Thursday, June 03, 2010

You load 16 credits, what do you get? Another day older and a-deeper in debt…

Subprime lending crisis?

That is so 2008.

The next big bubble burst is supposedly going to occur when all those folks who took out mega-loans to finance their education start defaulting.

Not that it’s easy to get out of paying back those student loans. It’s not like walking out the front door, throwing away the keys, and saying ‘let the bank deal with it.’  Apparently, having student debt is like owing your soul to the company store.  You’re stuck with it until it’s paid off, or until death do you part.

Anyway, there was an interesting article in The New York Times the other day on a young woman who racked up nearly $100K in loans to finance her undergraduate education at NYU – some of it through NYU, and some of it through Citi.

Now, it might have made some financial sense if the woman profiled had majored in engineering or business or computer science or something  where one might reasonably expect to get a decent-paying job. Sure, nobody wants to write that a big fat check to payback your loan every month for a zillion years. But if you start out making a good salary, and have solid long run prospects (assuming that everything isn’t so globalized over the next 20 years that we’re all competing to make a $1 an hour to write code), it’s doable – even if it puts a crimp in things like buying a house, starting a family, buying a car, taking a vacation. (Oh, that.)

But Cortney Munna, the young woman in the article, acquired a less practical “interdisciplinary degree in religious and women’s studies.”  She’s now working as a photographer making $22 an hour. Which is not terrible-terrible, until you translate it into $2.3K take home per month – and a looming, still-deferred $700 a month in loan repayment schedule. Which stands to increase if interest rates go up.


Ms. Munna and her mother (both interviewed for The Times article) do not sound in the least like jerks. They sound like genuinely decent people. Just woefully naive – and swept into a system where it was, apparently, in no one’s interest to explain the facts of economic life to a teenager who was more than willing to sign on the dotted line for $40K that Citi was dangling before her so that she could stay in the school of her dreams.

Which is turning into the school of Munna’s nightmares, now that she’s staring down years of indenture.

Cortney’s mother, Cathryn, a widow who runs a B&B in upstate NY, seems to feel immense guilt over her role in not helping her child figure out that all that debt wasn’t a good idea.

“All I could see was college, and a good college and how proud I was of her,” Cathryn said. “All we needed to do was get this education and get the good job. This is the thing that eats away at me, the naïveté on my part.”

Cathryn wishes that NYU had slapped them both up and down the side of the head and told them that they just couldn’t afford the education.  But colleges aren’t in the business of telling qualified students that they can’t come, even when they don’t have the endowment chops (which only a few schools do) to offer everyone the financial assistance they need.

If you’re good enough to get into Harvard, you’re golden. If you’re not quite good enough, and you ‘only’ get into NYU, you’re fools gold, and pretty much on your own to figure out how you’re going to pay.

Sallie Mae shut the Munnas off, and, instead of taking this as a dragons-be-here warning sign, they heeded NYU’s advice that they look into a loan from Citi. Citi was happy to oblige the Munnas:

But what was Citi thinking, handing over $40,000 to an undergraduate who had already amassed debt well into the five figures? This was, in effect, a “no doc” or at least a “low doc” subprime mortgage loan.

Things have now tightened up a bit, and today the Munnas might not qualify for a loan of this magnitude.

But that’s a day late, and about a dollar – actually forty-thousand dollars – long.

There are hundreds of thousands of young folks like Cortney Munna who’ve taking on heavy debt to finance their education.

For a lot of them (especially, I suspect the religious and women’s studies majors), it just won’t be worth it. And we’ll all have to deal with the repercussions of having those hundreds of thousands of young folks start out life – already one full of professional and economic insecurity beyond anything that us Baby Boomers faced at that age – with a college loan millstone around their necks.


(‘Saint Peter don’t you call me, ‘cause I can’t go. I owe my soul to the company store.’)

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