Playing the Victim Card: Students And the Student Loan Debt Crisis

Bloomberg has an article up today about the student loan bubble. It doesn’t mention the student loan bubble directly, and instead focuses on the predatory lending practices by private lenders on students (Students Pay SLM 9.25% on Exploitative Loans for College). Expect more of these articles as Democrats like Dick Durbin try to whip up support for a student loan bailout.

The article bothers me for several reasons. First, the title. I realize that the reporter Janet Loren is not responsible for this, but I would hesitate to call a loan “exploitative” at 9.25% while federally backed loans are currently 6.8% (Stafford) and 7.9% (PLUS).  The article highlights the experience of  Mirella Tovar, a 24 year old graphics designer who amassed $98,000 in debt to private lenders now making $730 a month part time as a waitress. The interest rate on her debt is 10.25%.  The difference federally guaranteed loans and private loans is only $22,000 ($135k vs $157k). We are not talking loan shark rates here. Loren hedges a bit, writing, “private lenders feature mostly variable rates that can be more than twice what some people pay in the U.S. program,” – some people being those who acquired federally guaranteed loans prior to June 2006 when rates were half of what they are today. Ms. Tovar started school after those lower rates had expired in June 2006.

Secondly, it’s not just the lack of credit history that affects the interest rate students pay. Loren fails to mention that federally guaranteed loans cannot be discharged under bankruptcy while privately financed loans can (please correct me if I’m wrong here.) Shouldn’t private lenders be allowed a higher rate of return to balance this risk?

Finally, the Bloomberg piece suggests that Ms. Tovar would have been better off with federally guaranteed loans, “I tell them to take private loans as a last resort,” she said. “I wish someone would have told me that.” But then Loren does not mention that with federally sponsored loans, Ms. Tovar would not have been able to amass $98,000 in debt, because federally sponsored loans have a $31,000 cap.

My wife graduated medical school in 2006 with $210,000 in federally guaranteed debt. The word “doctor” conjures up dollar signs to some people, but the average salary of a family doctor is $130-150k which isn’t much when your minimum loan payments are $25,000 yearly, and taxes on that amount add an additional $8,000 making it roughly $33,000. By the time we pay off her loans in about 10 years, that $210,000 will have cost our family over $350,000 including taxes. Every month I pay the bill it’s not easy, but we chose this path and in the wife’s case I believe the investment has been worth it.

Is a $98,000 investment in Ms. Tovar’s career as a graphic designer worth it? The fact that she is working as a waitress leads me to believe not. But I happen to know several graphic artists who have built successful careers over the years and would be happy to put the Bloomberg reporter in touch with them for their perspective. Ms. Tovar needs to get in at the ground level of her field, and will likely have to move away from home to do it. Life entails risk, and while Ms. Tovar has proven herself to be a terrible gambler by amassing such a sum of debt, she still has opportunities to put her degree to use. It won’t be easy, but starting life as an independent adult will never be.

There is no doubt that there is a student loan bubble, but banks aren’t solely to blame. Like most complex problems there are complicated factors behind them and plenty of blame to go around. Politicians who score points by throwing taxpayer dollars around to look generous and gain votes, then write laws making it impossible for people to discharge the debt in bankruptcy. Universities which waste money on expanded facilities and questionable curricula. Parents who spend more time researching a new car instead of their child’s education choices. Students who have had everything handed to them and are shocked when the gravy train stops. Unfortunately the article missed all of that and does little to suggest a way out of this mess.

It is tempting to call for a bailout of students such as Ms. Tovar. But are you personally willing to pay for her poor career choice and financial sense? What about the millions of degree holders who took out student loans and paid them back? Is it fair to them? I put a sleeping child in the back seat every Saturday morning for a Summer to drive the wife to an early chemistry class, and waited late at night in a dodgy section of Philadelphia with him in the back for the train to arrive carrying the wife from her classes. In between I built a career to make enough money to support us while she attended school. Is it fair to us that Ms. Tovar should be saved by the federal government while we’ve been working hard and paying taxes while paying off student loans?

I opposed the bank bailouts and still do even though most economists argued they were necessary. I believe in personal responsibility whether its a graphic arts student or investors in a bank, and view the bank bailouts as creating a moral hazard where gains are privatized while losses are passed along to those of us paying taxes. While I would love nothing more than to rid my family of my wife’s student loan debt, I realize that it is our responsibility bear the consequences of our decision and what to see that philosophy applied fairly to everyone.

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22 Comments

  1. Playing the Victim Card: Students And the Student Loan Debt | The Moderate Voice:

    [...] Cross posted at The Razor [...]

  2. Jack:

    “What about the millions of degree holders who took out student loans and paid them back? Is it fair to them?”

    “In between I built a career to make enough money to support us while she attended school. Is it fair to us that Ms. Tovar should be saved by the federal government while we’ve been working hard and paying taxes while paying off student loans?”

    “While I would love nothing more than to rid my family of my wife’s student loan debt, I realize that it is our responsibility bear the consequences of our decision and what to see that philosophy applied fairly to everyone.”

