Am I actually advocating for the student loan industry? The industry that systematically shackles our youth to debt? No, I’m not. But I do have a different perspective on HOW the system got to where it is and WHY it’s become such a cluster !*@$.
Last year I decided to found a startup that would overhaul the student loan industry. Literally. I had a disruptive business model planned with investment goals, programs, and services. This was during the recession, and student loan interest rates seemed out of proportion to the ability to earn an income. I thought the going mortgage interest rate was a completely reasonable gauge for the economy, and would be an much better rate to offer students. I hoped to forgive student debt bought by my company by connecting current students to work opportunities that would then pay for a portion of their schooling, pay off debt, or provide opportunities for graduation. I ran numbers and talked to consultants. I really believed I could do it.
Until I ran the final number – the margin. How much money could the company make on X vested amount of money, and would it be enough to support a staff and programming? We were talking a modest staff of six. Enough people to handle PR, the books, outreach, and accounts. Six mouths aren’t that many to feed in comparison to the major work we would accomplish – thwarting a supposedly ‘evil’ industry.
Turns out the industry is ‘evil’ because that is what the margins force. You heard me. After running the final numbers, we came up with this ratio: for a million dollars invested, the first year’s return on a generous 6% housing market equivalent interest rate would be $60,000. Yes, that’s right, we would gross $60,000 ONLY. Are you serious!? That’s NOTHING compared to the investment.
That’s when I realized that, honestly, the student loan industry is one of serious gambling. The quantities of money that need to go in to the system to be anywhere near sustainable are astronomical. Added to the fact that these are non-collateral loans, and I begin to understand how the system got so far out of hand. These are Wall Street companies with billions to gamble. They pass the stakes to the students through rigid interest rates and regulations for return.
None of it is good. It’s hard on the companies, especially hard on the students, and hard on a society that hopes for innovators but instead receives a large percentage of graduates who must immediately enter the existing work force to hedge their burden of debt. We do need change, we do need better regulation, and it would be great if filing for bankruptcy (or even death) eradicated the debt. But hear me speak on this subject now, and my voice will have a slightly softer edge to it (trust me, the edge is still there) because I now understand how we got here. I hope that you do, too.