Saturday, January 8, 2011

Misguidance Counsellors Part 3: Student Loans

I'm going to start my discussion on the pros and cons of university by looking at student loans.

The Canadian Federation of Students, not surprisingly, keeps track of the numbers on this. Average student debt at graduation in 2010 from a four-year degree ranges from about $13,000 in Quebec to over $28,000 in the Maritimes. These numbers represent significant increases from thirty years ago; in 1982 the average graduate from a bachelor's program in Canada emerged with $8025 (for males) or $7595 (for females) in student debt. (Figures originally given in 1990 dollars here; adjusted to 2010 dollars using the Bank of Canada Inflation Calculator here.)

Okay, I promise I'm not going to keep hammering you with numbers--not unless it's absolutely necessary. I just wanted to make sure you knew I'm not pulling this stuff out of my small intestine. Let's talk about what these numbers mean.

First off, you could argue that $13,000 or even $28,000 isn't really that much money, especially when compared to the statistics on lifelong earning potential of university graduates. I'll agree that on average, over your lifetime, you make enough extra money thanks to a university degree to pay off your loans and then some. This is the kind of dry, bean-counting logic used by the people in charge of justifying cutting support to higher education.

But numbers don't always tell the whole story.

First off, beware of the average. There's a big spread in there. Some people, thanks to scholarships, rich or indulgent parents (or at least parents with foresight and a sense of basic responsibility to their offspring) graduate with no debt. Such was my happy case; when I graduated from my bachelor's degree in 1994, I had zero debt. I was free to spend the next several years living in cheerful bohemian poverty, writing screenplays and drawing comix and other economically-worthless pursuits. My roommate came out over twenty grand in the hole and spent the next five years staggering under the payments before finally defaulting and becoming a credit harijan for another seven. Averages hide the fact that while some people emerge unscathed, others--many others--are completely crushed.

Secondly, just because they call it student loans doesn't mean it's the only debt a student incurs. More and more students have to resort to running up big credit card debts during their four- or five-year run in school. It's well known that credit card companies pounce on freshmen with all manner of offers. The results are predictable. I know one person who has the statistically-typical $28,000 in student loans, plus another $20,000 in credit card debts.

Now, some will object that if students max out their credit cards, that's hardly the system's fault. I have now spent a goodly chunk of my life biting my tongue as I listen to grayhairs behind me in the line or sitting at the next table, bemoaning how irresponsible "kids these days" are. If you get involved in one of these conversations, you'll likely learn that young people today are so overindulged and impatient to get everything now, they'll max out their credit cards buying designer clothes, iPods and two-hundred-dollar sneakers. No wonder they come out of school bleeding red ink.

Let's leave aside some of the obvious responses to this--for instance, that if our kids are irresponsible with money, well, they had to have picked it up somewhere. Responsibility only goes in one direction here, from the old to the young. Parents have to take some ownership of their kids' behaviour. Kids aren't responsible for anything their parents did.

But the galling thing about this kind of attitude is the assumption that these kids blew all that money on toys. It's an attitude that's hard to maintain when you look at how expensive basic necessities have gotten in the past thirty years. The housing bubble has gotten all the press in the past few years but they don't talk so much about what's happened to rental housing. Of course the two are related; part of what holds rents down is the fact that if they go too high, it becomes more cost-effective to buy a place. But let the cost of ownership go up the way it has, and suddenly the cap is off the market rate for apartments too.

Okay, I promised I wouldn't hammer you with numbers. I also lied, kind of. When I began graduate school in 2001, I faced what was probably the most ideal situation you could have as a student. I was going to school in Quebec, which meant that about half my roughly $9000 a year in student aid came in the form of grants, not loans. Tuition was only $2600 per year--as far as I know, the cheapest tuition in Canada. (Compare that to undergraduate tuition in some regions, which can top $5000 a year.) Thanks to Quebec's insanely strong tenant-protection laws, my rent on an apartment walking distance to school (so I didn't even need a bus pass) was about $300 a month. I had $4000 in savings, a part-time and summer job that paid about 11 bucks an hour--that is, substantially above minimum wage. It was a two-year program so there was less time to go racking up debt.

And with all that on my side, I still came out of it with $8000 in student debt. I reiterate, I was not living high on the hog here. There were no major discretionary purchases--no iPods, no trips, no spring breaks at Fort Lauderdale. That $300 apartment was cheap for a reason: it was a decrepit shithole where, for one two-month period, there was no water whatsoever. So you could go over my budget in much more detail, looking for ways I could have saved money, but I guarantee you will find nothing. I was living about as frugally and responsibly as an adult can be expected to. And still I came out with debt.

I'm not complaining; it turned out to be very manageable, because I was fortunate enough to also graduate with a master's degree in city planning at the beginning of an unprecedented housing- and development-boom, where planning grads were walking into jobs right after graduation. In other words, it worked out the way it is supposed to... in my case.

But still... eight thousand bucks. What happens to a kid who's spending $500 a month on rent for four years and paying five grand a year in tuition? And what happens when that kid happens to graduate with a history degree at the beginning of an recession instead of a boom?