Q: When it comes to student loans–especially the egregious terms common in private as opposed to public loans–you regret that“unsuspecting young people are at serious risk of being made into lifetime indentured servants.” What is the best way to eliminate or reduce this entire category of victim–the “unsuspecting young person”? Is there a way to educate this population to a point where it can reasonably stay ahead of the traps being set for it?
A: A crucial point is that you’re never going to eliminate the category of “unsuspecting young person.” You’re never going to eliminate the category of unsuspecting person period, for most of the population for many important things. It’s just not 1810 anymore — the good old days of small government the right wants us to go back to, when most people were dirt poor and the average lifespan was in the 30s. The world today is incredibly complex and busy. You cannot expect even very smart young people (or middle age, or old) to have the time or expertise to read the legalese in contracts, and to understand, at 18-years-old, the awesome power of compound interest at a high rate, and that private student loans are essentially never escapable in bankruptcy.
With how advanced and complicated the world of today is, you’re simply never going to educate the population to the point where they won’t be seriously at risk without a strong government role. That would require everyone having MDs in every specialty, and the same for law, finance, engineering, you name it. No one has time to get a graduate degree in every area and sub-area, and it would be enormously inefficient to make everyone have to constantly expend massive research time so as not to be dangerously tricked, or otherwise make a very costly decision. This has been long established in economics, things like asymmetric information, and is taught in every major economics program in the country. It goes all the way back to Adam Smith.
—Richard H. Serlin is an adjunct professor at the University of Arizona where he teaches one of the largest personal finance courses in the country. He is president and co-founder of National Personal Finance Education and has been known to garner shout-outs from the likes of Paul Krugman and Ezra Klein.