Dealing with the Student Loan Crisis

Bernie Sanders recently proposed taxing .5% on all stock trades, plus additional taxes on futures, in order to pay off the entire nation’s student loan debt. As I approach this topic, let me start by being transparent about my journey from college until now.

I came out of college with 27k worth of student loans (6.8% interest rate, unsubsidized) in 2012, and have since paid it all off. This process took roughly 5 years.  It was paid aggressively over time as I also struggled to launch my own business. If at anytime I got my hands on a lump sum, I’d throw it at the debt. The only portion of it that was paid aside from my own money was roughly $1800 my wife received from her uncle as a unique gift – which she graciously used to throw at my loans. Going back through my payments to Navient (formerly Sallie-Mae) I’m able to see that for a good year I could only pay the minimum amount (this was when I left a full-time position to start my own company and only made $11,500 that year. The next year I netted $12,500. The third – $30,000). The rest of the time I paid about $50 over with large chunks on top of that where I could.

I’m now at a point in my life where I’m able to invest in stock. Currently my wife and I are using a stock account as a savings account so we can save up our down payment on the house we want to build. This account and my investment activity will be directly affected by the proposed taxes mentioned previously.

So as you can see, I’ve been on both sides of this. I’ve held a great deal of personal debt while making a terrible income, and likewise I’ve been debt free and able to invest in stock for my future. I’m going to start first by giving my arguments against Bernie’s plan from a moral and philosophical perspective. In Section 2, I will then give moral and practical ways to address this problem.

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Section 1

What I Learned About Money

Dave Ramsey is certainly God’s gift to man when it comes to finances. I believe the reason his system is so effective is because it deals with the heart and emotions of people and their debt – not the math. In fact, his advice is to ignore the math because as he puts it, “it’s not a math problem.” He learned this himself after he went into tremendous debt (millions) from his real-estate investments and had to declare bankruptcy. To his credit, he did eventually pay back all he owed and also learned some valuable lessons which he generously teaches on his radio show and through Financial Peace University.



My parents both grew up quite poor (though they probably didn’t know it). Mom’s family was eligible for food stamps, though her dad refused to accept them. Dad’s family was a little better off, but he remembers sneaking out of his bed late at night, mashing up crackers in a bowl, and pretending he was eating soup to stave hunger. Both families worked very hard and had hustles – mom’s farmed and sold chickens to Tyson, while my paternal grandfather drove a train in West Virginia. Neither family really taught them too much about finances, but they definitely were instilled with great work ethics.

Growing up, mom wouldn’t take off from work when she was sick, and didn’t see why others would. In her mind, if we needed money to live, it was more important she push through the pain and make it. Dad never stopped working my entire childhood aside from our usual one vacation a year (Orange Beach during Thanksgiving because the prices were cheap) and to attend all of my brother’s and my school activities. We lived in an 800 square foot house with no central heat and air. At one point my paternal grandmother lived with us for quite some time. We made this work and I honestly had no idea we were lower income until I met my best friend Chris in 1st grade.



You see, when my older brother was old enough to go to school my parents sent him to the local public school and he came back one day saying he wasn’t being challenged. Mom, having a social work degree that could translate into school counseling, then set out to procure better education for my brother and I. She landed a job at a private school that gave free tuition to students of faculty. This job was difficult and she had some terrible days, but she never quit – sacrificing her joy there to make sure her children didn’t have to go to the local school where they wouldn’t be challenged.

Well, my buddy Chris happened to go to this same school, but his family paid the full tuition. He lived in the wealthiest city in my state and I distinctly remember the first time my mom dropped me off to spend the day at Chris’ house. I told my mom that Chris’ house was a mansion as we pulled up (it was roughly 6,000 square feet). She told me not to say things like that to him because it could be rude. Me, being a dumb kid, said it to Chris as soon as my mom left. Chris promptly rebuffed my notion of what a mansion was and pointed across the street at the even larger house, “You see that house? That’s a mansion!”

