The Long Way Home 8.9.24

I’m here to tell you that comments on just one Facebook post can lead you down a never-ending rabbit hole. 

Believing what’s good for the goose is good for the gander, I recently shared a meme juxtaposing student loans with the Payroll Protection Program (PPP) loans. The meme's punchline was, 'No one asked how we would pay for PPP loan forgiveness.' 

A friend thinks student loans are different. They were a choice for the borrower.  The PPP loans were necessary because the borrower's survival was at stake. I’m pretty sure the evidence won’t support the idea that most PPP loans could not be repaid eventually by those employers who took advantage of free government money. 

The COVID-inspired PPP loans ended on May 31, 2021, distributing $793 billion to 11.5 million applicants, 225,385 in Minnesota alone. As of March 13, 2024, about $762 billion, roughly 96% of the total, was forgiven entirely.

As we ponder the future, historians and economists will debate whether PPP was a government boondoggle or a brilliant attempt to save and reenergize a failing economy. But what about the gander--student loans? 

As I delved deeper into the rabbit hole, I discovered the issue of student loan debt to be intricate and multifaceted. It's a relatively recent boon to institutions of higher learning, private and public, and the financial institutions that profit from loan origination and management fees. 

The origins of federal student loans can be traced back to 1958, a time when the desire to educate a larger crop of scientists and engineers was fueled by the need to outshine the Soviets. 

The Bank of North Dakota granted the first federally insured student loans in 1967, and the race to the current situation was underway. 

In 1973, the Student Loan Marketing Association was created. Known as Sallie Mae, SLM is now a publicly traded U.S. corporation. Initially, it was a government entity serving federal education loans, but it later went private to offer private student loans and consulting services. 

The long-term impact of student loan debt is staggering. Today, student debt is $1.75 trillion, about double the PPP forgiven debt. At the end of June this year, 42.8 million Americans owed, on average, $37,853--enough to buy a pretty decent car. This is a burden that many of our fellow citizens carry. 

According to the Education Data Initiative, the average annual cost for a public university education is over $38,000, including tuition, books, supplies, and daily living expenses. Almost $200,000 over four years, more than double what it was 20 years ago.

Federal student loans are used by college students regardless of their field of study. Trade school students, such as plumbers, electricians, linemen, carpenters, and computer programmers, also use them. 

The ease of getting a federal student loan is its most significant selling point. Interest rates are generally lower than private loans, with fixed rates and flexible repayment terms. 

Who else benefits from student loans?

Lenders, banks, grifters, and educational institutions have all done exceptionally well with student loans. It’s hard to imagine a university able to pay its football coach seven figures per season without cash from student loans.

The forgiveness of loan contracts of any kind raises serious moral hazard questions about money lenders and their customers (victims). Moral hazard is the term economists use to describe a situation in which people will take on too much risk because they believe that, in the end, they won’t have to bear the full consequences.  

At the end of this rabbit hole, I gathered some final figures for you to consider. Mortgage and Home Equity Line debt stands at $12.8 trillion, auto loans loom at $1.61 trillion, and credit card debt is a mere $1.12 trillion. Medical debt, that looming fear of us old folks, is relatively small by comparison, just $200 billion.

If PPP is the goose, which of those four is the gander?