Advocates for students often accuse credit card companies of preying on gullible young people who don’t understand debt. I was one of those student “victims” — I got my first credit card as an undergrad from a salesman at N.C. State’s brickyard, along with a free t-shirt.
I was already in debt, however. I had accrued several thousand dollars of debt in the form of student loans. Critics ignore the fact that student loans are as easy to mismanage as credit cards hawked on the quad, and the long-term consequences can be far more severe.
College loan money doesn’t seem real: it’s like a credit card with no minimum monthly payments and a ridiculously high limit. So my classmates and I spent our college-loan money getting the ultimate college experience. We wanted it all: Greek life, study abroad, the newest, coolest flip-flops, Dave Matthews Band concerts, and off-campus apartments. And we got it.
When I graduated from college I had about $300 on my credit card, but a college-loan debt of $14,000. Seniors graduating from North Carolina schools leave with an average of $17,760 in debt, according to the Institute for College Access and Success.
To keep a credit card you have to pay something every month. But you don’t start paying back student loans until four years later – and longer in the case of graduate school. Until I started paying back my loans I was only dimly aware of how much I owed – I had seen the number only once or twice.
Normally, when you get a loan or credit from a bank or credit union, you have to jump through certain hoops to make sure you can pay back your loans and to protect these lenders in case you don’t. With student loans, it’s different. The government designed student-loan laws to make it easy for almost anyone to get student loans, regardless of whether they need the money, or their ability to pay it back.
When I applied for a student loan, the aid office (and the forms I filled out) led me to believe that I would be loaned the amount of money that I needed. In reality, I received far more. According to the College Foundation of North Carolina, need-based financial aid represents “the difference between the total cost of attending a specific college program and a family’s ability to pay that cost using standard formulas.” But those formulae fail to account for other sources of income, from part-time jobs to scholarships, resulting in students receiving too much money in loans.
Students rarely think about future ability to repay loans – I know I didn’t. Students don’t understand finances well enough to decide how much to borrow, get a good rate, or even spend wisely. So here are some of the things we did:
- One of my college suite-mates spent her entire loan check on a top-of-the -line Apple computer simply because she had more money than she knew what to do with.
- Several of my sorority sisters, many of whom had student loans, spent a week sailing in the Bahamas.
- I spent my excess money on a semester abroad at the University of East Anglia, where I took few classes and fulfilled no credits toward my major. Instead, I saw shows in London, traveled the countryside, and even spent a 10-day spring break in Paris. I could have easily afforded a less luxurious six months in England using only savings from my part-time job, but student loans were easy to obtain.
Indeed, for me college loans were a bargain and they still are. I was able to consolidate them at an interest rate of only two percent. Looking at the loans pragmatically, I would have been foolish to pay for my extended vacation by using my savings.
For some, however, the fun came at future expense:
- A good friend spent his entire college career working nearly full-time for a local paper covering sports, while taking a full load of classes. The job allowed him to indulge his passion for sports – attending all the big events, traveling for games, even buying a large screen TV and pay-per-view for out-of-market events. Unfortunately, once school ended he was saddled with far more debt than he could afford, and he hadn’t earned the kind of grades to give him any chance at landing a good job.
- While he was in school, my now-husband received student loans that covered his daily needs, his meals, and student housing. That freedom enabled him to gamble three summers’ worth of saved lifeguarding wages on the tech boom – just in time to watch the bubble burst. In hindsight, he knows that the money would have been much better spent to pay for his needs at college so that he would have less student loan debt now.
My friends and I didn’t really cause the student loan crisis. In the grand scheme, our dalliances were a drop in the bucket. But we did make bad decisions. We misused taxpayer money, accrued years’ worth of debt and postponed adulthood’s important financial lessons to have a good time. Now that the college-loan business is in trouble, perhaps Congress will mend its ways and no longer permit these excesses to continue. Students who receive today’s scaled-back loans should be better off as a result.