No ordinary deal: Investing in an education is riskier than you might think

Although you cannot normally, at the age of sixteen or seventeen, sign yourself into a binding contract, that rule goes right out the window when it comes to student debt. When you accept a government loan, it’s your loan, you are responsible for it, and that’s just it. You can’t get a credit card, sign a cellular phone contract, or anything else, but you can sign yourself into thousands upon thousands of dollars of debt if it’s for education. You aren’t considered old enough to drink, buy cigarettes, vote, or make personal decisions about all kinds of other things in your life, but you are considered old enough and responsible enough to commit your income and finances toward paying a debt that might last into your thirties, or beyond.

The other side of student debt is even nastier. You can become bankrupt because you utterly failed to manage your spending habits. You can go bankrupt because you invested heavily in a shady business venture that might have made you rich but didn’t. Regardless of how or why you went into debt, with very few exceptions, you can always declare bankruptcy, and the rules are basically the same. Your credit rating will plummet, and years will pass before anyone will trust you with any kind of loan or long-term contract again, but you’ll get a clean slate, and you will be able to start rebuilding your life. Unless, of course, you took out a government loan in order to pay for your education. In that case you’ll have to wait ten years from the point at which you finished school before you can declare bankruptcy, and then you’ll only be at the beginning of a process that is already long and difficult.

So there seems to be a value judgment and a pattern of logic here. First, the government has determined that even young people — who aren’t considered able to make other responsible decisions in life — are able to decide to go into debt for their education. Presumably that’s because a decision to invest in education can never be the wrong decision, though I would love to argue that point with any legislator who might try to defend it. Second, the government has determined that education is so special, and such a good investment, that those who buy it are not allowed to declare bankruptcy in the usual way. So is this true? Is it simply impossible to go wrong in purchasing your education — so much so that even a child (legally speaking) is allowed to buy one? And is it such a sure investment that bankruptcy should never be an issue until a full decade later?

In answer to the idea that no one, even a legal minor, can make a “wrong” decision to buy education, I’ll simply say the argument is absurd. Even insulting. Many students attend university or college at the wrong time. Others go to the wrong place. Even adults, in later life, second-guess their decisions and make bad choices. Yet we act as though this one financial decision, this one investment, is so clearly the “right” choice that we bend all our social values, and ideas about who is and isn’t responsible enough to make these choices, to allow it. It’s further proof that we are so obsessed with education, as a society, that it trumps all our other values.

In terms of later finances, of course students end up broke, poor, and saddled with massive debt after graduation. Or at least some do. But they don’t have access to the same chance to start over as others have. There are those who will say that education can’t be repossessed, and that’s part of the logic behind this rule. The principles of bankruptcy, after all, say you can’t go out and buy an expensive car, then declare you’re broke. They’ll take the car back first. But you can’t give back an education. We all know that. It’s part of the deal. But you also can’t give back many of the experiences and opportunities that relate to other kinds of debt. Declaring bankruptcy implies that you screwed up somehow, or at least had horrible luck. What about those students who took a chance on education, and found it didn’t pay off? Don’t they deserve at least as much of an opportunity to start over as someone who took a chance at entrepreneur-ship, even in a risky area?

It’s transparently false that students shouldn’t need to declare bankruptcy because they all earn a lot of money with their degrees and diplomas. For some people, it works exactly that way and it’s a good deal. Others struggle. And some plunge into impossible financial situations. Our bankruptcy laws have tighter rules on education not because it’s impossible to screw up the investment, but rather because it’s so easy to do so. If students were allowed to go bankrupt on their student loans the way that anyone else can declare bankruptcy, it would probably be so common the federal and provincial budgets would need to be redesigned to account for it. This isn’t because university students are stupid, or lazy, and it isn’t because they have any greater desire to slaughter their credit ratings than anyone else. It’s because investment in higher education is just like any other investment. Sometimes it doesn’t pay off.

Excerpted from “What’s Wrong With University: And How to Make It Work for You Anyway”, © 2007 by Jeff Rybak. All rights reserved. Published by ECW Press. The book is available here.