Ross: There's Nothing Moral About Paying Back Student Loans

Ross: There’s Nothing Moral About Paying Back Student Loans

Although tankers full of ink have been spilled over the growing student debt problem in the United States, most of it has been focused on isolating the causes such as increasing tuition, an anemic job market and cuts in government financial aid. But Andrew Ross, writing for The Daily Beast, is asking a different question: Is allowing college students to go into debt that many of them will never be able to repay immoral and does the obvious conflict of interest prevent colleges and universities from protecting students from taking on this kind of burden?

Ross, who knows a bit about the inner workings of higher education as a tenured professor of social and cultural analysis at New York University, also offers the unique perspective of a social reformer. In addition to his teaching duties, he is also a member of the Occupy Wall Street Strike Debt Assembly, so the issue of student debt is near and dear to him. It’s no wonder that by observing the students around him, he’s come to view debt as a moral issue, since graduates who leave NYU typically do so with a debt burden 40% higher than the national average.

Although he heard from many alumni who were struggling to repay debts well north of $100,000, his current students seemed unwilling to talk about the issue when he brought it up in class. When asked in private, at least two student admitted that the main thing keeping them from talking about their worries was the shame.

At a pricey college, they were surrounded by peers from well-heeled families, and they feared the stigma if they spoke about their own straitened circumstances. One of them apologized for falling asleep in class: he had taken on a second job—not uncommon these days—to avoid the burden of even more loans. The other confessed that she did not want to feed any inner doubts about whether her dream education would be a career stepping stone or a financial millstone; as long as she was still studying, she wanted to stave off such thoughts.

His Occupy Wall Street Debt Campaign was an attempt to de-stigmatize student debt default. The idea was to sign up those who owned student loans but would commit to stop all payments if the campaign drew the pledges of one million others. For Ross, it was a way to make public something that was already taking place all over the country behind closed doors: student loan defaults. It was also meant to show that being financially unable to repay a loan wasn’t a signal of a moral failing.

Foreclosing the future of young people is a callous act, and a self-destructive path for any society. But allowing Wall Street financiers to feed off their predicament is beyond any moral compass, especially—and here I speak as an educator—when the revenue is being extracted from an activity as honest as the pursuit of learning.

The question still stands, however — is it morally better to repay student loans or default on them?

Comments

Mike

October 1, 2012 at 11:50 am

If and NYU studnet is 40% more in debt than the national average, my question is what are they buying for this amount of money? If the NYU degree isn’t paying for itself, that’s just a waste of money and either the students need to shop around or the University needs to make the extra money worth something. You can pay twice as much as the asking price of a car if you wish, but why would you?

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mcp_43

October 1, 2012 at 1:46 pm

Is it morally correct to take out a loan that you know you cannot repay or that you have no intention of repaying?

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Doug Stein

October 1, 2012 at 6:44 pm

Professor Ross’ statement that “…allowing Wall Street financiers to feed off their predicament is beyond any moral compass” conveniently ignores the fact that the Federal Government has put its thumb on the scales of the free market and has pretty much removed private lenders from the market. The Feds are in the business of borrowing money at low rates (2-3%) from China and elsewhere and lending at much higher rates (e.g., 7.9% for Sallie Mae loans) even though the loans can’t be discharged in bankruptcy (and the payments can be forcibly extracted by the State).

By subsidizing students to attend higher ed without expanded capacity they are colluding with the university guild system to drive up prices and place students in debt.

The students, however, are not blameless. It is important that they take on debt only if the expected improvements in their income stream can service the debt. I had this discussion with my son when he decided to attend graduate school and take on loans for tuition. I helped him work out discounted cash flow for the two alternatives (go to work immediately with a Bachelor’s vs. go to work after earning a Master’s in the same field). We also looked at loan amortization schedules (so he’d know what his monthly costs would be for the 10 years after grad school). Finally, I told him about “front and back ratios” used by banks in underwriting mortgages and showed how much income he’d need before the student loans ceased to be the limiting factor in the size of a mortgage he could carry. The ability to own can affect how long he’d have to wait to form a family.

At any rate, the schools do not discuss these concepts – either as part of the curriculum or in financial counseling sessions – and it’s financial malpractice on their part. My wife and I were blessed to be able to make sure our son finished his BS with no debt (he worked part time to cover a lot of his living expenses – but undergrad tuition was beyond his means).

It is immoral to borrow with the intention of defaulting. It is not immoral to default as a last resort when all other measures have failed (although it’s still a valid cause of shame). It is immoral to offer degrees and programs whose costs are known to far exceed reasonable expectations of post-graduate income.

Perhaps we should remember a lesson that is taught in Kindergarten – two wrongs don’t make a right!

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j

October 2, 2012 at 1:27 pm

A person should pay their debts – financial or otherwise. If one cannot, then do not take them on. If one is unsure about being able to pay the debt off, then one needs to seek unbiased counsel.

That unbiased counsel needs to tell many students that pursuing certain majors is a bad plan. For some students, college right out of high school – or ever – is a bad plan.

It may be harsh and pessimistic, but at least it is not as cruel as saddling someone with a mound of debt that they cannot repay.

Therein lies the rub – if higher education (and high schools) do the right thing and steer students away from colleges and debt, then banks and colleges lose money. Heaven forbid that anything stands in the way of almighty profit.

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mcp_43

October 2, 2012 at 4:18 pm

The financial analysis suggested and performed by Doug Stein should be included in the “financial literacy” classes required by many high schools. Perhaps, New York University could put a step-by-step process to perform such a financial analysis in a prominent location on the university’s web site.

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