Exposing the Dark Side of Higher Education and Why Student Loans Could Be the Worst Decision for Your Child (DF#163)

Hannah Maruyama [00:00:00]:
There is literally no legal way for you to get out of paying your student loans. You cannot. You are in a box. You are in a prison. It's the same as debtors prison, and I'm watching these people send their kids to debtors prison for jobs that they don't need to buy degrees for, and it's wild, but they've convinced them that they have to do that to get any good jobs. But the reality is very few jobs are gonna be good enough to get them out of this.

Ryan Maruyama [00:00:30]:
Aloha folks and welcome back to degree free. We are super excited to have you back. We have a bunch of stuff to get into today. We are going to do a deep dive into the higher education act and student loans, where it all went awry. So before we hold our breaths and take a deep dive into that, I want to start off a little bit on a, on a lighter note, because it is going to get a little bit heavy in here.

Hannah Maruyama [00:00:55]:
I'm like chomping at the bit to get into this, my theories and my numbers in my charts.

Speaker C [00:01:03]:
I just want somebody to

Hannah Maruyama [00:01:04]:
ask me about my theories. And Ryan is like, no, we got to tell a story before I let you do that. So we're going to tell the story about the book.

Ryan Maruyama [00:01:11]:
So if you didn't know, we have the degree free way how to help your 16 to 20 year old build the life they want. That is for sale degreefree.c04/book. It's still on presale, I believe, as of this recording. And I'm pretty sure when this goes out, it'll still be on presale for another few days. September 2nd is when the launch officially is. And that's when the price goes up.

Hannah Maruyama [00:01:36]:
Labor day folks.

Ryan Maruyama [00:01:37]:
Yep, exactly. But anyway, if you want that, you can go there. That's how this is about. It's about the pre orders that we already received months months ago. If you've listened to this podcast, longtime listeners have known that we had a disagreement about how we wanted to execute this and when we wanted to launch it, I wanted to do it next year. You want it to do it this year. We ended up settling it, doing it your way and your way ended up being 4 months late.

Hannah Maruyama [00:02:02]:
But it was in this calendar year. So everybody you're welcome.

Ryan Maruyama [00:02:06]:
In the 4 months that it took us to get this out to you folks, we ended up taking pre orders because people were asking us about it and we're like, yeah, I guess we can put up a sales page and have you buy it. Sure. All of those sales and all of those pre orders backed up.

Hannah Maruyama [00:02:26]:
So many books we packed for hours.

Ryan Maruyama [00:02:31]:
It took me 2 days to fulfill all the books packing. It took, like, 4 days, but I'm talking about like trips to the post office. It took me 2 days to do it and it took 3 massive USPS carts to deliver all of them. And if you're watching the YouTube, I'll just put up a picture of 1 of the carts right now.

Hannah Maruyama [00:02:55]:
If you're not watching, it's like one of those big giant you can put, like, grown men in this thing. It's huge.

Ryan Maruyama [00:02:59]:
So many dead bodies.

Speaker C [00:03:01]:
Oh, gross. We're alive, but I was

Hannah Maruyama [00:03:04]:
just thinking clowns in a clown car and

Speaker C [00:03:05]:
straight for the morgue. Gee.

Ryan Maruyama [00:03:08]:
Doesn't everybody think when you're looking at cars and you're looking at trunk space, like, don't you think unit of measurement is like, how many dead body can I have to put in there?

Hannah Maruyama [00:03:15]:
No, never. Not once. I picture rodeo clowns and I just pictured them with their knees pulled up and sitting in the car, just going, Oh, Hey.

Ryan Maruyama [00:03:23]:
All I know is that 2008 Camry is 5.

Hannah Maruyama [00:03:27]:
Dead bodies.

Ryan Maruyama [00:03:28]:
Well, 5 alive bodies. We tested it out.

Hannah Maruyama [00:03:30]:
Oh, okay. Ryan went to an all boys high school. Is this a high school endeavor?

Ryan Maruyama [00:03:35]:
No. No. No. No. It was

Hannah Maruyama [00:03:36]:
That's No.

Ryan Maruyama [00:03:37]:
It's I was I was I was grown.

