A couple of months ago, I reviewed The Student Loan Scam, by defaulter-turned-activist Alan Michael Collinge, for The Wall Street Journal. Although Collinge raises some legitimate points about the legal treatment of student borrowers, the book seemed overwrought to me. I was especially struck by the way he underplayed the extent to which people who get into serious trouble with their student loans are responsible for their predicaments. Judging from Collinge's own anecdotes, defaulters usually have made some serious errors of judgment, including blithely assuming that a given degree is worth the money they're borrowing and failing to learn the details of what they're getting into. Over at the Anderson Cooper 360° blog, CNN Production Assistant Samantha Hillstrom provides yet another illustration of how some borrowers get in over their heads:
I am 23-years-old, two years out of college and I am sitting on $115,000 of student debt. And based on my lender's loan terms, I only have roughly 12 years to pay it off. How much does that make my monthly payment, you ask? A whopping $1,200 a month. And let's just say my lifelong dream career in television doesn't lend itself to that. The only option my bank is giving me is to go on "graduated repayment plan." That means that for four years I will only be paying off the interest every month. How much is that? Well, $115,000 with interest rates between 4-8%… that's about $600 a month and that doesn't even touch the principal amount. People don't pay off houses in 12 years and I am expected to pay off this student loan in an entry level position?
Some might say, "Sam, you shouldn't have gone to a private school in New York City if you wouldn't be able to pay it off." Well, I made a lot of mistakes when signing up for my loans, but I was uneducated on the process and on the repayment and now I'm stuck. I share the same anxiety as the families struggling to pay their mortgages. How was I ever to expect the financial crisis that was going to happen and where can I get some help?…
Here is my question: why aren't student loans receiving the same attention, same care and forgiveness as every other loan in America?…Where is our bailout?
In short, Hillstrom went to a college she couldn't afford, did not research her options, did not bother to learn the terms of her loan, got a degree that was not terribly useful (I'm guessing), and took a job that does not pay very well to pursue her "lifelong dream career in television." Of course she wants a bailout; everybody else who has screwed up royally seems to be getting one.
As I pointed out in my review, this sort of situation is far from typical. The average debt for college graduates who borrow is about $20,000, less than one-fifth the amount Hillstrom owes. Education Department data indicate that default rates are between 5 percent and 10 percent.
Hillstrom may have been inspired by an already classic 2008 Reason.tv video.
[Thanks to P Brooks for the tip.]