I remember one time my parents asked to borrow some money from my savings (I had a tiny glass jar I would put coins in that I earned from selling vegetables door to door or from allowance) so they could buy milk. Of course I gave it to them, and of course they paid it back.

My parents self educated over time on finances. It certainly helped that my dad continued to crush it at his job and receive raises. In addition to this, though, he started listening to Dave Ramsey. Dave’s philosophy is drawn from the bible. It really gets at the issue of money – people are often slaves to it. The reason he says to do the debt snowball, no matter interest rate, is because by crushing the smallest debt first it gives you a sense of accomplishment and keeps you going to the next one. He compares this to working out – lots of small goals equal big gains with no burnout. It doesn’t matter that the math doesn’t work – what he is attempting to change is the human heart.



He is against debt period. He tells listeners to never take out loans of any kind – not even student loan debt. Of course Dave is against credit cards, and I honestly disagreed with him on this principle (I wanted the points!) until I realized how much more I was spending using a credit card than I would if I used cash. Credit cards help one buy emotionally – it puts off the sting of forking over your hard-earned cash. I haven’t used them since 2014 and I absolutely agree with Dave on this point now.

My point in bringing Dave up first here, and in this way, is because his teachings (which were distilled from the bible) changed my family legacy. They allowed my parents to thrive, and likewise his principles helped me pay off my student loans and ultimately become debt free. I’m not the only one either – he’s helped over 5 million people last time I checked. I cite him first because if you’re looking for a way to become debt free yourself, I can’t recommend his philosophy enough. Now to the meat of this essay.

Kantianism vs. Utilitarianism

There are several philosophical theories of morality, but two of the main ones are Kantianism (or Deontology) and Utilitarianism. I’ll define the difference in two ways. First, Kantianism believes people can only be treated as ends in themselves, and never a means to an end. In layman’s terms, it is immoral to use someone for some perceived greater purpose. Utilitarianism, in contrast, believes it is moral to treat people as a means so long as the outcome yields a perceived net greater good.

A second way to define it would be that Kantianism professes an action is right or wrong without regard to its consequences, while Utilitarianism argues an action is only right or wrong in reference to its consequences. A typical philosophical example to illustrate the difference between the two would be asking the question whether or not it would be morally permissible to torture an innocent child if it meant the lives of 1000 others would be spared. Kantianism would say no – you can’t use the child as a means to a perceived greater good. Utilitarianism would say yes, that because the action maximizes good it is also moral.



Society is frequently a balance between these two ideologies, but I want to narrow in on a specific aspect of Kantianism to make my argument that it is the correct philosophy, and that is this: As finite beings we are incapable of knowing all of the consequences of our actions. The Utilitarian is incapable of looking far enough into the future to accurately weigh whether his/her actions maximize good or not. Take American foreign policy for example.

For a long time it was believed by manipulating the rulers of foreign powers America could maximize its interests in those regions. We have since then come to understand a principle called Blowback. “Originally, blowback was CIA internal coinage denoting the unintended, harmful consequences—to friendly populations and military forces—when a given weapon is used beyond its purpose as intended by the party supplying it.” (Wikipedia). Blowback is why 9/11 ultimately happened. It is why the American Revolution happened (A King employed utilitarianism for England without regard to the American Colonies which were being used as a means). Our actions have farther reaching consequences than we can imagine because we are finite beings that are incapable of seeing the future. Because of this, Utilitarianism is only good at weighing moral choices after the choice has already been made and hindsight becomes clear on what the consequences of that past choice were.

In college I took a course on crisis management – we studied crisis situations such as Pearl Harbor and the Vietnam War. One of the situations we ran through was the Apollo 1 fire which killed its three crew members. During the investigation of how such a catastrophe could have occurred I remember one man stating, “it was a failure of imagination.” NASA never imagined that situation occurring while the capsule was still on Earth and not fueled. All of its safety parameters were set up with the idea of the capsule being in space – a completely different environment.