Hannah Maruyama [00:03:41]:
No. That just got 10 times funnier as when picturing high school. You go. Yeah. Of course. That's sound oh, no. That was

Ryan Maruyama [00:03:48]:
2 years ago. So if our point of reference is the 2008 Camry that can fit 5 grown alive bodies, men, boys should be men. The

Hannah Maruyama [00:04:01]:
cars could

Ryan Maruyama [00:04:02]:
fit like 7. So quite a bit bigger

Hannah Maruyama [00:04:08]:
than a 2008 Camry just for reference.

Ryan Maruyama [00:04:11]:
Well, the 2008 Camry's trunk.

Hannah Maruyama [00:04:13]:
Trunk.

Ryan Maruyama [00:04:14]:
Sure. So there's like 3 of these that I had to fill up. And if you want to go back and listen to, I'll put the links in the show notes where we talked about all the decisions that we had to make to write these books and to get these out to you folks. And I'll link to that 2 part episode in the description. You can go back and listen to them, but we made a bunch of decisions that we couldn't really go back on and that made us go down a certain road. One of those decisions was the decision to self publish and then within the self publishing you, then you have to figure out, okay, when somebody buys your thing, how are you going to fulfill it? And so we made the decision to fulfill it ourselves. You have chosen poorly. I don't know if I've chosen poorly, you and I like to do this in general.

Ryan Maruyama [00:05:04]:
I mean, this is just a look into how we do business or how we do anything, which is usually you and I feel like we have to test something and create a system behind it before we hand it off to other people. And that's something that's rather new, I would say within the past year, because when we've tried it before, without any system or anything like that, it's tough and it doesn't get done. We run into a bunch of problems. I think a lot of it has to do with where we are in our business. Anyway, we're getting into in the weeds. We like to test

Hannah Maruyama [00:05:40]:
how processes work, how things work before we hand them off to people.

Ryan Maruyama [00:05:43]:
Yeah, exactly.

Hannah Maruyama [00:05:44]:
Or pay somebody else to

Ryan Maruyama [00:05:45]:
do it. And so this was one of those things. And I don't know if you guys at home or in the car or wherever you are listening to this and know this, but I am not a book fulfiller or I don't work at a pick and pack place or I think like 3PL is like the type of place, like storage house type of thing. I think somebody correct me in the comments, YouTube, Spotify. But anyway, I don't have that background. I have sold books for a living before, like used book and it wasn't nearly the volume that we do now.

Hannah Maruyama [00:06:20]:
I will say too about this because of how much we have been doing packing the pre orders. We were terrified to put it up on TikTok shop. So scared. We just did that and it's going exactly as we would have expected, which is we're selling and running to the post office every single day. So that's good.

Ryan Maruyama [00:06:38]:
Well, yeah, we expected that we would run to the post office every single day, but basically you don't know what you don't know. I don't know anything about picking and packing. I don't know anything about shipping. I don't know anything about anything. And this is all like e commerce stuff. I don't know any of this stuff. And it kind of bleeds into a lot of our philosophy, which is you don't really need to know anything. You just have to do it.

Ryan Maruyama [00:06:58]:
Am I qualified to set up systems to sell books? No, not at all. What qualifications is there 1, but then there

Hannah Maruyama [00:07:07]:
aren't any,

Ryan Maruyama [00:07:07]:
but I wouldn't have them anyway because I don't have them. Anyway. I went to the post office. I went to the actual post office that is kind of close to our fulfillment center, our house.

Hannah Maruyama [00:07:23]:
Rent office.

Ryan Maruyama [00:07:23]:
Yeah, my office in my house. And so I went to the second closest one, but I went there because it's slow and it's in like a strip mall type of thing. I went there and I'm glad I walked in before I loaded up all the books to walk in because our car was absolutely full. Not a single person would be able to fit in the car because of all of the books that we had. And I was like, there's no way that this is going to go smoothly. So I'm just not going to lift a single one. And then I'm just going to go in there and ask them and be like, Hey, look, I have a few hundred orders. I have a few hundred units of books to ship.

Ryan Maruyama [00:07:59]:
And then she just looks at me and she was just like, okay, can I get a cart? She's just like, no, no, no, no. Go up to the processing center up the road. And I was like, okay. And so anyway, I had to go up to the processing center or that's where they process everything that comes in and goes out of that district. I go there and I knock on the door. This guy opens the door and I'm like, Hey, I've got a few hundred units of this book thing that I got to ship. Can I get a cart? And he's like, yeah, sure. And so he brings out this 2008 Camry trunk cart to me and I'm like, all right, perfect.

