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OPINION | SAVE YOURSELF: Debt problem is rooted in the system — not the students

by Sarah Catherine Gutierrez | December 1, 2020 at 2:03 a.m.

A trending hashtag on Twitter is #cancelstudentdebt. The call is to cancel or forgive all or a portion of some student loan debt out there. I think we need to change our focus to the supply side of student loans.

Student loans are the only type of loan that must be repaid. Unless you die. While there is language that allows for the discharge of student loans for "undue hardship," I hear I am more likely to find that it was a unicorn eating my azaleas last night than a deer.

On face value, it might seem appropriate that if students take out loans, sign paperwork and promise to pay it back that they should.

But did you know that grown, sober adults take out loans or make promises to pay bills (credit card debt, medical bills, business debt, utilities, lease agreements), and through a legal process some of them don't have to keep that promise? Take Alan, a smart, capable businessman who took out a loan to start a restaurant. The restaurant didn't work out, and he didn't repay the loan. Then he got a chance to try again with a new restaurant, with a new loan. This time the restaurant was a success — a quintessential American dream story.

But what if you take out student loans, and it doesn't work out? Can you work out a similar deal? Not so much. In this dystopian world, 18-year-old kids are allowed and encouraged to take on debt that could cripple them throughout their working career. They don't even have a fully operational prefrontal cortex, or the executive function of the brain at the time they sign for a loan. Never mind that these kids have likely never learned to calculate interest to estimate student loan payments or even lived on their own budget to understand the impact of those payments.

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Yet, somehow these 18-year-olds are supposed to ignore the urgings of their parents, guidance counselors, peers and the schools they are accepted to and turn down the offer of student loans.

Let's take George who just graduated from fictional Lyre College. He aspires to play the lyre in a band and maybe teach on the side. But he finds out while in his last semester of college that the market for lyre players is pretty slim. And he got a letter in the mail that says he owes $65,000. While he had some concept that he would owe student loans, George didn't know until just this moment what the total would be.

How did this happen? He remembered getting a letter from Lyre College when he was accepted saying they would meet 100% of his financial need, but the details seemed vague.

If that was any other loan, George would appropriately be able to find relief through bankruptcy, which was included in the writing of the Constitution (Article 1, Section 8, Clause 4). According to the Honorable Audrey Evans, a retired U.S. Bankruptcy Court Judge, "Bankruptcy is not a moral issue. America is a country of innovation and risk-taking because our bankruptcy laws provide a second chance. Without the possibility of second chances, people like Steve Jobs would have hesitated before taking risks."

What are we doing to the future of our economy allowing young people to saddle themselves with a form of debt with so much permanence? Which leads me to wonder, what if Steve Jobs didn't drop out of college and had graduated with $65,000 in student loans?

Let's reimagine college funding with a free market approach. George wants to go to Lyre College, but there is no federal student loan system. Instead, the loans come from Lyre College itself. This talented lyre player is accepted. But instead of being automatically matched with a large supply of money from the federal government, Lyre College is now making the loan. The loan is like any traditional loan out there; George can file for bankruptcy protection (and discharge the debt) if he cannot pay.

The committee looks at this 18-year-old, looks at the $65,000 loan, and after a pretty quick meeting, stamps "Denied" in big red letters. No one would offer that loan, particularly without the assurances of federal backing.

There are more than 40 million Americans, many of them young, who are carrying crushing federal student loan debt. I am currently working with a young single parent who has $800,000 of it. Is it just a young person problem? Nearly 3 million retirement-age adults have student loans topping $20,000.

Something has to be done about these existing student loans. I argue that grown, financially literate adults should focus our attention on the supply side. Maybe we should modify the endless spigot of federal money that's been, on balance, helpful for educational institutions but maybe not as great for students as we once thought. There is probably a solution somewhere between tens of thousands of dollars in crushing debt and free-market denial. I imagine that state legislatures would have to go back to funding public universities, endowments would have to grow, and institutions and students alike would have to experience a scaled-down educational environment.

In the meantime, at minimum, Lyre College should have to start telling the truth in its acceptance letters. They are not, in fact, meeting 100% of financial need. The student's future self is.

Sarah Catherine Gutierrez is founder, partner and CEO of Aptus Financial in Little Rock. She is also author of the book "But First, Save 10: The One Simple Money Move That Will Change Your Life," published by Et Alia Press. Contact her at


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