Borrower Beware

The New York Times’ Ron Lieber made interesting, if implausible, points about student loans in an article yesterday. His primary thrust was to advocate for paternalistic accountability and oversight on the part of lenders, schools, guidance counselors… every interested party, that is, but the borrowers themselves.

Mr. Lieber drew heavily on statistical data: percentages of graduates struggling to pay back student loans, unemployment numbers, average increases in college tuition, and the rest of the usual suspects. The landscape was a bleak one of hoodwinked lambs pawning their diplomas frames. In Mr. Lieber’s opinion, student lenders and the financial aid offices of universities have acted in concert to advance oversized loans to students who are poor credit risks, convincing them a college degree was worth any price. He thinks collegiate financial aid offices at places like NYU should advise students to consider cheaper schools and lenders should be less willing to make enormous loans so freely.

Both ideas are good ones, but Mr. Lieber’s statistical analyses take no account of folk wisdom: buyer beware. The primary responsibility in the purchase of any item, whether a pencil or a college education, is the buyer’s. Interested parties like lenders and schools are just that… interested parties: they have their own interests and they work in the service of those interests. Buyers ought to know this. It’s the rare fool who thinks the salesman has anything but his own bottom line at heart, and a fool and his money are soon… well.

Colleges are wonderful places and contribute immensely to the cultural and intellectual fabric or our country. But colleges are also businesses, even if non-profit, and the point of business is not to turn away business. This is true of lenders, too. Consumer know this, or ought to, and so the onus is on them to exercise sound judgment in making a purchase.

Should banks counsel students and turn away default risks? Probably. Should schools make sure families know the risks of borrowing? Most likely. Should voluntary borrowers of any sort be primarily accountable for their own borrowing, knowing that lenders are for-profit organizations intent on money-making? Without a doubt.

It’s more important now than ever that consumers inform themselves as to the cost of their consumption, whether of gasoline or education. Is the product worth the price? Mr. Lieber leans heavily on a girl recently out of NYU, nearly $100,000 in debt. She earns barely enough money to meet her monthly expenses.

“She recently received a raise and now makes $22 an hour working for a photographer. It’s the highest salary she’s earned since graduating with an interdisciplinary degree in religious and women’s studies. After taxes, she takes home about $2,300 a month. Rent runs $750, and the full monthly payments on her student loans would be about $700 if they weren’t being deferred, which would not leave a lot left over.”

The girl has a degree from one of the best schools in the country, which administers some of the best programs in the world. Its price seems justified, given its graduates’ comparative earning potential. Still, students need to take the initiative in charting their own finances; banks and schools cannot, and should not, be active co-pilots. Every customer of every product must decide: is the product worth the price, and can I afford the price?

If the product is an investment, like a college education, is it likely to be a sound one, returning profitable dividends? For instance, is “an interdisciplinary degree in religious and women’s studies” a product likely worth its price, or an investment likely to ever return anything at all?

Advertisements

7 Responses to Borrower Beware

  1. Cantab says:

    For the first time, I am surprised to find myself disagreeing with you. Financially speaking, of course, you’re correct to the t: it’s certain that there are serious ramifications to the kind of irresponsibility you’ve diagnosed. But ultimately, what subsumes this issue is the commodification of education that has turned some of the nation’s (and world’s) best universities into glorified vocational training institutes.

    With all due respect to professional postgraduate degrees, the idea of an undergraduate education as having some sort of basis in developing a familiarity with “the best that has been thought and said” (that’s Matthew Arnold) i.e. Western civilization, has been occluded by the looming imperative of employability. Its not a coincidence that postmodernity tends to produce Philistines. While I am as skeptical as anyone of the kind of subversivity that “women’s studies” courses often consist of, the dessication of the humanities because of their unprofitability is indicative of a much more problematic intellectual decline, which is hardly the first symptom of a social one.

    Education proper cannot, must not, be an investment. An investment presumes a capacity to quantify value. As Aristotle affirmed in Nichomachean Ethics, study transcends quantification: it itself is Eudaimonia (shame that Greek isn’t standard, we could take a hint from our transatlantic friends perhaps), to come to know is not a proximate cause but a final one.

  2. Andrew Eastman says:

    Thanks as always for reading, and for disagreeing. Unexamined opinions are rarely worth having.

    Heartily agreed re. the commoditization of education; I’m in the middle of taking out my final set of loans for law school and even at a regional school with no national reputation it’s a stupidly expensive proposition. But it’s a bargain compared to some others which is why I, as a student-borrower, chose it. Of course, graduate schools are almost uniformly vocational schools of some sort, and their costs deserve their own, different discussion.

    College should be a time to learn as much as you can about everything you can, and to be exposed to some things you would never have otherwise sought out: courses, cultures, ideas, people, thought. You’ll get more out of a school by doing that than by dedicating yourself only to one track of study. Every art history student should at least be conversant in economics, and vice versa. I’m no fan of gendered political theory, whatever that is, but I took a course in it and I’m better for it. (You can’t argue against something if the debate is in a language you don’t speak.)

    I wholly agree that education should be just that: an education, not a business decision. But the regrettable reality is that it’s become both, and in that situation it’s the customer’s responsibility to know what he can afford, not the merchant’s job to tell him. That was my point, though it might not have gotten across smoothly: in our sad state, it’s up to the borrowers to know their limits. A bank shouldn’t have to be the voice of fiscal reason for its customers; that’s their job.

    This obviously isn’t a good way for things to be. Ironically, the most expensive schools have done the best at addressing the problem. The Ivy League, by virtue of having the most money and being under the most scrutiny, offers the best financial aid packages. But financial aid only treats symptoms; the underlying disease is the cost, I agree.