Ryan Maruyama [00:08:36]:
That's awesome. And then from what happened next, I could tell that he wasn't expecting.

Hannah Maruyama [00:08:44]:
How much you put it in there?

Ryan Maruyama [00:08:46]:
Not even close to it. I think he thought that I was exaggerating and he's like, oh, is this going to do? I was like, yeah, I think that's going to do for the first run. Sure. And I wheeled it out and then I parked in like a half grass, half concrete area. Long story short, I put it on the grass and halfway through filling this thing, it started sinking into the grass, but I was like on concrete. The other 2 wheels were on concrete and I was like, oh no, I had to basically just manhandle this thing back onto like fully onto the concrete. And I was like, okay, that was dumb.

Hannah Maruyama [00:09:21]:
All concrete.

Ryan Maruyama [00:09:22]:
Yeah. I ended up filling this thing up and I couldn't even maneuver this thing. It took me 2 seconds to walk it out from the door to the thing. Maybe 15 seconds. It took me 7 minutes plus to get it back in because it was so heavy and so big. And then I knocked back on the door and the guy comes out. His name is Zach and Zach comes to the door and Zach is like, woah. He looks at me.

Ryan Maruyama [00:09:49]:
He's just like, dude, I'm like told you it's a few hundred. I still have another load in the car.

Hannah Maruyama [00:09:54]:
At least.

Ryan Maruyama [00:09:55]:
Yeah. And he's just like, okay, well leave this here. I helped him wheel it into the back processing center and he was like, okay, I need you to go around to the dock or has signs. It doesn't say it, but has signs that like USPS carts only. And it has those pictures of the boxy USPS trucks. And it says like these trucks only. And he's like, yeah, nevermind that. Just go to the back, go to the bay.

Ryan Maruyama [00:10:24]:
And he's like, I'll help you load the other ones. I was like, okay, that sounds like a good idea to me. Anyway, long story short, we ended up filling up another one and then I had to come back the next day and drop off another bunch, another load just as large, but what I wanted to get to, and this is along the lines of not knowing and not being qualified. And this goes for job seekers, career changers. This goes for literally anybody. I ended up going there the next day, and I had just dropped off 100 upon 100 of orders the day before. And then I have 100 upon 100 of orders the next day. The next day I see him, Zach's working again, and I'm like, hey, what's up, Zach? And then he looks at me.

Ryan Maruyama [00:11:10]:
He's like, hey, do you have like a QR code sheet that tallies everything that you have here. And I was just like,

Hannah Maruyama [00:11:19]:
should I?

Ryan Maruyama [00:11:20]:
I'm like, no. He's like, yeah, well usually when people have in bulk orders like this, there's like a QR code. Cause you bought all the shipping in bulk. Right. And I'm like, Nope. I wish I had. I was like, I wish I knew how to do that. I bought each one of these things individually, literally buy shipping label, print shipping label, buy shipping.

Hannah Maruyama [00:11:41]:
If anyone of our viewers of our listeners knows how to more efficiently ship books, print labels, and or reduce the cost of shipping, let us know.

Ryan Maruyama [00:11:53]:
And he was just like, he looked at me. He's just 1, his shoulders visibly slumped because he was just like,

Hannah Maruyama [00:11:57]:
I'm gonna have to scan an under the hood.

Ryan Maruyama [00:11:59]:
I'm gonna have to scan all of these again.

Hannah Maruyama [00:12:01]:
Or Zach's a trooper.

Ryan Maruyama [00:12:03]:
Yeah. Well, all of those people really were, but it made me realize like how much that I don't know about this area, about this industry. Yeah. And we've never done this before at the same time. It doesn't matter.

Hannah Maruyama [00:12:15]:
Right. You can still do it.

Ryan Maruyama [00:12:16]:
It doesn't matter.

Hannah Maruyama [00:12:17]:
You just figure it out.

Ryan Maruyama [00:12:18]:
Yeah. Because I did it.

Hannah Maruyama [00:12:18]:
Spoiler alert. That's how people learn things.

