Thursday, June 16, 2011

Film Review: “Default: The Student Loan Documentary”

God… Student debt pisses me off like nothing else. That millions of young students have to go into massive debt so that they may become competent and functional citizens is just astoundingly stupid and bizarre.

Default, a documentary that will air on PBS sometime in the near future, chronicles the stories of a half-dozen or so students and their experiences with debt. These people have debts of galactic proportions, yet none of them are dumb. Just as I was when I was 18, they were young and hopeful, but ignorant and deluded. They have been taken advantage of by corporate interests and left to dry by the government.

Who benefits from student loan debt? The private student loan companies of course.

Because we can’t declare bankruptcy on student loans, these companies have no reason to be cautious about giving out loans. That means: If you get sick, you still have to pay your loan. If you can’t get a job, you still have to pay your loan. In fact, it’s good for them if you can’t pay back your loan. If you go into forbearance (when you momentarily put a halt to your loan payments), interest causes your debt to keep growing and growing and growing. The more money you owe, the more money they get.

In the documentary, one woman owed $35,000 and paid back $26,000 of it. Yet, because she went into forbearance, she still owes $57,000. Another guy, who had a $46,000 loan, owes $122,000.

Couple thoughts generated by the film:

1. I think we need personal finance education in high schools. Of course this wouldn’t be as necessary if we had a better consumer protection agency—one that wouldn’t allow credit card companies and for-profit colleges to prey on unknowing young people—but until then I think a lot can be gained from a high school personal finance education. Just as “health class” is required in many high schools—covering topics like STDs, contraception, and the consequences of drugs—students should also learn what interest is, how much college will really cost them, and about sobering job placement statistics. (I didn’t learn any of this when I was a high school senior—how could I if no one taught me?)

2. The film supports a movement to forgive all student loans ($700 billion), which I think is actually $900 billion now. I don’t know how I feel about this. Of course it’s unlikely that they can get Congress to pass such a measure, but that doesn’t mean it’s impossible. But is it the right thing to do? A lot of students have been taken advantage of and mislead, but should all students—those with reasonable debts and those who are in debt largely because of profligate decision-making—be relieved of their debts too? While it would be great if all debts vanished, might such actions encourage even more fiscal irresponsibility, knowing that the government will bail you out whenever you need it?

3. I was able to pay back my $32,000 loan so quickly partly because my mother put my whole high-interest private loan (something like $18,000 of my debt) on her credit card. (She had perfect credit so there’d be no interest accumulation.) I simply paid her back and didn’t have to deal with increases due to interest. If other people had this option, they could pay off their debts much more quickly. How ‘bout if interest is made to fluctuate based on how quickly the debtor is paying off his debt? As an incentive to pay it off quickly, the interest could, say, drop from 6% to 1% if you’re doubling your payments. If you’re paying it off slowly, perhaps it should stay at its normal level to encourage you to speed up.


Anyway, Default is a timely documentary, and one that should be shown to all high school students before they make the five-digit decisions that may wildly alter the course of their lives.

Check out their website here for info: I recommend joining their Facebook page; every day they put up stories related to school and student debt.


Kevin M said...

I agree with 1, but highly disagree with 2. I'd forgive some on a case-by-case basis or allow them to be dis-chargeable in bankruptcy. I am so thankful I never had to get a student loan. Do they disclose, like on a mortgage, your total payments over the course of the loan?

"Cheap credit" sure has gotten expensive, hasn't it? First the mortgage bubble, now student loans. Just disgusting.

Mike said...

Wouldn't you feel a little screwed if they forgave student loans after you spent 2 years living in a van, avoiding taking loans. While all your peers all around you took all they could and lived it up?

The problem with allowing bankruptcy is most students, when they graduate, have no assets, so everyone would go bankrupt, clear their loans, and start from scratch with their first job. Why not? They have nothing to lose.

Seems there's a simple solution though, just limit allowing discharge in bankruptcy to 5 or 10 years AFTER graduation, when it's more likely some assets will be at risk and the borrower has more skin in the game.

Of course the real solution is to lower the costs of school. We don't need dorm rooms the size of apartments or student centers that look like palaces.

There are affordable schools that forgo those things, but they're not quite cool enough for the typical high school-er I guess. Especially when everyone around them, including (all-too-often) their own parents, is making jokes about community college.

Ken said...

Kevin M--I'm no finance guru so I'm not sure I can answer your question. Do you disagree with me or the activists on #2? I'm not sure I have a definitive opinion quite yet.

Mike--As you well know, there are many reasons for high tuition. Funding going towards lavish dining halls and rock wells, being one of them. And of course one of the largest is reduced state funds headed to state school. I'm not sure what the solution is for millions of grads who have backbreaking debts and no jobs to pay them back.

Anis said...

Good film