Do you remember where you were when you applied for your college loans? I do. I’d already arrived in Vermont for my first semester of an MFA program, but when the time came to sign my forms I felt overwhelmed by anxiety. I knew that a Master of Fine Arts – in fiction writing of all things – was for people with money to burn. It wasn’t the sort of degree that you pursued on credit, especially if you’d just finished paying your undergrad loans and didn’t have a co-signer.
Doctors, lawyers, and engineers take out huge sums for grad school. Not would-be novelists. And yet… I signed. Believing (as I still do) that it was the best path for me to chase my dreams.
“Where did they think you’d get the money to pay them back?” asks Thad Beversdorf, over the phone. Thad is a finance professor at Marquette University and the founder/CEO of SpendIndie.com. “That’s the thing: They knew you wouldn’t be able to. Any economist will tell you that.”
He’s not saying that the government doesn’t want us all to pay back our loans. The companies who service our debt will chase us to the literal ends of the earth to make sure that we do. But Beversdorf has made it his mission to help people understand that the financial transaction between the federal government as lender and we-the-broke-borrowers is a bit more complicated than it initially seems.
MISUNDERSTANDING THE POINT OF COLLEGE LOANS
“Every dollar printed by the Fed comes with a cash component and a debt component,” Beversdorf explains. “It’s the way our system is structured.”
Throughout the college loan boom – from roughly 1995 to present – corporations have often seen consumer spending falter, especially in key segments (like brick and mortar apparel). Wages have failed to keep pace with costs like healthcare, housing, and education, and people have less disposable cash on hand. Though GDP has steadily risen, money has been vacuumed out of the system by the 1% via stock dividends and buybacks. As a result, the economy is left competing with the stock market for a finite amount of capital.
So what happens when there’s less cash in circulation? The same thing that happens when you and 98 friends only have one pizza to split because one dude is hoarding twenty pizzas to himself — every bit becomes more precious and people are less likely to part with their share. When consumers are hesitant to spend, it has the potential to affect retail tremendously. Meanwhile, the cost of college has outpaced the growth of financial aid. These two seemingly disparate elements (lack of consumer spending and the student need to pay for college) fit together neatly — with the help of a financial instrument that’s grown both popular and necessary in recent decades: School loans.