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Do not become a servant to your student loan debt

May 20, 2011

Who is your master?

When the 13 colonies that eventually became the United States were starting out, they needed a lot of cheap labor to help work all the land. Indentured servants provided a solution.

Indentured servants would get their passage to the colonies paid and free room and board once they arrived here in return for four to seven years of hard physical work. They could get additional time for things such as impregnating a woman or breaking the rules.

These individuals willingly traded seven years of their lives in return for the opportunity of a better life. For seven years, they were under the control of someone else. They could not marry without permission from their master, they faced physical punishment, and they could be bought and sold between owners.

This form of indentured servanthood is illegal in the United States today, but I think we have a new form of indentured servanthood in the form of student debt. Approximately 2/3 of students use student loans to pay for college, and the average student debt at graduation is around $23,000.

There are new repayment options where individuals can take up to 25 years to pay off their student loan. That means that the average 22-year-old graduate with a bachelor’s degree will be 47 years old when he or she pays off the loan.

The use of debt to pay for education can be worthwhile as the average college graduate will earn a little more than a $1,000,000 more than someone with a high school diploma, but for some, student debt can become a bondage for them.

Student loan has some characteristics that can make it very dangerous debt. Student loans in general cannot be discharged by bankruptcy. Student loans also have a little easier route to take your tax returns and garnish your wages than other types of debt. If you do not pay off your student loan, the student loan servicers are going to get their money one way or another.

Today, we have a lot more people who cannot pay off their student loan debts than even what we had two years ago. The major economic downturn we are facing has cost jobs, lowered incomes, and made it more difficult for many people to pay off their student loans. There also are many who may want to move or look for another type of work, but their monthly debt payments severely hampers the options available to them.

After 270 days of no payment, student loans go into default. At the end of 2008 there was $39.1 billion worth of student loans in default. By the end of 2009 that number saw a dramatic rise to $50.8 billion, nearly a 30 percent increase. In some schools, more than 40 percent of their borrows are in default within three years of graduating.

When former students go into default, there are many consequences they face besides the ones mentioned. In addition to having wages and tax returns garnished, they also can have social security and disability benefits withheld. More collection costs are incurred while interest on the debt is still accumulating. The individual is ineligible for student aid and his or her credit score is damaged, which can make it more difficult for individuals to borrow in the future for a home or vehicle.

It is easy to borrow money to pay for college. This is the problem. We have way too many 18- to 22-year-old students borrowing massive amounts of money for careers that will make it a struggle to pay the money back. When job losses hit, some individuals who had been in the workplace for 10 or 20 years borrowed their way to go back to school for a possible career that may not pay off down the road.

Education is extremely valuable, but it is an investment. We need to make sure we are making wise investments. One cannot borrow $80,000 to go into a field such as social work, as the salary is not conducive to paying that amount off in a reasonable amount of time. One cannot choose to ignore student loan debt when times get tough. If you are a student or have a child, grandchild, or other relative who is a student, it is important to realize what you are buying and how you are paying for your college education.

As a civilized society, we decided that indentured servanthood and the taking away of personal freedoms was not a good option years ago. Today, many individuals have willingly made themselves servants by their use of student loans to invest in a college education that may not pay off as well as they had hoped.

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