I believe Utilitarians have a failure of imagination. They have the personality type that loves progress and pushing forward, but without regard to what they’ll be sacrificing along the way – and how those sacrifices will inevitably set back any perceived progress made. Socialism is notorious for this. What is the first thing Venezuela did when its economy began to tank? It nationalized more private companies. For Christmas the government took over a toy manufacturer without recompense in order to give out toys to children. Take that tiny example and really think about it for a second. The government decided it was worth it to steal the factory and all its assets from a private citizen, in order to achieve a perceived greater good of making kids happy for one Christmas because they received a free toy from their Government.

What are the unintended consequences this Utilitarian decision might reap? A distrust in the government perhaps? Why would anyone ever be industrious again if it means everything they work for can be taken from them without recompense? What happens next Christmas when the toys run out because there isn’t a proper business model to motivate people to keep making them? What do the children learn by receiving a gift by stamping on the rights of their friend’s parents who owned that factory or had jobs there?

In the same way, Bernie Sanders is a Utilitarian with his proposal to tax my savings account in order to pay off someone else’s debt. He believes it is the right thing to do because under that worldview I do not matter. I am simply a means to a greater perceived good. What he fails to understand is that by going down this route he is incubating a massive amount of blowback due to his failure of imagination. What could go wrong in this instance?

First, people will not invest in the stock market. Why invest in the stock market if its just going to be taxed more? History teaches us that a low tax will eventually become a higher tax. It becomes a poor investment choice. What do we do then? We invest offshore in other companies in other markets – effectively dwindling our market and growing our competitor’s markets. Either that or we horde our savings which die a slow death to inflation. He likewise will sow disgust among those whom his policy uses as a means – as nothing more than a piñata that can be hit whenever someone feels like it. How do you think the owners of that toy plant feel toward the Venezuelan government?



Second, we could imagine such an action would fail to inculcate virtue in the beneficiaries of having their student loans paid off by forcing others to do it for them. It is one thing to receive a gift from someone who voluntarily helps you along your journey, and a completely different thing to use the government to force your neighbor to pay a debt you agreed to pay yourself. One is giving, the other is bullying. In the end, the blowback here will be entitlement. The kids will begin to believe they are entitled to that toy every year – even when the factory isn’t producing one anymore. They will have no notion of gratitude, but will merely find other things to demand as ‘rights.’

Let’s contrast all of this with Kantianism. We’ve already established humans are finite and can not predict all the consequences of an action, thus deciding morality based on the consequences is impossible with any honesty. Despite this, though, we certainly know our actions, and know them well. In a lot of ways we are what we do. This is called our Character. Our Character is not just made up of our actions, but also our motives. We can parse good motives from bad motives typically (if we are honest with ourselves), and we also have full control over our actions unlike over the consequences of said actions. Thus, from a practical perspective, Kantianism is a possible way to determine moral choices.

Let me give a concrete example. Take the principle of defending another. You can check both your motivation and action, and thus you have a moral philosophy that is possible to leverage in gauging whether your action is morally right or wrong. Let’s say you are using a firearm to stop an active rape. The choice to shoot the rapist is one you have control over. This choice may be informed by what action the rapist is currently committing, it may be informed by what you know about the law, and a million other factors – ultimately though it is your choice to make. Secondly, you can examine your motive. Is your motive to protect the victim in this instance, to end the rape? Or is your motive to kill the rapist? A lot of moral philosophy will tell you these are vasty different motives that one should examine. A question you can ask yourself is this – “would you be happy if the rapist lived to stand trial for his/her crimes?” If you answer yes, many moral philosophers will say your motive is good in this instance.



Now let me throw a wrench in this situation. You miss the rapist and accidentally hit the victim. This was an unintended consequence. The Utilitarian is going to hold you accountable too, as the consequence of your action did not maximize good. Yet, from a Kantian perspective you are absolved from sin. It was not your intention to kill the victim, and indeed it would normally be ruled as killing and not murder given the situation. There was an unintended consequence to your efforts of saving the afflicted, but morally speaking under a Kantian worldview the consequence isn’t all that matters – the action itself (attempting to defend) and the motive (in order to save life) matters more. In general, this is all a person will be held liable for, and frankly, when we discuss whether to use others as a means we should always stop and check ourselves because we are on extremely shaky moral ground. Who in their right mind would agree Lot did the correct thing by offering up his daughters in an attempt to stop the rape of his guests in the book of Genesis? In that instance he used his own daughters to try and stop another evil. One evil cannot ultimately wipe out another. In the same way, using others to pay a debt we owe ourselves, against their will, will only add to our disgrace.