Ryan Maruyama [00:12:20]:
Yeah, I did it and I'm doing it. And of the people that like know how to do all those other things, not filling shade or anything like that, creating the product is also very difficult. I would argue that creating the product, the degree free way, like literally a book and having an opinion and something to say to write about and having people want to buy it. That's a harder issue. And I would argue that people that know how to do those things don't know how to do creating the product, but that doesn't mean that they shouldn't do that. You know, if that's something to say, then go ahead. The market will dictate whether or not it's a good idea. That goes for really anything that you're thinking about getting into and that's for 16 year olds that are just like, well, I really like baseball or whatever, but I don't know anything about coding, whatever it is, something completely unrelated.

Ryan Maruyama [00:13:11]:
And well, I'm not really good at that kind of stuff. And I was like, how do you know? You haven't tried? Sure. You're gonna make mistakes like how I'm making mistakes right now. Today, I'm still making mistakes. You just got to get out there, do it. It really goes back

Hannah Maruyama [00:13:24]:
to the ethos of there are no rules and you're always going to not know things before you learn them. And that's something you and I have consistently constantly for years now, run into always some of the people that listen to us know that we actually have written 2 books before this, but we did FBA, which is fulfilled by Amazon or print on demand is KDP. And so they print and fulfill the books. We never touched them. We never saw them. The only way we touched them was when we ordered some so that we could have copies to give to people.

Ryan Maruyama [00:13:52]:
As far as like published physical books. Yeah. So many, we have written other things.

Hannah Maruyama [00:13:55]:
So many things, but printed books. Yeah. What's really wild about it too, is that, well, you didn't, but I did. I felt pretty confident like, oh, it'll just be like last time, nothing like last time, because we didn't do that. We didn't pack and ship the things we just said, okay, put it up, launch it's live. Good luck. Everybody buy the book. That's what we did.

Hannah Maruyama [00:14:13]:
And this time we're physically printing it, physically packing it, physically shipping it. And it's very different from the last time, but because it's different, we're learning different things and running into different areas where we didn't know those things before.

Ryan Maruyama [00:14:26]:
Once again, the launch date is September 2nd and the price increases then it's $49 still right now. And then it'll go up to $70 on September 2nd. So get it now. Degreefree.coforward/book. The initial feedback. I'm super stoked.

Hannah Maruyama [00:14:43]:
People are really happy with it.

Ryan Maruyama [00:14:44]:
Yeah. I'm super stoked. The initial feedback has been fantastic.

Hannah Maruyama [00:14:48]:
They were like, oh, we already got the notes. We're so excited. And people are just finding it really actionable, which is absolutely the coolest thing.

Ryan Maruyama [00:14:54]:
I want to get into what we have here, but real quickly for those that have bought the books, please find our note on page 23 of the parent copy. And then if you could do that, that would be fantastic. And then I'll talk more about it next week, but let's get into this.

Hannah Maruyama [00:15:15]:
So I have a lot for you guys. I'm kind of going to recap because I'm thinking I mentioned this on our last episode, but basically I was on a really good podcast. It was, the Yourtango open relationships podcast. Not what it sounds like. It's actually, they have a really cool format where they have the host, which is the CEO of Yourtango, and then they have the co host, and then they also have the producer who sometimes chimes in also. One, they have a fantastic format. Both of them extremely well researched about their guests before they have them on. They were extremely excited to be.

Hannah Maruyama [00:15:43]:
Their energy was contagious. They were so curious, so excited about the work that you and I are doing. And it was the best podcast I've ever been on and I've been doing the rounds at this point. So it was pretty cool. Anyway, at one point the host was very well researched about this topic and very curious about it as she has kids who are about to enter the 16 to 20 year old age range. And then the co host actually brought in her 19 year old son at one point. And I did a little bit of part of the launch program live with her son on impromptu, which was really cool and actually pretty impressive for him too, because that's not an easy thing to do. Hey, come on in here and let somebody ask you really personal questions on camera, but he did a good job.

Hannah Maruyama [00:16:21]:
And so the host Andrea is her name. I was talking to the host Andrea, and we were talking about student loans. We were talking about the cost of college. And I mentioned that in 1965, the Higher Education Act passed. That is the point where the government went into the student loan business. And this is really important because the government ruins everything it touches. And so when the government decided to subsidize student loans, artificially in 1965, what happened was immediately at this point, only 7.4 percent of the US population had college degrees. They all were getting things.

