The Crippling Effect

It's been awhile since I ranted about the student loan crisis, and I've been generally feeling more accepting and at peace with my current situation...

...Until last week when CNBC aired a special  College Debt Crisis and compared the state of the student loan economy to the mortgage crisis.  I thought it was really well done and highlighted a number of the comments I've been making for a year now.  For example, the way people just shrugged when I said I was taking on A LOT of debt to go to a private law school and responded "yeah, but you'll be a lawyer, so who cares."  Or how the financial aid office never once told me the actual dollar value of the money I was taking out or what my monthly payments would look like upon graduation, but rather told me to sign on the dotted line and the money was deposited in my account.  The CNBC special also called out the universities that are simply adding law schools as a way to make money.  Law schools don't require the infrastructure (translation: cost) of medical schools or nursing schools, yet they allow for exorbitant tuition, thereby making a nice little profit off those still wanting to become lawyers in a saturated market.  Furthermore, class sizes are steadily increasing, churning out more lawyers than the world knows what to do with.

I do want to make one thing clear.  I fully recognize that my financial situation is, in a lot of ways, my own fault.  Much like people who took out mortgages their salaries could not support, I think students have a responsibility to "stay within their means."  Convinced I wanted to be a lawyer, I, for one, should NOT have gone to PRIVATE school, but rather attended the University of Wisconsin - a public school where I had in-state tuition.  For this reason, I can appreciate that many people respond to this student loan crisis (and MY student loan crisis) less than sympathetically.

I have read a number of comments to articles on this topic by angry people spewing how they refuse to feel sorry for lawyers who made their beds and now are forced to lie in them.  However... there is (at least one) very big difference between borrowers who bite off mortgages that are more than they can chew, and students who opt to take on the debt associated with a professional degree: A degree comes with a certain promise of success - a promise of a financial future that is able to withstand the debt acquired.  No mortgage broker (no matter HOW corrupt the whole industry may be) tells a borrower that by taking a leap of faith and committing to a huge mortgage now, it will put him in a position to be able to not only pay off his mortgage on THAT house, but also buy a much larger house in the future.  With student loans, the borrower is trusting that the education associated with the cost will pay for itself.  Put simply, the reason the mortgage crisis is so appalling is that mortgage brokers took a retrospective look at a person's history and at his current situation and advised him that he could take on a level of debt that was impossible to maintain.  Student loans lenders, on the other hand, look prospectively at the education to be acquired and then loan a large amount of money.  However, what in the past seemed like hedging a safe bet on both sides of the transaction has suddenly become an extremely risky investment.  And frankly, the Higher Education Act of 1997 screwed us all.

It's funny - I started this blog post angry at law schools for charging ME such a high tuition and angry with the lenders for just giving me that money, but as I wrote this, I almost had myself convinced that I made, if not the "right" decision, then at least a justified one.  I suppose what angers me the most at this point (given that I've acquired the debt, I've deferred the debt, and I've accepted the fact that I will be paying for it for the rest of my life), is that people keep going to law school... in an economy where the legal market is more than saturated, and the government (and private lenders) just keep shelling out the money for what has become a very risky investment.

The CNBC special discusses the inflated (deflated?) statistics on student loan defaults.  Currently, the percentage of defaults seems pretty low.  However, what the number fails to take into account is the amount of people (present company included) who have put their loans into deferment and/or forbearance instead of defaulting on them.  As reported by Student Loan Justice, a non-profit organization dedicated to increasing awareness about the student loan crisis:

We are confident that the true default rate across all federal student loans is between 25 and 33 percent (perhaps even greater)- clearly higher than described in the Chronicle article, and higher even than the default rate for sub-prime home loans, payday loans, credit cards, or any other lending instrument in this country.  Students and their parents deserve to know this before making college attendance and financing decisions.  The failure of government to warn citizens about this alarming default rate over the past decade has caused immeasurable harm.  We hope the media will continue to pursue this line of investigation.

On both the public and the private side, this is a very big deal, but given that the federal government allows students to defer their loans (while still accruing interest) for up to three years (and thank God they do, otherwise yours truly would be shacked up with Mom and Pops), there is no way the default percentage accurately portrays the realistic number of people who simply cannot make their monthly minimum payments.  What's worse, is law schools rely on this deflated statistic as justification for increasing class sizes and tuition, with the mentality being "Very few people can't pay back their loans after they graduate, so you will be fine taking on $200,000 to become a lawyer..."  ...in a saturated legal market that can't actually afford to pay you anywhere close to the amount to support your investment.

Along these same lines, universities are tricking new students into thinking they are essentially guaranteed jobs after law school.  There has been a great deal of outcry on this particular topic, but for those who don't know about it, law schools are allowed to consider ANY employment when calculating its percentage of graduates who find jobs after graduation.  This means I could drive a bus or work at Starbucks (which, for the record, were both options I seriously considered post-graduation from law school.  Starbucks for the health benefits and driving a bus to be considered a "public employee" and have my loans forgiven after ten years of public service), and the University of Denver would mark me down in the "employed" category and include me in the inflated statistic presented to prospective students to show that their law school results in employment, thereby justifying the cost of tuition.

I encourage anyone in my boat ...Actually the boat sank, so I mean anyone else who is frantically trying to keep their heads above water) to look into Student Loan Justice.  If nothing else, it helps to know we are not alone.