Student loans and moral hazard
Emory University professor of English Mark Bauerlein contemplates the personal responsibility young people who took out massive student loans bear for their own predicament:
I can’t imagine racking up the student debt that one hears about these days—not because of any moral superiority to today’s borrowers, but precisely because of the fear I would have had of doing so at age 22. The Los Angeles Times portrays one of those big borrowers here in a story on the Occupy Wall Street gatherings. He’s a recent graduate of Ithaca College, and he owes $90,000 (!) to the banks. His case is one of sheer stupidity, and he knows it. He left high school as an honor student, and he was offered a full scholarship at one of the public universities in New York State, but a program at Ithaca College attracted him away, a special sequence in film directing in the communications department. He enrolled, but “became disenchanted with the program” and switched to English. After graduation, he couldn’t find any steady job that would cover the bills. He now lives with his parents and mows lawns.
Bauerlein wonders, sensibly, what would possess a kid to make such a choice (“You give up a free education at a SUNY school to study film directing at a cost of $35,000+ a year (that’s what Ithaca College charges now)?”). The sense of unreality about what the world has to offer overtook this guy. There was no sense of moral hazard. What kind of bank would lend that kind of money to a film student? Bauerlein:
What was he thinking each time he received a loan check? What did he think was going to happen when he graduated? Had he heard too many “follow your dreams” and “pursue your passion” exhortations in high school?
I have a fairly paternalistic view of the state and the law. People cannot be fully trusted to be good stewards of their own resources. Some of us are good about resisting temptation to buy things we can’t afford, but many of us are so driven by emotion, at least in certain circumstances, that we make foolish choices that can have very serious repercussions. If it hadn’t been for my mean old sumbitch dad telling me there was no way he was going to let me take out tens of thousands of dollars in student loans to go to Georgetown, who knows what would have happened to me. Instead, I went to a state university on scholarship, and graduated with no debt. This was one of the best things my dad ever did for me, but I was too immature and emotional to see it at the time. I thought he didn’t know how the world worked, and was crushing my dreams, and this, and that. And it’s true, he didn’t grasp many of the things that I did, even at that young age. But he grasped the essential thing, which was that it would be insane to graduate with a B.A. degree and owing $100,000 or more.
Kids who weren’t fortunate enough to have parents as sensible as mine still have massive amounts of student debt to work off. How do we keep the next generation of students from making similar mistakes? Aside from the power of negative example, shouldn’t there be banking reform laws in place that restrict the ability of banks to loan money to students who are getting degrees in fields in which there is a reduced likelihood that they’ll be able to pay the loans back? Or is that going too far, given that it can be difficult to predict which professional fields are likely to be solid in the future? Is it kind, or even wise, to have a system that allows teenagers to dig themselves into such a deep financial hole?
Jonah Lehrer, in reviewing Nobel laureate psychologist Daniel Kahneman’s new book, says:
It’s impossible to overstate the influence of Kahneman and Tversky. Like Darwin, they helped to dismantle a longstanding myth of human exceptionalism. Although we’d always seen ourselves as rational creatures—this was our Promethean gift—it turns out that human reason is rather feeble, easily overwhelmed by ancient instincts and lazy biases. The mind is a deeply flawed machine.
At some level, we have to be protected from ourselves.