Many institutions in the United States have becoming increasing predatory over the past few decades, among the most notably being: student loan providers, mortgage loan providers, credit card companies and the health care industry. While some of this debt is accrued through misfortune or bad decisions, a good chunk can be accredited to the debt holder having been misguided or misinformed. Many of these industries prey on a person’s sense of self worth and convince them that they are buying a ticket to the American Dream. In reality, they are more likely buying a ticket into indentured servitude.
Student Loan Debt
Perhaps the best example is the growing cost of higher education in the United States. The growing cost is a cyclical problem, where the government is willing to loan students vast amounts of money to meet rising costs, while higher education institutions set their prices based on the amount of funds a student has access to. In a free market, it is normal to charge customers what they are willing and capable of paying, not what you think a product is actually worth. And after a policy change during the Obama administration, the government now directly profits from the interest that you pay on your loans, and student loans have become the only type of debt that a person cannot erase through bankruptcy.
For profit online universities have popped up to take advantage of students/debtors who have easy access to large loans from the government. While many of these degrees are worth no more than the paper that they are printed on, the tens of thousands of dollars of debt that the students accrue is quite real.
The setting of this debt trap normally first occurs as soon as a person enters the primary education system. Teachers tell students that college is the only path to success, and create a stigma against learning a trade, framing it as being a “lesser” type of career. Thus teenagers, who are just doing what everyone around them is telling them is best, may place themselves in crippling debt before they are even old enough to legally drink. Those who have not yet decided on a career path are not investing in their future, but gambling with it.
High schools also get ranked depending on how many of their graduating students are college bound. Thus a guidance counselor may be biased towards sending a student to college. However, they might not even recommend that the student applies to top tier private universities (where the financial aid available may be higher), but instead only to four year state institutions where they think the student will most likely be accepted, and thus boost the school’s tally of college bound graduates.
Spending two years at a community college might actually be the best choice for a person financially, especially if they are unsure about what they want to study. Spending $50,000/year at a four year college without a plan is not a good idea. At a community college, a person can dabble in different subjects at a much more affordable rate. The quality of education may by no means be worse than at a four year college. And after two years of completing the prerequisite basic courses for a particular major, a person can transfer to a four year institution with a “bigger name” to finish up their degree. Such a person can get the same bachelor degree title at nearly half the price as a person who directly enrolled at the four year institution from the start.
During past generations, getting a higher education was the ticket to a better life. Often just having a bachelors degree guaranteed you access to a middle class job. However, during this time the job market was different and the price of an education was only a fraction of what it is now. Back then many people could even work their way through college and graduate completely debt free.
Parents normally have the best intentions in mind when pushing their children to attend a university. However, often these decisions are being based on an outdated set of circumstances. Education will continue to always be a path to better opportunities, however, how one goes about getting an education may need to change.
If you come from a wealthy family who can cover your complete tuition cost, then spending four years getting a random degree may not cost you anything but time. However, if you are going to be going into personal debt, or putting family members who co-signed loans in debt, then you must look carefully at the cost/benefit analysis of investing in higher education. Outside of a STEM degree or medicine, degrees that do not increase your employment opportunities are just not worth getting in the modern economy. It may be more cost effective to volunteer to gain experience in a desired field rather than going into debt and gaining no directly applicable skills. I have nothing against the liberal arts; I just prefer learning them the same way as our founding fathers did, through reading books.
Investing in yourself is always a good choice, but make sure you do so intelligently. You can read here about how I actually got paid to study my engineering masters degree in English at a university in Germany that had no tuition fees.
Mortgage Debt
For the longest time, real estate was always seen as the safest investment and housing prices could never go down, then the 2008 housing bubble burst. This was terrible for most Americans, since the majority of their wealth was kept in the price of their homes.
Most people don’t realize that when they buy and owe money on a property which is not generating them income, it is not an asset but a liability. Your mortgage is an asset to your bank, who can resell the house from scratch even if you default on your payments. Ideally the bank desires to make the highest profit as possible from you via the interest that you pay, and will try to draw out your payments by presenting you with refinancing options as you near obtaining ownership.
This first video explains the variables which determine if you should rent or buy, such as mortgage length, how you invest the money you save, and the probability of having to move and resell the property.
This second video explains buying a property in terms of increasing one’s personal cash flow. And how with low interest rates, it can be advantageous to buy a property to rent out to others which both covers your own rent while earning you extra income on the side. This transforms your purchase into an asset instead of a liability.
Consumer Debt
Many people take on credit card debt due to no fault of their own other than being unable to make ends meet, even while living moderately and working multiple jobs. However, other people are enticed into going into debt by our consumer driven economy. Banks providing subprime loans for housing and the easy access to credit cards, allow for anyone to live way outside their means.
Consumer debt that is placed on credit cards or owed through a payday loans have incredible fees and interest rates. Such types of debt should be avoided at all cost. One should ask themselves: Is it worth trading my financial freedom for unnecessary luxuries?
Medical Debt
I can unfortunately not give any good recommendations for avoiding medical debt other than counting your lucky stars and avoiding risky activities. Having lived in countries with universal healthcare systems, I have personally seen how well they can work and how badly the average American is being screwed. Healthcare is basically unaffordable in the USA if you do not buy it through an employer, and deductibles are so large that you may not even get any money back when utilizing it. To solve this problem, you will need to use your right to vote as a citizen and elect representatives which actually have your best interests at heart.
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