I’m not American so the concept of a college loan is very alien to me. In my country we either pay for college tuition up front, apply for financial aid if our grades are high enough and your family is needy enough, or you don’t go at all. And In some public universities, tuition is either wholly or partially government subsidized.
I’ve heard of Americans complaining how they’ve got thousands of dollars in college debt and in some cases they take your whole adult life to pay off. So why are college loans even a thing in the US and what happens when you’re not able to pay it off?
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College costs a lot more in the US than elsewhere because there are less government subidies, financial aid, etc. And because Americans more often go away to college, the costs also typically include housing, meal plans, etc. on top of just classes and books.
There is also often a lack of understanding on the dollar amounts borrowed, the impact of interest on that balance, realities of job market/income after graduating, the costs of adult life, etc. So some 18 year old wants to go to University of ____ and signs for $80k in loans to help cover it, without really grasping how that’ll costs them $1000/mo of their $3000/mo take home pay for the next 10 years.
The cost of attending many colleges, especially if the student is living with their parents, is high enough that a few years of minimum/low wage work doesn’t even come close to paying for all of it
The public college I got my bachelor’s from charged $12k/year just in tuition and some of the mandatory fees alone. Because my family made over $45k/year, we received zero financial aid besides a merit based scholarship I lost two years in and subsidized loans. The cost of rent and food basically doubles that.
As a college education in a in-demand area is essentially a requirement for many careers, taking out loans to finance education is widely accepted
North American Colleges and Universities simply pull more of their revenue directly from students. Since a university degree is essentially the minimum standard for any career other than service/manual labour occupations, and since such jobs pay a pittance, prospective university/college students must either depend on financial help from family, or take out a loan.
If it sounds ridiculous, that’s because it is.
A lot has to do with where you live. Some states offer free college, some states if you don’t get a scholarship and you get accepted into a really great school. You have to pay and college loans are just the easiest option because they’re betting you’ll graduate and get a good job that’ll allow you to pay that loan back.
Many Americans view it as an investment. In an in-demand field, earnings with a degree can be about a million dollars higher over a 40 year career than without a degree. If you have to take on $50k in debt and make $150k in total payments with interest for decades, you still come out ahead.
So that’s why it’s accepted and common. Whether all of that is wise is an individual decision. Whether it’s worth paying the additional cost of a “good school” is very murky.
If a borrower doesn’t pay it back, the loan goes into default and it negatively affects their credit score, making it harder to borrow in the future. The rest depends on exactly what kind of loans they were. For federal student aid, the government can take some harsh measures to collect, including taking it straight out of the borrower’s paycheck before they receive what’s left.
I went to college in the early 90’s. I did not qualify for any free money (scholarships, grants). I wanted to stay where I grew up (Los Angeles area), so my choices were (in 90s dollars):
Community college (about $50 per class)
State colleges (subsidized by government): $600 per quarter (1800-2400 per year)
More prestigious state colleges (like UCLA vs. Cal State LA): $3000 per semester (6000 per year)
Private colleges (like USC, Pepperdine, Stanford) – $8000-$12000 per semester (16k – 24k per year).
Student loans existed back then too, but I knew I didn’t want that hanging over my head. I didn’t have anyone to tell me what to do, so I just did what I thought was right in my head and didn’t take out loans. I went to the cheaper state college I could afford at $1800 per year (plus the cost of books. Books cost as much as the tuition)
If I had to do it all over again I would have gone to community college first. It looks the same on your record and you actually get to take the classes you want to take.
Since it has been 30 years since I’ve been to college, the one I attended for $1800 per year is now about $7000 per year, but the private colleges are $50k per year or more.
People have been convinced that a more expensive college leads to a better paying career, so the price difference resolves itself with future income. For 99.999 (repeating of course)% of people, this isn’t the case. A degree is a degree at any job.
As a result, people take out these loans which are extremely easy to get, and nearly impossible to get out of. They are easy to get because they are government backed. And the “banks” that loan them are partially government, partially private. And bankruptcy rules have been made so that you cannot get out of student loans via bankruptcy (unless you can show that you are disabled).
This also causes tuition to increase very fast. If it’s super easy to get loans, and students are willing to take out the loans, universities can raise their prices, and the same number of students will attend, with bigger loans.
If you can’t pay off the loans, since they are government-backed, they will just take your money from your paycheck.
College in America is really expensive. The average in-state tuition for a state college is more than $25,000 a year. Minimum wage is $7.25 an hour, so the fact is that you just can’t afford college working a minimum wage job. If you go to graduate school it can be even more expensive, the average doctor in the USA graduates from medical school with something like $250,000 in debt.
The way the loans are structured if you make minimum payments for long enough then the rest of the loan can be forgiven, but that term can be as much as 25 years in some cases. In addition around 2012 or so they jacked up the interest rates on student loans. So a number of people saw the interest rates, after they had taken out the loan, literally double.
There are a number of ways to defer or get temporary relief from paying, such as if you lose your job or have some other hardships, but you cannot get rid of the loans in bankruptcy. If you can’t pay they will trash your credit score, garnish your wages, and, eventually, can even suspend any professional licenses you have. In the USA most landlords run a credit check when renting an apartment, so if your credit score is low not only can you not get a mortgage or a loan, you can’t even rent a decent apartment. Thankfully stuff “only” stays on your credit report for 7 years, so if you get back on track it’s not going to literally follow you around forever.
