Once upon a time in a land far away, there were sheep. They lived in an expansive piece of land and roamed freely, without too much worry. Among the sheep lived other animals – big and small – but the wolves stood out the most. These wolves moved comfortably among the sheep; there was a close relationship between predator and prey – almost as if the wolves were vegetarians.
The strange bed-fellows
The sheep were easy-going and optimistic about the future. “Baa…the wolves are our friends,” they chanted. “As long as we have them, we don’t have to worry about attacks from other animals….they eat those animals, but never us.” The wolves had similar sentiments, but did not depend on the sheep for protection. They claimed to not eat sheep, but every once in a while they “slipped”. Unfortunately, the sheep failed to notice that their population never grew, even though they had new lambs each year. They also failed to correlate the growth of the wolf pack to the occasional reduction in their numbers.
The wolves knew a few things that the sheep did not. First, the sheep’s fears about attacks from other creatures were highly exaggerated; wolves were their greatest predator for many miles. Second, the sheep did not need wolves to help ensure their food supply – grass grew everywhere on its own – however, the sheep were food for the wolves. As long as only a small number of sheep went “missing”, the sheep could not tell the wolves were predators. Although the wolves wanted their food supply to last, their appetites steadily increased…their day of reckoning was inevitable.
The Sheep
The sheep of the 21st century are the college-bound, and college educated people of America. They are convinced that they need student loans to make something of themselves. They do not see what the true economic value of a college education is, so they pay too much for it. Further, they do not realize that today’s cost of living is much higher than that of previous decades, even before you factor in the iPhone, iPod, iPad and other technology devices that they “need”. As a result, they seek out the most prestigious schools even though most of their parents are not rich. These schools of course charge as much as the students are able to pay and/or borrow – an amount without a cap.
“….In 1974, typical earnings for a young-adult male with a bachelor’s degree or higher were $51,223 (in 2004 dollars). In 2004, young male college grads earned $50,700.”
According to this depressing book.
The sheep do not realize that the wolves are feeding on them. They don’t know that no matter the intentions of the wolves, the wolves will feed on them by design. Wolves are predators, and by definition they need prey; for their survival, they need food in certain quantities on a regular basis. If the prey is not able to determine this natural structure, they will be better fed!
I have recently read various articles indicating that the human brain continues to develop past age eighteen, which is the age at which people can enter into legal contracts (including borrowing agreements). I even read of a brain expert who estimated that a person really isn’t an “adult” until age 21 or 22, because “white matter” in the brain is substantially underdeveloped. Contrary to popular belief, children cannot consistently demonstrate the ability “to think clearly about long-term outcomes” until age 25. To the extent that this is true, there certainly is something predatory about allowing those children to pick a university and borrow incredible amounts of money on their own.
“The brain of an 18-year-old college freshman is still far from resembling the brain of someone in their mid-twenties…When do we reach adulthood? It might be much later than we traditionally think.”
The Wolves
Predatory Lending is a major cause of the Occupy movement which started in 
late 2011 (see here and here). In addition, there are various ongoing movements such as All Education Matters and Forgive Student Loan Debt, which continuously highlight the negative experiences of some borrowers. As I read the articles and comments presented by many of these folks, I began to think that perhaps predatory lending is real to a certain extent.
From a borrower’s perspective, all lenders could be deemed predators because by design, they feed on the sheep. There is no doubt in my mind that the lending industry knows most teens cannot make the best borrowing decisions (I could be wrong).
On the other hand, everything is done in the open, and the lending agreements generally indicate that:
- when a loan is repaid, it is repaid with interest;
- when a loan is deferred, interest continues to accrue;
- when a loan is in default, additional fees are charged or accrued;
- fees, interest, and charges are added to the principal balance and more interest is added on based on that amount.
Further, the U. S. Legal Code clearly states that student loans cannot be discharged through bankruptcy (in 99.99% of cases). To the extent that the sheep ignore available information in their naïve optimism, they will be eaten – maybe not all of them, maybe not all at once.
If you are a teenage borrower or know someone who is, you must take this analogy seriously to the extent that it applies. Since so many young people cannot make these decisions well, and their parents are largely unfamiliar with student loans, it is wise to seek the counsel of a CPA or other finance professional that is familiar with College Financial Planning and Career Planning. (not all advisors work in this area)
Sheep do not want to be eaten, and wolves do not choose to be predators, but nature is designed such that wolves will get hungry, and the nearby sheep will be their pick.
Do you think lenders are predators? Do you think you are different from the sheep in the story? What is your experience with student loans?
{ 3 comments… read them below or add one }
Albert….what other choice do the ‘sheep’ have? For example, if you are going to law school, it would behoove you to take out loans and go to a Harvard or stanford because you will get a return on your investment. Same with an MBA. I’m sure the data is out there: the salary difference between those who go to top business and law schools compared to those who go to second tier schools. If you are going into medicine or education, it may not matter. It depends on what you want to accomplish in life. Its that simple. If you want to be a social worker, it matters not where you go, but if you want to be a top earning attorney, take out those loans. Of course there are aberrations.
Thanks for taking this conversation one step further Jaja. In short, the ‘sheep’ DO have other choices than what is immediately apparent. The key thing here is to note that the options are not immediately apparent, and perhaps they require some effort or ingenuity – but they exist nonetheless. The MBA has been heavily devalued since the recession (and I expect it will continue to be so). Big Law has lost many of the jobs that can justify six-figure-plus law degrees – one firm in NY actually went out of business! Without going too far into this, I would say that a small percentage of people will do well financially [upon graduation] in spite of their student loans; most people will have to wait 5-10 years to earn a surplus above their debt payments, and a few will never quite “make it”. The third group are the stray sheep; they are the casualties, and as that number keeps growing, the wolves will have a more difficult time hiding their predatory behavior.
The article does mention that the sheep reside in lands full of grass everywhere and that the wolves are their number one predator for miles… therefore the sheep could have moved onto lands further away where they would have their grass and no wolves. That would force the wolves to seek other prey or perhaps, if the wolves moved with the sheep due to the guaranteed food they provide, that would trigger a warning to the sheep that they are indeed being eaten by the wolves.
I like the analogy used here, I definitely know for a fact that the banks have used their lobbying resources to ensure that student loan debt is unlike any other debt in this country! People need to keep this in mind as they acquire this debt.
{ 2 trackbacks }