After I wrote recently about the student-loan crisis, a reader sent a cartoon that’s been going around the internet. It shows a recent college graduate wearing a cap-and-gown looking at a blackboard on which is written, “The Student Loan Crisis Solved: You took out a loan. Pay it back.”
That’s a pleasant sentiment. But imagine you’re a kid with a freshly minted B.A. degree in some field in the liberal arts – history, English or something like that.
Here’s what that piece of paper qualifies you to do: Serve coffee at Starbucks.
There, you might have take-home pay of $400 a week. But payments on that loan might reach $300 a week.
On this point I disagree with many of my conservative colleagues. The problem is not the people who have to pay such loans back. It’s the people who hand these loans out.
Uncle Sam is working a scam on the youth of America.
At the tender age of 18 or so these kids are told not to worry about paying loans back; the increased salary that comes with that college degree will more than make up for the loan repayments.
But imagine these kids first had to sit down with someone who lets them in on Uncle Sam’s secret: He’s got you coming and going.
Say you borrow $50,000 for that undergraduate degree. Many years later you will have paid back that $50,000 and perhaps another $50,000 in interest. But that’s not all you’ll pay. You also have to pay federal income tax and payroll tax on the money you earn to make those payments. Depending on what tax bracket you’re in, the taxman will grab about $30,000 or in taxes off the top.
It gets worse if you’re a gig worker, as so many young people are. Then you have to pay the employer’s share of the payroll tax, another 7 percent of your income. You also have to pay for your own health insurance, another $4,000 or so a year. (Here’s a great explanation of the ways in which that debt can creep up on you.)
All of this sets up a vicious cycle in which a kid can get trapped for decades paying off loans.
But what about that job that was going to give you enough income to pay off those loans?
Have you heard the one about the tree expert with a master’s degree?
It’s no joke. I heard it from George Leef, a scholar at the James G. Martin Center for Academic Renewal in North Carolina. Leef told me that an economist friend of his recently had a tree taken down at his house, and “The guy who did it had a master’s degree.”
“Something that’s gone unremarked is that people go to four-year colleges to earn the degree and find out they have no skills,” Leef said. “Then they go to a coding academy or a community college and get actual training.”
Meanwhile they’re piling up student debt, $1.5 trillion at last count.
“We’ve dug a great big hole here with the overselling of higher education,” he said. “The credential gets more and more expensive and is doing you less and less good.”
He used as an example his own alma mater, Duke University.
“When I went to duke in 1974, the tuition was $2,300 a year,” he said. “Now it’s over $50,000.”
Way over. It’s actually $55,880 a year.
“Universities in general figured out they could charge much, much more than they used to because there is this river of money flowing into people’s pockets as a consequence of all this easy loan access,” he said.
But with the COVID-19 crisis, the entire edifice may be on the verge of collapse. What’s incoming president Joe Biden going to do about it?
His campaign platform doesn’t offer much hope for recent college graduates. Biden focuses most of his loan relief on public employees such as teachers – in other words, on people who already have secure jobs with secure benefits.
That may be good for the government, but how about the rest of us?
I have a couple suggestions that would be popular with younger workers, if not older Congress-people.
One is to stop charging interest on federal loans. When my son-in-law bought a car not too long ago, he got an interest-free loan. If Volkswagen can afford to offer you an interest-free loan, then so can Uncle Sam.
Also, I’d permit loans to be repaid with pre-tax dollars, the way we fund health insurance. If education is so important, then let Uncle Sam take the hit.
And when it comes to college costs, I’d ban participating colleges from raising tuition above the rate of inflation.
That would put the onus where it belongs – and it’s not on the kid whose disposable income comes out of the tip jar at Starbucks.