Debt Culture Never Really Went Away

One consequence of the credit crunch was a reduction in available credit, and a tendency among pundits and the like to claim that the days of free and easy credit were over. That’s definitely true, to some extent, but in another sense, it’s not. Debt culture is very much alive and well and it seems like a number of lenders have not learned from their mistakes. Exploitative lending still flourishes, after a brief period of suppression. It’s almost like people think that making the same mistakes twice won’t result in exactly the same outcome.

I’ve really been struck by this recently when examining the crisis in college funding. College students are finding it harder and harder to afford college, with rising tuition/fees and grants not really keeping pace with college costs. Student loans are available, but they usually aren’t sufficient, and some students find loans out of reach, or are intimidated by the sheer volume of debt involved. I had to borrow a comparatively small amount to go to college, despite attending expensive schools, because I went in an era when there were more grants. If I was enrolling in college this year, being faced with the kind of financial aid packages being offered, I’m not sure I could afford to take on that level of debt.

Student loans aren’t the only debt taken on by students. At least student loans are, at least in theory, an investment. They come with very low interest and generous repayment terms. In an ideal world, the amount will start to seem pretty negligible as students work on paying it off. It’s hard at first to make payments right out of college with poor job opportunities, but over time, the seemingly insurmountable sum of the monthly payment starts to seem more reasonable. Of course, we don’t live in an ideal world. A lot of college graduates can’t get jobs at all, not even poor ones, and a lot of students are forced to take on so much debt that the payments really are impossible. And you can’t escape student loans. They will persist through bankruptcy and pretty much everything else, except in very rare circumstances.

Many students also find themselves deep in credit card debt. There are a number of reasons for this. Some students take on credit cards because it’s the only way to afford college. They can’t pay for books and other supplies without buying on credit. They also can’t repay their cards because they’re in school and struggling to make it as it is, so the debt mounts, and mounts, and they pay huge service charges. Other students enter college, are presented with a smörgåsbord of credit cards, and take up the offers right and left, treating them like free money.

It’s easy to get trapped that way if you have never managed your own finances or interacted with people who have. The money is abstract and has no meaning because you swipe a card and get things. Want, take, have, as it were. Then the bill comes due and everything changes, suddenly that money is very real, but it’s too late. The bills mount over the months, you keep buying ‘just little things’ and you end up very, very deep in debt to creditors who charge extremely high interest and get extremely aggressive, because they want your money.

Allegedly, one of the reforms proposed for the financial system was a crackdown on predatory lending practices. I’ve written about abusive and predatory lending before, but I didn’t spend a lot of time in that piece talking about college students. Credit card companies prey on college students, and I am really not exaggerating; when you have multiple tables for credit card applications right at orientation, it’s a big problem. Some students avoid them, others are familiar with credit cards and finances and can handle it, others have only ever thought about money in the abstract and they end up in deep trouble, cheered along by a smiling representative who says ‘sign here, you don’t really need to read that closely.’

Some colleges offer orientation workshops and classes to incoming students, covering financial issues. I attended a few when I started college and what I was struck by was the fact that people least likely to need those classes were the most likely to be in them. Most of my fellow students in those classes had had their own bank accounts for a long time, had established credit histories, had worked through high school, were very familiar with handling finances, with debt, and with using money wisely.

Meanwhile, I ran into students outside of class who had never had bank accounts before and whipped out an array of credit cards at every opportunity. I’m not interested in concerntrolling or lecturing people on how to live, so I rarely said anything, but I often wondered about the consequences of profligate spending and where these students would find themselves after graduation, with hundreds of dollars due on credit cards every month before the student loan payments even came due. It’s hard to dig yourself out of that hole, once you’re in it. You can work, endlessly, and pay down the cards, but meanwhile, you don’t have enough money to live on, so you keep using the cards. It’s hard to understand, before you fall in it, how deep that hole is.

A lot of people simplistically talk about austerity and how people ‘just have to spend less’ but it’s not always that simple. It’s not always possible to cut your spending down. If you’re already living on the bare minimum, perhaps already receiving government assistance, where exactly are you supposed to cut? How are you supposed to get ahead when even a tiny unexpected expense throws everything off? You have to repair the car because you can’t get to work otherwise, you have to go to the doctor’s for pneumonia, you have to take time off for whatever reason, and you’re trapped in an endless cycle that’s impossible to escape.

I worry about our college students who have been victimised by predatory lending and their ability to survive after college in this grim economy, I really do.