The Jared Dillian Letter

Escape the Trillion-Dollar College Booby Trap

College has become a problem.

In the US, a third of adults under age 30 have outstanding student debt. And the country’s total student debt load has surpassed $1.6 trillion, more than doubling in the past decade.

I often say that you want to spend the first half of your life accumulating wealth. But that’s next to impossible when you’re weighed down by debt.

This is a fixable problem, and we’ll get to that part in a moment. But first…

Confused Academics

Some of you know that my wife is an archeology professor.

She’s also a bit of an anomaly in academia. Despite having a PhD, she has no student debt, mostly because she worked her way through graduate school. For her entire PhD education, she only owed about $10,000, which was pretty manageable.

But a lot of her professor friends have five- or six-figure student debt. And they’re just sort of limping along, making the minimum payments.

At some point, I started to hear rumors that they weren’t paying off their student loans because they expected the debt to be forgiven. This was four or five years ago, before Bernie Sanders and Elizabeth Warren were getting mainstream airplay about student loan forgiveness.

And I thought: There’s no way anyone is forgiving these loans.

Turns out, I was totally wrong.

The federal government has something called the Public Service Loan Forgiveness (PSLF) program. The idea is, if you spend a lot of money on your education, then work in the public sector, you’re doing something altruistic. So, as a “thank you,” the government will forgive a big chunk of your student debt.

Now, the state owns 5% of the school where my wife works—the rest is privately owned. But because of that 5% stake, it’s considered a public institution. So, the professors who work there are eligible for PSLF. And, for the most part, her professor friends are holding out for loan forgiveness through the program.

The thing is, the PSLF program has lot of fine print—and 99% of debt forgiveness applications are denied.

In the meantime, these people aren’t paying off their debts, they’re getting older, and their peak earning years are slipping by.

If this sounds familiar, you need to start hacking away at your student debt now. (And if that sends your heartrate up, I encourage you to grab a copy of my no-BS debt guide, Mastering Your Debt.)

How to Clean Up a Giant Mess

The student loan situation is a giant mess. But it’s an easy mess to clean up.

One, we need to re-privatize student loans, which were effectively nationalized in 2010.

Two, lenders need to perform credit checks on students and their parents, which doesn’t happen right now. Credit checks are non-negotiable for any other type of loan. It makes no sense to skip them for an $80,000-plus ticket to College Town, USA.

Now, some people will say: “Oh, but that would stop people from going to college.”

Yes—that is the point. Some people can’t afford to go to college. It’s not for everyone, and that’s okay.

And three, allow people to discharge their student loans in bankruptcy, which they can’t do right now. Student debt simply follows you around forever.

That isn’t fair to the borrower. And it screws up the system in another critical way—when the lender doesn’t get its money back, it’s supposed to hurt. That pain forces lenders to be more disciplined about their lending practices.

At the moment, though, there’s zero discipline—the government lends out free money, it doesn’t perform credit checks, and the consequences are murky when people default. Hence the $1.6 trillion problem.

“But How Am I Supposed to Pay for College?”

The easiest way to save money on a bachelor’s degree is to spend two years at a community college, which is ridiculously cheap. Then you transfer to a four-year college. And that’s the name that gets stamped on your degree.

Yes, you’ll miss some of “the college experience.” But the college experience is basically dead anyway.

And it more or less cuts your bill in half. You win the college game.

Jared Dillian
Jared Dillian