Hannah Maruyama [00:16:53]:
And then I did research on this because I had theories about what types of degrees they were buying. It's exactly what I thought they were all buying degrees in law, medicine, things that required legal licensure, which still fall into that 7.7% figure that I've done when I analyzed the BLS data and all 867 jobs and only 7.7% of them actually legally require college degrees. So in 1965, the Higher Education Act passes. At that point, the cost immediately increases. No shocker because the colleges view that as a blank check from the government and they're just gonna charge whatever they want. And interestingly, the Higher Education Act had to be amended in 1976. That is when they started to put guardrails up around bankruptcy because so many people were defaulting and trying to discharge their loans and bankruptcy.

Ryan Maruyama [00:17:44]:
For those that are listening, that listened to last week's episode, this is very similar. We're talking about the exact same thing. We're just coming back a lot more research because I asked you what the default rates were at the beginning. And then at the end, when I say end, I just mean when they made it so that they are bankruptcy exempt and you didn't know.

Hannah Maruyama [00:18:04]:
I did not.

Ryan Maruyama [00:18:05]:
And so it was just a hunch of yours before we get into this. I read this already, but I want to say that I agreed with you. I mean, because just logic dictates

Hannah Maruyama [00:18:13]:
cause and effect.

Ryan Maruyama [00:18:14]:
You wouldn't waste time and pass a law. If everything was going fantastically, if everything was just going great, you know, it was just another day. You wouldn't make a law about it, but you did your due diligence and you are back here and ready to get into it.

Hannah Maruyama [00:18:30]:
Oh, yeah. Because not only that it was funny when I post about that, that has well over a 100000 views on TikTok right now. Cause people did not know that information that was apparently earth shattering news, which is what I said in the TikTok where I talked about this. And one of the comments to it was so fascinating, which somebody just said, no, they were just passing it in case that happened. And the default rate didn't go up. And I said, surely, that's not true. It surely is not. And I'm about to show you what actually happened because it's freaking crazy.

Hannah Maruyama [00:18:57]:
And the deeper I got, the worse it looks. Some of the theories I have, and I'm about to show you guys what happened. 1, the default rate increased like a massive amount. 2, the types of degrees people were buying changed radically because now colleges were going to market degrees that were easier to get people to buy, which is exactly what happened. And then that's not all because I did not know that the Higher Education Act was amended multiple times after that. And that is where the data gets very interesting. So basically what happened was the default rate on student loans when the Higher Education Act passed was 2%. Very low risk.

Hannah Maruyama [00:19:31]:
Then by 1976, when the government had to intervene, because I believe the default rate was so high, the discharge of bankruptcy was so frequent that it was causing a national crisis. And I think the ROI had already dropped through the floor at that point. I think that was critical mass because the amount of people that bought degrees also went from 7.4% to 13.8 percent of the population. And the default rate for student loans in 1976 was 9%, which doesn't sound like a lot, except for it's a 450% increase in 11 years, which is unbelievable. It went up like crazy, unsurprisingly, because if you falsely give people money who can't afford to pay that money back, they're going to default on their loans.

Ryan Maruyama [00:20:15]:
Then you incentivize on the other side, not only giving the money, but then you've incentivized now for the people that are selling the product of which you've gotten the loan for to raise their price now. Now they've gotten a blank check.

Hannah Maruyama [00:20:28]:
Because then the government's gonna

Ryan Maruyama [00:20:31]:
back it. Exactly. Yeah. And so they're like, yeah, sure. Let's jack this thing up. And like I said last week, I am hating on on my guests, but they're doing what any business would do.

Hannah Maruyama [00:20:39]:
The government created an unethical environment for them to operate in.

Ryan Maruyama [00:20:42]:
They are a business. I mean, they're nonprofit. They want money.

Hannah Maruyama [00:20:46]:
Also for people that are stuck on that. We actually talked to a physicist from Los Alamos who's a PhD, and he told us that the way that colleges actually keep that money, because people are like, they don't actually keep it. They do. That's why they have accounts. It's kind of like Starbucks, the way that Starbucks actually is a bank because they keep people's money in their accounts, in their gift cards, all that kind of stuff. Starbucks actually just holds a ton of people's money. Colleges are literally the exact same way they hold it in your student account. And that's how they keep your money without actually keeping your money.