    The G.I. Bill sent a lot of people to college after World War II, more than had ever gone before. That set the bar pretty high and, ever since, a college degree has been a professional obligation. It’s the price of admission.

    This makes for a vicious circle: so many people went to college that it became a necessity for everybody else and that necessity made college degrees a product for which people could be charged, and over-charged.

    Most families sort through aid and loan packages and make decisions based partly on them. Should that be necessary? I don’t think so, and at the best schools it isn’t: they have enough money that if they want you, they’ll make sure you can come. Dartmouth waives tuition for students whose families make less than $75,000 a year and I think other Ivies are following suit. But they’re the gallant minority.

    My opinion is that too many people go to college. The demand is absurdly high and it drives the price up. As an English major with a concentration in American Colonial literature, that’s as deeply into economics as I can penetrate. But, I do know there are plenty of jobs which require a degree but no specialized skills other than can be had via high school. A lot of high school friends of mine are sales reps in various industries and they’re doing very well, and have never used a bit of anything they learned in college. Other friends have yet to graduate, after substantially more than four years, and when they do they still won’t know Hamlet from Harry Potter. But that degree is required so they get it, and pay for it, and do so in such numbers that the price of a degree becomes terribly inflated.

    I think the point I’m long-windedly coming to is, college should be exactly what Aristotle suggested: learning for learning’s sake, and for the sake of becoming a well-developed citizen. But there are plenty of people, and plenty of jobs, in which it just isn’t necessary. Does the cast of The Jersey Shore really need college, or benefit from it? No, not at all, but I’d bet most of them have at least some kind of degree because, all their lives, it’s what well-meaning teachers and parents said they had to get. So they did, and their demand drove the cost up for the people who’d really benefit from a university. And in that sorry situation, it’s up to the student not to bite off more cost than he can chew.

    A side note: why has school become a product? I think it’s because of this same phenomenon. People who have no business in Western liberal arts education, and who couldn’t tell you what “Western liberal arts education” is if you held a gun to their heads, feel compelled to get one nonetheless, and colleges have adapted. Not all, but most… the majority of colleges aren’t exactly Cornell, unfortunately. They really are four-year vocational schools, because that’s what the public is capable of and that’s what the public wants: a degree that will earn money.

    That demand drives the price up for the rest, and I think the way out is to reduce the demand. Not every construction foreman needs to learn about gendered political theory, or would understand it if he did. Most would be better, and more cheaply, served at a technical school.

    It’s a situation identical to the housing market. Everybody has the right to a comfortable place to live, but everybody has also been convinced that the only comfortable places are suburban two-stories with three car garages… and they borrowed accordingly, without thought to consequence, and with misplaced reliance on the paternalism of lenders. The truth is, not everybody needs, or can afford, that suburban manor. And if they hadn’t all been convinced they did and could, they might’ve been perfectly happy in a more modest, and reasonable, house.

    This is probably unpopular thought because, actualized, it means stratified classes and inequality. But inequality of possessions isn’t a crime, or even a bad thing, so long as there is equality of opportunity. James Madison wrote in The Federalist Papers (which number Federalist Paper it was escapes me just now) that unequal factions would be a boon to America because inequality leads to competition, innovation, and industry. Necessity is the mother of invention, and people work hard to get what they want but don’t have. We can’t all be NFL quarterbacks or best-selling authors. We work according to the gifts we have and are rewarded according to skill and industry. No family ever started wealthy; even monarchs owe their fortunes to great-ancestors who took up arms and fought for what they could get.

    I’ve gotten stuck on a road entirely different from the one we started down; apologies for the digression. In summary, we’ve all been told we have to go to college, whether we want to be barbers or bankers, and we all believe it. Employers believe it too and so they require degrees. People need jobs so they go to college. But, most jobs don’t really require a college education and many people don’t benefit at all from having one. This unnecessary demand has made a diploma a commodity and it’s been priced accordingly.

    The answer is to decrease the overblown demand and bring the cost of education back in line with reality. Then, those people who belong in a university will be able to afford to be in one and we can worry less about unscrupulous lenders, and get back to the Aristotelian ideal. In the meantime, reality is sadly what it is and borrowers need to make their own informed decisions, in choices of school and housing and consumption of any sort, and not rely on the kindness of strange bankers.

  3. Andrew Eastman says:

    A little outside reading:

    http://www.nytimes.com/2010/05/16/weekinreview/16steinberg.html?pagewanted=all

    http://www.cca-now.com/2010/01/mike-rustigan-not-everyone-needs-four.html

    An excerpt:

    “For too long, academic elites and politicians — both Democrats and Republicans — have oversold us on the necessity of getting a college degree. We have reached the point at which it has become almost un-American to admit that for a sizable number of our young people, college is a waste of time.”

    It’s that kind of overblown demand which drives up the cost of college, and the inflated cost makes it hard to learn for learning’s sake… although that is exactly what should happen in a good university.

  4. Cantab says:

    Extremely well summed, and, as always, well said. I can only hope that your degree eventually sees you legislating.

  5. Andrew Eastman says:

    You and me both. Any interest in a guest column here?

  6. Cantab says:

    Certainly. Does this comment give you my email? Just let me know what you might like me to write about.

    • Andrew Eastman says:

      Anything at all… I’ll trust to your discretion. E-mail me whatever you’d like published:

      andrewe@alum.dartmouth.org

      Include whatever biographical information you’d like mentioned, or none at all and I’ll attribute it to a “guest author.” Something having to do with what a university education ought to be might work. Or, neckties and shoes are always a safe bet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: