Dear Federal Reserve Chairman Ben Bernanke
Your recent town hall meeting with educators about financial literacy and student loan debt left me with mixed feelings. While I applaud your efforts at spreading financial literacy, I was a little surprised by a few other things you had to say.
First off, you told teachers, regarding the $1 trillion of outstanding student loan debt: “I don’t think it’s a financial stability issue to the same extent that, say, mortgage debt was in the last crisis because most of it is held not by financial institutions but by the federal government.”
Then, in a seemingly contradictory quote you gave some advice to students that they need to weigh the cost of taking out student loans with the benefit of having a college education. If the degree doesn’t lead to a good enough paying job, it may not be worth it to go deeply into debt over it. You said: “You’ve got to make smart investments.”
So what does this mean exactly? On one hand, you say student loan debt is not a problem for our economy, but on the other hand you say individuals risk their own financial stability if they don’t make wise choices about taking on student loan debt. One would think that if there is a danger present to most individuals of a country, then that danger is equally as present to the future national economy. As a college graduate facing my own student loan debt, I believe you’re missing something. Student loans may not cause a global meltdown like the subprime mortgages did, but they can and will limit the growth of our economy unless policymakers find a way to help today’s young people conquer their mountains of debt and get college tuition under control.
Think About the Long Term Effect on the U.S. Economy
Twenty-something college graduates are facing a tough job market and mounds of debt to pay off. Some are even living with their parents for years after college. Even if these grads can make their loan payments, what about the rest of their lives?
I graduated before the recession in 2006. But I’m from a city in Ohio that has a lot of colleges (read: a lot of competition for job openings) and not a lot of jobs. Regardless of the fact that I had internships, top university awards, and a 4.0 GPA, I was stuck working at my college restaurant job for six months after graduation.
I applied for every writing, editing, and administrative job I could find. I went to the Career Services Department where they kindly let me use a computer to type my resume and printed off pages from the chamber of commerce for a list of places to apply. Ultimately, the only help I received was from one of my professors who saw me at the restaurant and couldn’t figure out why I was still there.
So what happened? I finally took a job at a bank that paid less than my restaurant job, merely so I could build some sort of career. I stayed up to date on my loan payments but didn’t make enough money to also move out of my parent’s home. During this time I dealt with depression, confusion, anxiety, feelings of intense inadequacy, and anger. I wanted to tell students everywhere that college isn’t the golden ticket we were all told that it was and that if they wanted to work upon graduation, they’d better get creative fast.
Years later I scraped enough money together to move to New York and then San Francisco and subsequently found better paying jobs in my field. At 29 years old I’m just now getting a handle on my finances.
Why does my story matter? Because it’s not unusual — it’s the norm. What’s the big deal if twenty-somethings across the country live with their parents and struggle to find full time work with benefits? As long as we’re making those loan payments then the economy will be fine, right? Wrong. Think about it: our parents — who are supposed to be preparing for their own retirement — are helping us out by letting us live at home and maybe even chipping in on bills. That sets them back. Then we can’t even think about buying homes until we hit our 30s. That sets us back.
Then new high school grads walk into the same trap because they see no other way. Which sets them back. Are you noticing a trend here? So how will that look for our economy in the next 10, 20, or 30 years? If entire generations are stunted, then what does that mean for our future as a country?
No, perhaps the student loan debt isn’t a direct detriment to our economic recovery. However, I urge you and other leaders to recognize what could happen to our economy when people are struggling to pay student loans and when several generations are held back and tied down — never moving forward. And if the individuals don’t move forward, our country doesn’t move forward.
The Conversation Needs to be Changed
You mentioned that students need to make sound investment choices when choosing a college and taking on student debt. However, for most, the only way to go to college is by taking out student loans.
So what’s the suggestion? That if you can’t afford to finance college out of pocket you shouldn’t go? Or that you should only major in something that will make money in the long run? This is inconsistent with reality — both financially and culturally.
I grew up with parents who couldn’t afford to go to college and thus did everything in their power to make sure I went. My dad even worked two jobs to make sure I would get a good education. Whenever I talked about my dreams for my future my parents said they’d support anything I do as long as I go to college first.
The point? Come hell or high water I had to go to college. However, they couldn’t pay out of pocket, so we did what seemingly everyone else did — we signed up for loans.
Face it, the idea that college is the golden ticket is baked into our brains from childhood on. That’s why we don’t think twice about signing those loan papers. Now, you could try to go to a less expensive college to receive your degree, but what does that mean for your job prospects? We’re encouraged to go to the most highly ranked school we can get into in order to improve our chances at a good career.
So what would you tell someone who is passionate about a career that requires an education but doesn’t pay well, like the teachers you were talking to? Teachers’ salaries are notoriously low and the job even requires a masters degree! So what happens if only would-be teachers whose parents can pay for school out of pocket go for that degree?
And what happens if you are the kid who says, “Mom and dad, college is expensive and I don’t think I’ll earn much in my field so I’ll just skip it and go straight to work.” Good luck, kid.
Good luck selling your parents on giving up a dream that we’ve all been taught to chase after. And then good luck standing out among unemployed college graduates who are competing with you for the same jobs. Ultimately, we are programmed to value a college degree above all else, which is why employers require it and kids and parents take loans out to get it.
What am I getting at? The current environment is presenting college graduates with an untenable situation: With few ‘career’ type jobs available, these young people simply get whatever job they can and then make payments on their student loans each month while hardly making a dent in the total balance. Meanwhile they are precluded from engaging in the kind of life milestones (getting your own apartment, getting married, raising children, buying a car, buying a house) that previous generations were able to enjoy because their crushing debt makes those things financially impossible.
Mr. Bernanke, you (and everyone else in power) need to acknowledge a basic fact: It’s unrealistic to say that student loan debt won’t affect the long term health of our economy and it’s equally as unrealistic to advise high schoolers to only attend college if they can pay out of pocket or guarantee a return on their investment. So what do we do?
A good start would be to have leaders like you take rising tuition costs and student loan debt more seriously so that future generations can graduate with a fighting chance for a strong financial future.
This article is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company.
Image: Adrian Clark, via Flickr