Hannah Maruyama [00:21:13]:
That's how they take profit. So anyway, that's a whole other thing, basically, 1965 to 1976, the student loan default rate went from 2% to 9% because the government subsidized student loans. Colleges said, oh, wow, they're just going to give us a bunch of money. And then they did. And then unsurprisingly people bought degrees they didn't need. And then the default rate went through the roof because people couldn't afford to pay them back. Now what's interesting here is that it didn't stop there. So I'm going to show some pictures because this is really important.

Hannah Maruyama [00:21:41]:
Okay. So we're going to show the picture on the screen, but the increase in student loan defaults from 1965 to 1976 is a straight line upwards. If you look at it, it's very steep. And then I went, okay, well, how long did it keep spiking for? And that's where it got real bad. So again, 1965 Higher Education Act, the default rate was 2%. By 1990, the default rate was 30%. 1 in 3. Insane.

Hannah Maruyama [00:22:08]:
But what's crazy about that is in 1976, they passed laws to try to reduce it. And it's still that high, even though they were artificially keeping people from discharging them. And so what's interesting about that is then after that

Ryan Maruyama [00:22:19]:
Did we do any research about how from 1976 to 1990, how they were able to discharge loans? How did that happen? Because that doesn't make any sense from us listening about it, learning about it for the first time. If in 1976, you can no longer could declare bankruptcy and include those student loans within that bankruptcy, then how does the student loan default rate go up any further in my mind? And I'm sure in the minds of a lot of people, the default rate would go to 0 because it is not allowed. And then this is legislated.

Hannah Maruyama [00:22:58]:
So I'm going to paraphrase this, but basically what happened was they put some guardrails up just to discourage people.

Ryan Maruyama [00:23:04]:
That was in 1976.

Hannah Maruyama [00:23:06]:
1976. Right. So they just said, oh, Hey, you can only discharge under these certain criteria. And I should have put the criteria here, but it was they basically were just like, oh, this is kind of spiking. That's not good. And then they went, all right, let's just say, okay, maybe if within 5 to 7 years afterwards, you're not making enough, then you can discharge them. And they just made a bet that the economy and that people would find employment, which that bet paid off, but not enough.

Ryan Maruyama [00:23:29]:
So what happened really in 1976 wasn't that they could not include student loans within bankruptcy, but rather that they added a bunch of hoops that you had to go through to include student loans within bankruptcy.

Hannah Maruyama [00:23:47]:
Yes. And also keep in mind that these were public loans because at the time there weren't really private lenders because they didn't know that it was so profitable. So what happened was after 1965 and after that 1976 debacle where they amended it, then private institutions started realizing that there was a market. And so when they did that, all of a sudden the default rate continued to go up. So then in 1992, they did something else, which is they added more amendments to the higher education act because it didn't work the first time.

Ryan Maruyama [00:24:18]:
So from 1976 to 1990, or even till now, did they change any of the things that says you cannot include student loans within bankruptcy and what did they change?

Hannah Maruyama [00:24:32]:
Yes. So in 1992 they had to intervene because as we talked about from 1965 to 1990 when they did this, because this was in progress during this time, but basically from 1965 till 1992, when the Higher Education Act was amended again, then the default rate was at 30% because the private institutions were also on board and the public institutions default rate was getting worse. And so at that point, they did something called the extension of non dischargeability. And basically there's made it even harder for you to do this. And so the provisions were the 1992 amendments extended the period during which student loans cannot be discharged in bankruptcy from 5 years to 7 years, unless the borrower can demonstrate undue hardship. Guess what? It's really hard to demonstrate undue hardship. And they did that on purpose because they want to get their money. Okay.

Hannah Maruyama [00:25:19]:
So what happened in 1992 was they amended the Higher Education Act again. And at this point, what they did was they extended the period during which student loans could be discharged from 5 years to 7 years, and they could only be discharged if the borrower could demonstrate in quotes, undue hardship, which is very difficult to do in a court of law. That's basically what happened as per usual. It's so funny to me, the things that they tried to do multiple times during this process to this act was they tried to increase oversight and every single time they did that, it got worse. And so for the people who inevitably I know will say, oh, that's capitalism. This is not capitalism. This is not capitalism because capitalism is not the government intervening and legislating 1, a market, and then 2 actively interfering in the market and putting up fake boundaries so that when the market fails, it doesn't fail because that's what happened to the housing market too.

