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Easy Money, Student Loans

Student’s don’t really see the dollars. They see tuition vaguely. I remember my first year of school, which I was paying for mostly myself, with the attitude of, ‘these are the books I need, I’ll just put them on the account or whatever’. I remember the vague feeling of a physics textbook costing a lot, but that was just what you did.

At the end of the year I thought I could sell them back to the bookstore but they would only give me five bucks for it. I was so mad. From then on I was like, books are five bucks. I’d share books with friends because now it was my money.

Mr. Money Mustache

There are a number of reasons student loans may have grown over time. Most problems are part-of-the-reason problems, and it’s a good frame to begin the diagnosis. Why the increase?

  • It takes longer to work a hypothetical minimum wage job to pay for college. 14 hours a week in 1970, 35 hours a week in 2012.
  • Tuition costs have risen due to more students, more staff, more admin., more perks.
  • ‘Degree inflation’ has increased the ‘need’ to have a degree.

Though student loan debt passed $1.5T, the detailed picture may be slightly different. One-in-four borrowers owe less than $7,000 and a fair chunk of the highest bills come from graduate degree programs. The underwater-basketweaving story is mostly just that, a story.

However, many student enter a bad contract. Like MMM, they don’t have a clue until it’s too late.

These kinds of situations offer a chance to use friction as a dial. This shows up again and again. Mostly, people use heuristics to make good-enough decisions and as such sometimes an artificial nudge can help.

In the study, What are Student Borrowers Thinking?, the researchers found that the students aren’t thinking very much. Only about one in three students is accurate, plus or minus 10%, of their amounts of student loan debt. Only about half of all students are within five-thousand dollars of their freshman tuition.

The authors write, “There was ample evidence for a lack of knowledge about options for financing college.” Basically kids picked somewhere close by, that had a degree program they wanted, and offered some amount of financial aid.

Another factor was paying for living expenses using loans. Kids these days.

But this isn’t a sign of a weak generation. It’s an opportunity. What’s happened is that students have found some parts too easy and other parts too difficult. It’s too easy to borrow so much and know so little.

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