    Fair to them? Fair to us? Applied fairly to everyone? Fair??? What’s fairness have to do with anything? I find it interesting that conservatives get all concerned about “fairness” when they don’t get an advantage that someone else gets. But if a liberal uses “fairness” to push wealth redistribution or complain about income inequality, conservatives squeal. I’ve had conservatives tell me that “we play the hand we’re dealt, fairness has nothing to do with it.”

    And I agree!

    So, if those with student loans benefit from a bailout for no other reason then they just happen to have a debt burden when the bailout comes… well… it’s just tough for those who already paid their loans off. Period. Life isn’t fair. That’s what many conservative friends have repeatedly told me.

    Scott, you have known me for decades but there’s something I’ve never told you. When I turned 16 I had to get a job to pay rent to live in my own home. My rent was equal to half the mortgage. I was allowed to use the family car until I could buy my own. I did that, too, at 16, though my parents had to sign for it as I was too young. So, as a Sophomore in high school, I was paying half the mortgage on a condo and paying for a car. I have never, ever known anyone (including you) who had to do that. Was that fair to burden a teenager with that? Of course not. But I played the cards that were dealt me.

    Life is not fair. Sometimes you’re ahead, sometimes you’re behind, sometimes you’re up, sometimes you’re down. I’ve been all of those. If you’re busy playing the cards you’re dealt, you don’t have time to complain about fairness.

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  6. Watcher’s Council Nomination – On, Wisconsin Edition | Virginia Right!:

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  7. Trevor Loudon's New Zeal Blog:

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  8. Scott Kirwin:

    Jack
    Of course life isn’t fair. I was just using the “fairness” argument against the liberal position supporting the bailout. If you listen to liberals you’ll hear “fair” a lot. A common meme I’ve heard from Obama to Pelosi to local Congressman is “fair share.” That’s why the word appears so many times in several forms throughout the piece. I believe that one of the most effective tactics is to use your opponent’s own argument against him, and the repetition of that word was my (feeble) attempt to do that..

    A bailout wouldn’t be fair, but that’s not the point of my post. The point is my last paragraph, “I opposed the bank bailouts and still do even though most economists argued they were necessary. I believe in personal responsibility whether its a graphic arts student or investors in a bank, and view the bank bailouts as creating a moral hazard where gains are privatized while losses are passed along to those of us paying taxes. While I would love nothing more than to rid my family of my wife’s student loan debt, I realize that it is our responsibility bear the consequences of our decision and what to see that philosophy applied fairly to everyone.”

  9. Watcher’s Council Nomination – On Wisconsin Edition | Independent Sentinel:

    [...] The Razor – Playing the Victim Card: Students And the Student Loan Debt [...]

  10. GayPatriot » Watcher’s Council Nominations – On, Wisconsin Edition:

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  11. Jack:

    Scott,

    Your claim that you were using the “fairness” argument against the liberals isn’t apparent in your post. To me it reads like someone shouting foul because someone else might get a benefit (of sorts) that they didn’t get. But if you say that’s not the case, well… okay.

  12. Scott Kirwin:

    Jack
    Too subtle. Sorry about that.
    The essay actually originated as an email the writer. I’ve gotten annoyed with badly written journalistic pieces regardless of ideology. What are they teaching in J school these days anyway? And how can a rate that is 1.3% higher be called “exploitative”?

  13. Watcher’s Council Nomination – On, Wisconsin Edition | askmarion:

    [...] The Razor – Playing the Victim Card: Students And the Student Loan Debt [...]

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  18. GayPatriot » Watcher of Weasels — Wisconsin Week Winners:

    [...] Fifth place t with 1/3 vote – The Razor-Playing the Victim Card: Students And the Student Loan Debt [...]

  19. Trevor Loudon's New Zeal Blog:

    [...] Fifth place t with 1/3 vote – The Razor – Playing the Victim Card: Students And the Student Loan Debt [...]

  20. Steven:

    In response to Jack:

    You use “fair” the way the guy in Princess Bride uses inconeivable. I don’t think it means what you think it means. “Fair” being used by liberals, IMO, seems to be word play to envoke envy, not as in “this person cheated” or “different rules for different folk”.

    why is if I take out a loan, and then later complain about said loan, that I should be listened to, pitied, or, guffaw, be forgiven that loan? What NO ONE is talking about is that colleges are plushing up their campuses with more bureaucrats, PC/Diversity programs, while at the same time dumbing down the education (their primary function). Knowing that students will get loans they raise their rates.

    A simple solution is to make COLLEGES co-sign the loans. If the students are such perfect angels, and we taxpayers should trust them at their word that the loans will be paid back – and since the colleges swear, absolutely swear, that those degress are worth it and are marketable – let the colleges share the risk and co-sign for the loans.

    But, absolutely not am I going to support having the public bail out students who accrued debt who later act like they were victimized.

  21. Bookworm Room » Watcher’s Winners for June 8:

    [...] Fifth place t with 1/3 vote – The Razor-Playing the Victim Card: Students And the Student Loan Debt [...]

  22. Scott Kirwin:

    Steven
    I think you’re right about the use of the word “fair.” And the idea of colleges cosigning loans should be given consideration. After all, a college should have no trouble guaranteeing a loan if it is confident with its curriculum.

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