Student Loan Crisis: Debt Should Be Rebranded As An Education Mortgage

These statistics should be familiar to most PolicyMic readers: College tuition has increased by around 400% since most of us were born, and college graduates finish undergraduate programs with an average of $27,000 in student loan debt. With outstanding student loans now totaling more than $1 trillion and surpassing the nation’s credit card debt, the term “crisis” is not an exaggeration when describing the student loans issue in the United States. But, what is being done?

A simple first step, would be rebranding student loan debt as an "education mortgage" as it more accurately describes the nature of the debt and the historical roots of the term "mortgage." Various solutions, or treatments, exist or are being floated that range from income-based repayment, an effort to somehow bring down the cost of tuition (which is partly the result of private-sector compensation for a ballooning professional college administrative sector), and prorated tuition for academic programs that realistically reflect expected income after graduation. These are all promising solutions, but each will require large, concerted effort before we can see results. 

Many millennials are making college admission decisions right now. These decisions can have life-long financial implications. Perhaps if we change the nature of the student loan conversation, it might deter some students from taking out loans that are capable of financially crippling them after graduation, and possibly decades after.

If student loan debt were rebranded as this “education mortgage,” perhaps fewer students and co-signers would be less willing to take out tens of thousands of dollars in debt on what is increasingly becoming a risky investment: a college education. Or, maybe they may put additional thought into which college they choose, based on post-graduation personal finances. There are no other instances where teenagers can obtain uncollaterized loans for these sums of money. Is this because student loan debt is different than other types of debt? The U.S. government thinks so.

Unlike other types of personal debt, student loan debt is not dischargeable in bankruptcy court, except in very rare cases. There are few assets that can be seized in bankruptcy proceedings; the education cannot be taken back. Considering the long-term repayment plans that sound eerily like a 30-year payback plan for a home purchase, this type of personal debt amounts to a mortgage for most debt-holders. However, student loans are not portrayed as so.

Consider the following:

In a literal translation, "mortgage" is a combination of the French words mort (death), and gage (pledge). A mortgage is a death pledge. The term’s common use derives from Sir William Blackstone’s Commentaries on the Laws of England, an 18th-century essay collection that discusses and describes English common law at that time. Blackstone wrote, “Estates held in vadio, in gage, or pledge; which are of two kinds, vivum radium, or living pledge; and mortuum vadium, dead pledge, or mortgage.”

In the modern usage based on Blackstone’s definition, a home mortgage, the death (mort) part of mortgage references the life of the contract. The contract is dead if the debtor defaults on the payments and the property returns to the person/institution holding the paper on the loan. Alternately, the contract is also dead once the principal and interest have been paid and the debtor assumes full legal ownership of the property. This is a very simplified explanation of Blackstone’s work.

The term “education mortgage” more accurately describes the life of the debt, especially since student loan debt is only rarely discharged in bankruptcy proceedings. Outside of being physically maimed, proving “undue hardship” as a result of student loan debt is near impossible. And while the U.S. government has done and is doing what it can to help underwater home mortgage holders, various bankruptcy proceedings are still a more realistic way to discharge debt for underwater property owners than those drowning in student loans.

Student loans, then, are set up to quite literally follow the debtor (or cosigner) to his or her grave if never repaid. Rising college freshmen should be clearly informed about the education mortgage that is student loan debt. It would not be difficult to leverage a term that people are already familiar with — mortgage — so that they better understand the death pledge that is student loan debt.

This post is adapted from an essay titled “The Student Loans Crisis and the Next Generation of American Capitalists” from the forthcoming anthology Millennials Speak. Essays on the 21st Century, which will be published in April 2013. R.P. Thead is the editor of that collection.