Recent volatility in the stock market is a reminder that people handle risks differently. Some people wouldn’t dream of investing in equities and subjecting their capital to potential principal loss. Others are high flyers, routinely putting markers down on stocks with high potential on the upside as well as the downside. Others run scared at the first sign of trouble. Others stay the course, grounded in a long-term perspective (or inertia is some cases).
Beyond our individual investment philosophies and strategies, there are many decisions in life that test our appetite for risk. Indeed, most potential courses of action entail some level of risk. Sometimes we try our best to assess those risks objectively (as objectively as possible, that is, given our seemingly inescapable biases and preconceptions), and sometimes we rationalize them away. It occurred to me that my concern with student debt is fundamentally a concern about our risk assessment.
I’m constantly surprised at the amount of risk millennials are willing to accept when it comes to incurring student debt. Last week I ran into a guy who soon will be graduating with a music degree and six-figure student loans. I recall an elementary ed grad with cover $100,000 of student loans. And the data show many students graduating with student loans in amounts far greater than their anticipated first-year salaries (assuming they can get a job in their fields). It’s no surprise default rates are high. It’s no surprise some people are having their social security payments garnished to pay off their student loans.
Decisions concerning debt necessarily entail judgments about future income, the very revenue stream upon which timely debt repayment is dependent. These days it’s tough: many, many college graduates can’t find full-time jobs that pay well. And for those who do, often there isn’t much job security. Things might improve a lot, but maybe they won’t. That’s risk.
The decisions we make about debt are often some of the most momentous decisions we’ll make in life. They will impact our ability to achieve a greater level of economic freedom in our lives. They will impact our relationships and, in the end, our health and happiness.
Many Westerners, of all generations, have taken on a lot of debt. Many also live high-stress lives and, as a group, we suffer from high incidences of bankruptcies, depression, anxiety, high blood pressure, obesity and failed marital relationships. I’m not suggesting there is a casual relationship; however, I’m also not suggesting there isn’t any relationship. You can judge for yourself.
One thing is indisputable, however: debt entails risk. It entails risks far beyond what many of us appreciate. We serve our young people poorly when we fail to educate them about those risks. Or when we shove promissory notes under their noses and instruct them to sign here (so the funds can flow unimpeded to our colleges and universities).
Sadly, our institutions–both our colleges and our government–seem intent on facilitating the incurrence of debt on the part of our young people. Colleges do so out of a sense of preservation (selfish fear). They rely on student-loan debt to survive and perpetuate the old model. Few who run these institutions care about keeping costs as low as possible and providing a high-quality learning experience that is accessible to all.
But government’s role is even less admirable. Our federal government is the chief purveyor of easy credit. They even call it “financial aid.” They’re afraid to name it for what it really is: debt. Countless kids are mortgaging their futures, and we (the adults who should know better) make it as easy for them as we can. The whole system rationalizes away the risks.
Consequently, we’re conspiring to create one generation after another of indebted serfs. From an individual standpoint, it’s a very risky course of action.
Decisions have consequences. And as a nation, we’ll be living with those consequences for decades to come.