Financial Illiteracy, Or, The Ridiculousness of Student Loan Debt

The following is an excerpt from a forthcoming book by YMN Co-Founder, Matthew Branch. The Dark Side of the Diploma explores the disillusionment of American youth who pursue a college degree with high expectations and big dreams, only to leave with the lingering question: “What now?”  To follow the project’s progress, go to his personal website.

I never suspected that I would be poorer coming out of college than I was going in. Like most of my peers, I had a very basic understanding about how financing college worked. Scholarships are better than loans. Grants are sort of like scholarships but also not. Borrowing money from the government was like signing up for a gold alloy encrusted platinum Visa card with interest rates I didn’t understand and repayment plans I didn’t care about. I knew college was expensive and borrowing money was dangerous, but at seventeen-years-old my financial literacy was more or less non-existent. I still can’t tell you the difference between a subsidized and unsubsidized loan, even though I have borrowed plenty of each.

When I graduated high school in 2003, I had more cash on hand than I had ever had before. I probably had more than I have ever had since. Personally, I didn’t think graduating high school was all that big of a deal, or terribly difficult. It was something everyone did. My parents never allowed the idea of not graduating high school to creep into my mind. High school was mandatory in their eyes. College was also mandatory.

With the help of a respectable GPA, I managed to rake in a small handful of local scholarships, and my giant family was kind enough to reward me with a pile of graduation cards stuffed with little green dead presidents. Family members I rarely saw in person showered me with money.

High school graduation became the symbolic end of my childhood and the beginning of true financial independence. My grandmother gave me one thousand dollars for graduation. One thousand dollars! I was seventeen. That was a serious amount of money for me. I felt like I was invincible in the moment, but soon realized it was only enough to buy a basic computer for my dorm room and one textbook. I hoped it would have stretched a little farther, but what are you going to do. In 2003, owning my own brand new computer was a pretty big deal. I still didn’t have a cell phone at that point, so a computer was a true luxury.

Because I was the third kid in my family to go to college – and my parents made very little – my application for student aid reported that my expected family contribution was zero dollars. Essentially, the cost of my siblings’ and my college education was about triple what my parents actually made. The government considerately concluded that this meant they shouldn’t be expected to pay for it all on their lonesome. Between federal, need-based aid, work-study, and my growing bankroll of graduation cards, I knew I could make it through my first year of college without any loans. Since I was very aware of how little I actually knew about student loans, I figured I would just avoid them at all costs, if possible.

As I trudged through my four years at university, I quickly started to notice my fiscal scales tipping in the wrong direction. Though my family’s financial situation hadn’t changed at all, my scholarships and grants were drying up. Those were the good types of money, remember.

In 2007, the year I thought I graduated college, around 65% of my peers had also resorted to taking out student loans. The average student who did take out loans, took out a little over $20,000. To me this seemed like an unrealistic amount of money to ever have on hand or expect to make any time soon after graduation. The thought of trying to pay off tens of thousands of dollars in loans was mind boggling – impossible to do while working a minimum wage job. And even a minimum wage job was difficult to land in a college town on the edge of the great recession.

I was better off than the average graduate. I managed to escape college with only $9,000 in student loan debt. Of course my stubborn refusal to borrow money from the government earned me an additional $3,000 in credit card debt. I have no idea why, but credit card debt seemed slightly less evil to me at the time. After all, my bank had a branch right around the corner. I could go talk to someone face to face about my debt and repayment plans. I had no idea where my federal aid came from or where my payments went. Since borrowing my first student loan, I haven’t spoken to a single human being about it.

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