What Type of Citizens Do We Need?

This is going to be my most contentious assertion, and that makes me sad because it shouldn’t be. Our society needs to inculcate virtue in its people. If we fail to do this, then in the long run we will be supplanted by a more worthy nation. C.S. Lewis wrote in the Abolition of Man, “We make men without chests and expect of them virtue and enterprise. We laugh at honour and are shocked to find traitors in our midst. We castrate and bid the geldings be fruitful.” My generation has been bailed out from the consequences of our actions our entire lives. We’ve turned teachers from authority figures we should be grateful to learn from – into customer service reps. Kids who started fights in school were protected from retribution by zero tolerance policies which deterred admirable students from stepping in to defend.  The juvenile court system pretends a 16 year old is too young to know what murder is. College graduates are frequently living rent free with their parents or they have most if not all of their bills supplemented by said parents. A great deal of my generation has never become self sufficient, and doesn’t care to – even into their late 20s and 30s.  The word ‘Honorable’ isn’t even in our society’s vocabulary right now.

We’ve created a citizenry that feels like everyone owes them, and they owe nothing themselves. An entire generation that believes it has been victims even though they live in the most prosperous time any generation has ever lived before them at any point in history.

It never once crossed my mind that someone else should pay for my student loans. Not a single time. Such a notion would have been shameful to me – an affront to my honor. I made a promise, a vow, and signed a contract with someone. If they gave me a loan now for college, I would pay them back later with interest. They held up their end of the bargain, why on Earth would I give up mine? Why would I try to place my burden upon others who did not receive the benefit of the loan? Unfortunately, hardly anyone I know (aside from Dave Ramsey listeners and people from other cultures than America) thinks this way.  The great question is this – did such people lie when they signed the contract? In the same way a spouse breaks his/her vow and cheats on their partner? Or in the same way an officer might dishonor himself by failing to uphold the law?



This is a cultural issue, not a mathematical issue. The typical rebuttal to what I’ve just wrote will be something like this, “They didn’t lie, they just didn’t know what they were getting into. They didn’t know how hard it would be.” The same could be said of any arrangement ever made – including marriage. The question virtue asks us is, “will you do the right thing, even if it is hard?” This is a character trait I hope to teach my children – to be a man or woman of his/her word. I have lost money on video production jobs because I underbid them. I didn’t foresee that the job would take as much time as I thought it would (captioning a feature film comes to mind as an example) and in the end I went in the hole in order to fulfill the contract. Why? It would have been easy for me to dodge out. I doubt I would have faced a lawsuit. Yet, an honorable man does what he says he will do even if it costs him. This character trait is lost in our current culture and we desperately need to get it back. Unfortunately this is a trait our current President lacks – failing to pay debts he owed on past dealings. Ironically and sadly, a lot of the same people who loathe him for it, share that same trait when it comes to their student loans.

More Money Does Not Solve These Types of Problems

Taking on large amounts of debt without a plan to pay it off is not a math issue as previously cited. It is a heart or wisdom issue which is never actually solved by throwing money at it. Let me give you a practical example. Studies have shown that roughly 70% of lottery winners eventually file for bankruptcy. Many of these occur within the first 3-5 years after winning the lottery. How does a person that wins millions end up going broke so quickly? Typically it is because there was no discipline foundation there to begin with. How many lottery players do you know that write out a business plan of what they will do in the event they win? I only know one.

The truth is, if you give a person who doesn’t approach finances with wisdom a $10 bill or $1,000,000 they are going to find a way to steward it poorly either way. The same habits exist within that lottery winner after they win – nothing has changed about their heart. They are still most likely prone to spend emotionally instead of wisely.

