Here’s your random thought for the day. What happens when someone stops making his student loan payments? More to the point, how does it differ from when he fails to make his mortgage or car payments?
When things get tight around the Hudson household due to unforeseen hardship, the first bills on the chopping block are our student loans. It’s not that we don’t want to pay them. We do. But when it comes down to it, we can endure the consequences of falling behind on student loans better than the consequences of falling behind on the mortgage or a car payment.
The reason should be obvious. If I get too far behind on my car payment, somebody comes and takes my car. If I get too far behind on my mortgage, the bank forecloses on my house. The house and the car are assets that retain intrinsic value. My degree is not.
Indeed, were it possible, I would gladly yield the degrees held by my wife and I to foreclosure or repossession if such a process existed. Neither one of us has earned a single penny attributable to our post-secondary education. They thus retain no value for us. Take our degrees and resell them to someone else. We won’t mind.
There’s a lesson there applicable to public policy. If student loans were not subsidized, lenders would be much more conservative concerning which applications they approved. Since you can’t repossess a degree, the standard for lending money to a student would have to be much higher than it currently is. The field of study, and the quality of the student, would have to suggest a high probability of repayment. Otherwise, it wouldn’t be worth the risk.
Under such circumstances, we would see a dramatic shift in the operations and offerings at colleges and universities. They would have to provide courses and majors with economic value. Gone would be the days of women’s studies or puppetry majors. No one would pay for them. Consequently, fewer people would end up with tens of thousands of dollars in debt that hasn’t produced a single penny in return.