Student-loan debt sucks. And I don’t mean that as a colloquialism; I literally mean it sucks. More specifically, education debt sucks a ton of investment capital potential out of the American economy. If higher education in the United States were free, it would mean an instant trillion-dollar investment in private enterprise as well as consumer marketplaces. Perhaps more importantly though, it would be a direct investment in the future prosperity of citizens and their families.

I can hear the groaning now from public deficit hawks lurking in the back: 
“The national deficit is already trillions of dollars in debt as it is. You can’t seriously be talking about spending MORE money.” 

Well, let’s get one thing straight: Spending isn’t the issue. HOW and WHAT you spend on is totally the difference between good spending and “BAD” spending. A trillion-dollar investment in free education for the young minds of American who will later start companies without debt, is completely different than, say, spending $6 trillion on a decade-long war in Afghanistan and Iraq. Now, I’m not saying that money spent on defense isn’t necessary (though I happen to disagree with those two conflicts). What I’m saying is: IF you’re going to justify spending six times the cost of free higher-education for your entire country, on military defense/offense, I think we can all agree that educating our nation’s future leaders is worth a fraction of that cost.

What’s really remarkable is how resistant U.S. policy has been to include higher education as a necessity for its citizens. The U.S. has long been a pioneer of access to a standardized public education, hosting a literacy rate of nearly 99% amongst its populace. Why then would access to the so-obviously-necessary degrees of higher education be restricted to either A.) the rich or B.) the middle-class/soon-to-be-working-poor who are willing accrue debt that will take nearly 20 years to repay? It would seem that a nation so concerned with being “number one” would WANT to provide its citizens the advantages necessary to be just that.

Part of the issue is that most people don’t understand the adverse implications of student-loan debt all that well, so it’s difficult to grasp just how much of a disadvantage it is to be an American graduate. The other part is that of American ideology. Values of the self-made, independent man/woman are deeply infused with a sense of moral fiber that demands we owe NOTHING to ANYONE. This timeless American sense of identity then translates to an ironclad philosophy that says: no matter what, you pay your debts. If you think about it, it’s a pretty ingenious way to tap into the psyche of the peoples’ conscience to ensure that you’re gonna get that money—that, and laws passed by President Bush which state the only way to write off student debt is permanent disability or death. Thanks W. 

As a means to start a different conversation, I’ve developed the short list below which makes a case for just how bad student-loan debt is and how its absence would yield a stronger, more competitive America—the kind of America everyone keeps talking about but never seems to find anymore.

1.) Debt Destroys Growth

Just after WWI, France drafted the Treaty of Versailles, which demanded that Germany pay a ridiculous sum of 132 billion Marks in war reparations (roughly the equivalent of some $440 billion today). All the smart economists of the day nearly shit their pants and tried to persuade France to forgive the majority of war debt owed, therefore, shrinking Germany’s payment to that of a more manageable fraction of total GDP. But France was pissed, and instead, ignored good reason and demanded the full amount. As a result of costing Germany more than its annual GDP, inflation ballooned, destroyed German growth, and the resulting economic austerity paved the way for Adolf Hitler. The moral of the story is that not ALL debt collection is created equal, especially if that debt hinders overall growth.

One of the problems with student-loan debt is that too many people have it. As higher-education has become nearly the only doorway to a living wage, earning a degree or two is practically a necessity for survival. The other problem is that the repayment of college debt drains wealth from the majority and funnels it to only a handful of lenders. From an economic perspective, this is a BAD thing. True growth requires that a majority of people have wealth enough to invest in today’s economy—you can’t buy a car, much less start a business, with $50k in student-loan debt. And, by the time the debt gets paid in full, the economy has changed, investment opportunities have moved on, and inflation has destroyed the power of any “savings” you may have stored away. When the majority’s wealth is squeezed for the economic benefit of a few, you’re going to have a growth problem adding up to a value far greater than the original debt itself.

2.) A Not-So-Great Investment (Anymore)

If I gave you 50k and a choice to invest it in either a B.A. or a house, which would you choose? If you chose the degree, you might be dead in the water. The interesting thing about higher-education is that it’s not THAT great of an investment in terms of guaranteed rate of return. What I mean to say is: it’s more likely that you will get a better return on a $50k investment in real-estate than on a college degree. This doesn’t mean to say that a higher-education degree is a worthless investment, it simply means that dollar-for-dollar, you’re more likely to see a better return with that 10% down payment on a mortgage. This is especially true of those students who have 50k or more in student-loan debt, as the interest payments alone could force you to pay nearly the cost of a small house or condo. With the house or condo you’d have a place to live and an asset with the potential to increase its value. With a B.A. you MIGHT get a job that MAYBE pays just above the poverty line, and you probably won’t be able to afford a place to live. Yikes.