A second example is the War on Poverty. Despite spending close to 15 Trillion in the War on Poverty the poverty rate is still roughly the same as it was during LBJ’s presidency. Take a look at the chart below and notice as spending increases, the Poverty Rate remains steady.


The reason is because money does not solve these types of problems. This is counter-intuitive, but nonetheless true. To bring this back around on-topic, the assertion I am making is that if you forgive student loan debt it is not going to solve the root issue which is the behavior or climate which put that person into that debt to begin with. It will not convince the person to not take out future debt, nor to pay back the debts they do pull out. The policy will fail to change the people themselves, and if anything it will embolden them to continue making poor life-choices. Bottom line, this is a heart issue, not a money issue.

Section 2

Ways to Solve the Problem

There are many ways we can tackle this issue. The first will be to inculcate virtue in our children by instilling a sense of honor in them to uphold their word. This is the root cause of people not wanting to pay back debt they promised to pay back.  We can place blame on our society for failing to give us many high-profile examples of this, but ultimately it is the job of parents to teach their children how to conduct themselves honorably when engaging in business with others. There are many wisdom passages from the bible we can use to instill this virtue in our children such as:

“The wicked borrows but does not pay back,
but the righteous is generous and gives” – Psalm 37:21

“Do not withhold good from those to whom it is due, when it is in your power to do it. Do not say to your neighbor, “Go, and come again, tomorrow I will give it”—when you have it with you.” – Proverbs 3:27-28

“It is better that you should not vow than that you should vow and not pay.” – Ecclesiastes 5:5

“Pay to all what is owed to them: taxes to whom taxes are owed, revenue to whom revenue is owed, respect to whom respect is owed, honor to whom honor is owed.” – Romans 13:7

“A good name is to be chosen rather than great riches, and favor is better than silver or gold.” – Proverbs 22:1

Alternatives to College

A second way is to impress upon our children the options they have other than college such as trades. Trades are honorable. One of my good friends does the exact thing I do but did not go to college. Thus, he was making 50k+ a year during his first years out of highschool while I was taking on debt. College is not necessary for everything – especially for majors that will not yield fruit. Go into college if your career path requires it such as engineering or becoming a surgeon. But if you do not know what you want to do with your life after high school, it would be wise not to take on loans to go into college without a plan. It would be wise to join the workforce, take some internships, and figure out what you enjoy doing. There are plenty of high paying and honorable career paths outside of professions.

If you go into college the point should be to pick a major that will quickly land you a good job which can be used to pay off loans asap.  If your state offers incentives to go to a state school or a trade school, consider those and do not go out of state.

Scholarships

There are 100s of thousands of scholarships available to high school students. I came out of high school with the highest number (not value) of scholarships because I applied to a ton of them. Many just require the student to write an essay, some of them are won via competitions in a trade. Even if they are for $100 or $300 – that still helps cover your books in school. Dave Ramsey will tell students to apply to hundreds of scholarships with the hopes of landing even 1% of them. Use the shotgun method and you can pay for your college this way. Any type of student can do this. It is a work-ethic thing, not necessarily an intelligence thing. Of course there are scholarships for intelligence too. One of my brother’s friends scored a 36 on the ACT and had the pick of any school she wanted to go to for free. I took the ACT 4 times before I scored high enough to receive an extra $1500/year scholarship. Each time I didn’t score high enough I studied hard on the subjects I did poorly in and took it again.

Savings

One of my roommates in college spent a year saving up to pay for college before attending. This is an extremely viable option which will not only yield you a debt-free college experience but you’ll also learn delayed gratification which will reap huge dividends throughout your entire life. Do not feel pressure to enter college immediately upon graduation. If you don’t have the money, you can always take a year or two off, work an honorable trade, and save for college.



Paying off the Loans

If you’ve already been through college and you’re now standing on the other side looking for a way to pay your loans, then the first thing you need to know is that it is absolutely possible.