Honestly this is pretty much par for the course in America: you just walk around with this knowledge in the back of your head that if you get laid off or sick or one of a dozen other things that you’re just going to be financially ruined for the rest of your life. If you’re rich, we’re talking multi- millionaire rich, America is a great place to live. If you’re not you just kinda hope nothing goes wrong.
It’s worth pointing out that the US has one of the highest college education rates in the world, higher than every European country except Luxembourg and (somehow) Russia. On top of this, many US colleges offer educations that, whether or not they are truly worth the money, are the envy of the world, both in terms of the doors they open and the overall student experience. In contrast, many countries take the approach of offering free or low cost college but to a much smaller fraction of their citizens, and these arrangements are often much more utilitarian with students living at home when possible and studying a very specific and focused curriculum.
So all those loans are the U.S. collectively shouldering the cost of having such a large and fancy system of higher education. Somebody has to pay for it (this is even true of systems where college is “free”. It just means that taxpayers are dividing the cost). Where the U.S. has run into problems (as it always does) is in devising a torturously complicated public-private system of paying for it, full of perverse incentives, eye-popping (but often irrelevant) sticker prices, and just enough rope for the uninitiated to hang themselves. Even if the system ends up working well enough,* it’s confusing and dangerous enough that it probably ought to be reformed anyway.
*To some of your specific questions: it’s difficult/impossible to get rid of college loans in bankruptcy, but it’s also very hard to compel someone to pay them. 10-20% of college loans eventually get written off because the person who took them out can’t (or won’t) pay.
For a long time, the philosophy in the US has been that even though it’s expensive, college is still a worthwhile investment. Plenty of need and grade based scholarships exist, but if you can’t get those, many people believe it is worth getting a loan to pay the tuition because of the higher expected salary.
Today’s student loan program started back in the 1970s. Before that, to go to college in the US you generally either had to be rich, or smart. Not *rich* rich, but relatively well off. Most people didn’t go to college. If you were smart and poor, you could get a job and go to night school, live really frugally for several years until you got your degree, and then get a much better job making more money.
However, the US government wanted to encourage education, and they thought it would be easier if the smart but poor kids didn’t have to work full time just to pay for tuition and books. So they got the bright idea to create federally-backed loans. Loan the kid money, he’ll get his degree, and then with the great job he gets after graduation, he can pay it back.
This worked for a few decades, but starting in the 90s it started to spiral out of control. But nobody recognized the problems, and nobody made any effort to stop it or fix it. Now we do recognize what went wrong, but any fix you suggest is going to be extremely politically unpopular.
Here are the big problems:
1) In the 50s, 60s, 70s, and 80s, a college degree was a big deal. Most people didn’t have them, and if you had one you could get a much better (and higher paying) job. Today, college degrees are very very common, and having one doesn’t really mean much.
2) Colleges started seeing students as big sources of revenue. It used to be that if you had terrible grades, you would get kicked out. But today they don’t want to kick out a guy paying $50,000 a year in tuition. Colleges try to draw as many students as possible, including a bunch of people who aren’t really smart enough to be in college. More students = more money for the school.
3) To attract as many students as possible, colleges went on spending sprees, turning campuses into stunningly beautiful resorts. The same with student housing. This drives up costs a lot. Texas Tech University built a water park to attract students to their school ( [https://www.aquaticsintl.com/awards/texas-tech-university-student-leisure-pool_o](https://www.aquaticsintl.com/awards/texas-tech-university-student-leisure-pool_o) ). They have also added a bunch of fairly useless fields that you can get a degree in. This further dilutes the value of a college degree.
4) Since the 90s, colleges have more than tripled the number of administrators employed there. Because I guess they’ve gotta spend that money somewhere.
5) Because people realized tuition prices were going up fast, and mostly useless degrees seemed to be growing, in 2005 Congress changed the law so you couldn’t get rid of student loans in bankruptcy. They thought this would make people be responsible for their own decisions. What it actually did was tell the colleges and the banks that they could loan *as much money as possible* and the kid would have to pay it off eventually. Tuition across the country skyrocketed after that.
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Fixing this is tricky, because neither of our political parties are really in a good spot to change it.
Colleges (particularly the most elite and expensive colleges) are overwhelmingly run by the Democratic Party, and the Democrats *love* higher education. Campuses are super liberal, and something like 95% of all college professors are Democrats. But they are also the ones who jacked up the tuition rates, and it’s generally their voters who are the ones stuck in massive debt.
Republicans are less affected, because they are less likely to go to college (and if they do, it’s more likely to be at a cheaper state school). And since Republicans tend to be older, their voters probably went to college before the huge price hike got out of control. So part of the Republican Party is chuckling at Democrat voters suffering under huge loans (who could have known that taking out $200,000 in loans to pay for a Gender Studies degree would be a bad idea?). But if they can force college tuition rates down a lot, that’s a huge chunk of money that would no longer be going to their political rivals.
So *somebody* will have to fix the problem eventually. Costs can’t spiral out of control for too much longer without major major problems. But neither party really has a good strategy for fixing it.
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