It used to be that a college education was a “good investment”, the idea being that the investment almost GUARANTEED a livable wage beyond the loan debt. Back when college tuition payments represented a significantly smaller portion of total annual income, it WAS a good investment. But things have changed. The last 30 years have been cruel to the average wage earner and generous to the pockets of higher learning business models. From the year 2000 onward, college graduates saw a slip of 3.1% in hourly wages, while the average buying power of earned income (adjusted for inflation) has slipped below that of the 1950’s. Meanwhile, since 1978, the cost of college tuition fees in the U.S. have risen 1,120% (yes that’s one-thousand one-hundred twenty)—nearly four times as fast as the consumer price index. Compare this increase to that of medical expenses, which rose 601%, and food, 244%.

In the job market, as desperate workers clamor to find jobs to pay off all that student-loan debt, wages are just low enough to question the value of an investment in higher-education. Real-estate on the other hand, well, everyone needs a place to live and work. In the end, it could be the more solid choice to throw your money at.

3.) The International Disadvantage.

If you’re American, right now you probably wish you were German. The Fatherland has recently declared that all tuition for its citizens will be free. They say there’s a fine line between genius and insanity—I’d say Germany’s move is genius. Making higher education a national financial commitment puts the brilliant young minds of your nation far ahead of the competition. As often as there is speculation about international student performance soaring above that of the American graduate, that isn’t the real issue here. You don’t have to be the smartest person in the room to start a business, but you do need the money to the hire the talent. The true international disadvantage American students face is financial. When German students finish their degrees, they’ll have the kind of financial “clean-slate” and wages that provides the confidence necessary to start a company. In contrast, to the dismay of the average American graduate, the burden of being $30k+ in the red is just heartbreaking enough to convince them to wait 10 years, working for someone else. The danger of debt is not only resources, but time. In the time it takes an American to clear enough debt to be able to start their own business, a German would have at least a 15-year head start.

4.) Brain Drain.

There’s a book out there called “Smart People Should Build Things: How to Restore Our Culture of Achievement, Build a Path for Entrepreneurs, and Create New Jobs in America”, by Andrew Yang. The book basically talks about how the best and the brightest minds coming out of American education are NOT starting their own companies, or joining promising start-ups. One of the reasons the author discovers, is because these students are graduating with such crushing debt (as many brilliants minds often attend prestigious private institutions). Because they require steady income to afford their monthly student-loan payments, they take high-paying jobs in the financial or technology sectors rather than building new, innovative enterprises. This is an important realization because one of the crucial aspects of “creating jobs” has to do with building new companies. Current billionaires and the expansion of timeless corporate entities aren’t the ONLY source of new jobs (though, they would love for you to believe that). Jobs can also come from innovative start-ups spawned by middle-class men and women.

5.) No Domestic Competition.

Remember all those companies American graduates are NOT starting because of student-loan debt? Well, that’s one of the reasons you’re paying more for goods and services to a few monopoly-like companies. When average Americans don’t have wealth enough to invest in new business ventures, inevitably there will be fewer and fewer choices in the consumer marketplace. Fewer challengers in the market means you’ll pay $50 for a t-shirt and $150/month for cable because the few stores and providers who service you don’t have to worry about a new innovative company that doesn’t care AS much about thinner profit margins. If Americans want to see the cost of living slow its skyrocket ascent, new businesses will have to enter the market in order to challenge the established order.

6.) Slave Wage Forever.

Student-loan debt reaches far and wide across the entire economy. Not only does it affect the price we may pay for goods and services (starting new companies to challenge big monopolies), it also affects salaries. With fewer and fewer jobs being created, this means less competition in the job market for things like benefits and salaries. Without enough employers to challenge the status quo—which happens to operate by the motto “pay people as little as possible”—you won’t see your wages increase anytime soon.

Remember Economics 101? When demand increases, prices increase right? Well, all that really means is that because demand is so high, sellers can CHOOSE to charge higher prices because there is no shortage of buyers. This CHOICE of setting a price is driven by demand. In the job market, it works just the opposite because companies are always looking to cut costs and boost bottom lines. So, as the demand for jobs increases, employers can CHOOSE to pay people less and less because there is no shortage of people willing to work. Also, with so few jobs available employers don’t have to worry about trying to incentivize their workers to stay with yearly raises and good pay packages. They know that the majority of workers will take whatever pay they can get—especially if they have debt. The role of student-loan debt as it relates to wages is particularly disturbing. In a consumer market, one can simply choose NOT to buy an expensive television, but when it comes to paying off debt, the choice isn’t so simple: you have to work. Therefore, people have to accept whatever pay they’re offered, especially when jobs are in short supply.

Also published on Medium.