on accountability is its own education.
I don’t see education as a job licence. Education can be valuable in its own right, detached from any possibility to apply it to a vocation. However, while that is the choice of the student, it is also a duty on the part of the faculty to avoid luring innocent knowledge-seekers into dead-end courses solely for head-count for the school and bonuses for the recruiters. You will note that the teachers’ unions never offer to help cut costs. “Tuition,” by the way, as a verb, means to teach. It only recently came to refer to the money paid for teaching. Higher tuition does not mean higher overheads; it means higher teaching salaries.
Manufacturing is uniquely positioned in Canada (and elsewhere) to moderate the challenges faced by young, career-minded adults. For example, Consumer Reports points out that university is a very expensive place to find a direction in life. By taking a year or two off from studies and working in manufacturing, the upward-bound novices can pay as they go, on the one hand. On the other, they may find themselves face-to-face with the opportunity of a lifetime in sales, marketing, design, production, accounting, purchasing, security, IT or any one of a number of other positions in which current manufacturers are lacking.