Here is a fun article on how 16 people paid off their debt. They are not alone. People are all-the-time paying off their student loans and you can find plenty of testimonies on how they did it. Ultimately though, the following is my best advice:

1. Live Like You Are Poor

When I was wading through the turmoil of starting a small business while paying off student debt I lived like I was poor. I purchased nothing new, not even shoes. In fact, I didn’t buy a new pair of shoes until I took my wife on our first date 3 years later (funny enough, she joked about them and thought they were orthopedic. Later when I told her I bought them for our date, and she realized just how poor I was, she felt really bad, haha). I wore the same clothes I owned in high school and college. For lunches I ate tuna. Lots and lots of tuna. Occasionally I’d eat Spaghettios or have the deli carve chicken when I was making a little more money.

I remember reading about how one woman came out of school with immense amounts of debt but also with a high paying job. Her number one piece of advice was to live like you are poor. She spent well over half of what she earned on her loans. A friend of my wife’s said she paid off her debt by paying half her paycheck on her loans and living with her parents for the first couple years out of college.

Forget vacations or any luxuries. I am a filmmaker who didn’t go to the movie theater for almost 3 years because I couldn’t afford it. I didn’t get out and do anything with friends that wasn’t free. The only thing I spent money on was growing my business so it could hopefully make me more money so I could pay my loans off.

Bottom line is, if you are in debt, you are very poor. You owe more money than you own so live like it.

2. Burn your Credit Cards

You’re already in debt, there is no reason to continue down that path. Credit cards are enablers. They allow you to impulse purchase without any negative feeling. It is too easy. In the end, you spend more using a credit card than you would if you purchased everything in cash or even a debit card. Don’t be fooled by the points, that’s just an incentive to spend more. Don’t be fooled by the part of your brain telling you “all you have to do is pay it off before the end of the month.” Even if you do that perfectly (which few do), you are still going to spend more on that card than you would have with cash.

3. Throw Lump Sums at your Debt

Did you receive a tax refund? Awesome! Put the entire thing on your student loans. Every last cent. Do not spend that thing on a vacation or a big TV. Did you receive a cash gift from a family member? Throw it at the debt. Even if it is for your birthday or Christmas. Do not tell yourself, “I deserve this.”

4. Stop Giving

I am a Christian who believes in giving, but you can not give out of your debt. If you give your money to charity when you already owe someone 10s of thousands of dollars you are destroying your integrity. You are giving someone else’s money. What my wife and I did when we finally got out of debt was to celebrate by sponsoring two children in a foreign nation – paying for their medical and education bills monthly. It was a liberating experience to finally be able to give righteously – out of our own money and not out of our debt.

5. Tithe

If you are a Christian, tithe no matter what. Give the first 10% to your church because biblically speaking it is God’s. By doing so you will be blessing the 90% you have. 90% blessed goes further than 100% cursed, that’s for sure. Tithing has been the number one thing my wife and I can give credit to for our financial liberty – obeying God in giving to Him what He has asked.



6. Be Transparent

Open up to a financial advisor, or someone you know who handles money well, and share your budget with them. They can help you pinpoint expenses you can cut, or areas you can alter your spending. This is worthless, however, if you do not take the advice, so come at it with humility and accept the wisdom.

7. Go Through Financial Peace University

Attend Dave Ramsey’s course called Financial Peace University near you. Many organizations around the country host these courses. If you are married, attend with your spouse so you can get on the same page about finances. The teacher in this course can be that financial advisor you open up to and they will help you in your journey to become debt free.

8. Start Now

Get intense about this. Stop your video game subscriptions. Start cooking your own meals. Get rid of cable. Cancel that vacation and throw that money at your debt. Start today and crush it. Don’t blame others. You can do this. You have all the tools at your disposal if you’ll reach out and leverage them. Delayed gratification will aid you for the rest of your life if you’re willing to do it now. As Dave says, “Live like no one else today, so you can live (and give) like no one else later.”

Photo by Rochelle Nicole on Unsplash

Written by James Thayer