Ryan Maruyama [00:26:14]:
There's another picture that will flash on the screen and I apologize to everybody that's listening, but just go to the YouTube for everybody. We'll put links in the podcast show notes for you. There's another picture that will flash on this screen that says the annual changes in student loan default rates from 1990 to 2004. So if you remember the student loan default rates from 19 65 to 1990, that was basically a straight line up. And that was from 2% to 30% in 1990. Then in 1990 to 2024, I think think I said 2,004 earlier, but 2024. I apologize. It is 2.5 percent.

Ryan Maruyama [00:26:54]:
Now it's 30 all the way back to 2%.

Hannah Maruyama [00:26:57]:
Almost back to its original rate. Exactly. But you'll notice if you look at that chart in 2,005, it dips again. And the reason that happens is because they passed something else and it's called the Bankruptcy Abuse Prevention and Consumer Act of 2,005. And what they did was they, prior to this, they could discharge federal student loans through bankruptcy. If you could prove undue hardship, which like we talked about is already really difficult to do.

Ryan Maruyama [00:27:24]:
But that started in 1992.

Hannah Maruyama [00:27:26]:
Yes. That started in 1992. After the act, they tightened these restrictions again, as if it wasn't hard enough to do it already. Basically, they just said, if you can prove There's something called the Brunner test the courts use. And it requires borrowers to demonstrate 3 things. 1, they cannot maintain a minimal standard of living if forced to repay the loans, which is poverty, by the way. 2, the hardship will continue for a significant portion of the repayment period. And then 3, they have made good faith effort to repay the loans.

Hannah Maruyama [00:27:54]:
Very difficult to prove that in a court of law, because it's very arbitrary. And I think it's probably really difficult to get a judge to rule in your favor with that one. But what's crazy about this is that there was a bunch of anecdotal stuff in the comments on TikTok. And I was like, well, you know, but people needed these in the eighties. They made a lot of money in the eighties. Actually, there's a lot to say that there was actually negative return on those loans too, but they were still able to discharge them. And they were also didn't cost as much and your dollar was stronger. So it was basically a perfect storm of things that made it seem like a degree.

Hannah Maruyama [00:28:26]:
It was the downwind effects also because the people that were going to college at that time, their parents had gone to college in 1965. It was like a curve. So people were just attributing it to the college degree, but the people who had bought college degrees in 1965 were doctors, lawyers, engineers, hiring professionals. So they thought, oh, surely if my children buy a degree. But before that, what happened before 1965 World War II? And so a lot of the people that were going to college in 1965 had GI Bill loans, not even loans, just they had GI Bill money. And so they had built them houses and they had given them money to go to college, which costs nothing at that time. Like the house cost a year of pay and college cost a fraction of that. And so the government was funding that to soldiers that came back.

Hannah Maruyama [00:29:07]:
It basically sold this result that was fake from the beginning. Because at that time, the people that were buying those things, they weren't actually paying for it. The government still was, but they were paying for it for their service at least. Right. So they had done something in order to earn it, but then they sold that result to other people. And that's where this whole increase started. And then you had the tailwind of the people going to school in the eighties, buying degrees in the eighties that thought they were going to get that same result. And they didn't because 1, they were paying way more.

Hannah Maruyama [00:29:36]:
And then 2, they couldn't discharge the loans. And then 3, they were buying degrees for things they didn't need to buy degrees for. So it was just basically the whole system has been overstressed. I think since 1965, there was probably a 4 year one cycle, I would think. Probably 19 69 is the last time that it actually made sense for most people. It's wild though. You can see why this is a lot. It's crazy.

Hannah Maruyama [00:29:55]:
Cause I was looking at this stuff and just going, oh my gosh, it's like untangling a web of spaghetti. But the more you look, the deeper you get, the worse it looks.

Ryan Maruyama [00:30:03]:
It's difficult to extrapolate from this from 1992, if they didn't make those changes, what would have happened or 1965 even. Right. I mean, it's difficult to say what would have happened, but just kind of looking at this, even with the guardrails put on in 1976, trying to slow people down from defaulting on their student loans, it still went out of control. Because they're still giving money on one end, but it didn't do a good job of stopping the bleeding on the other end. So in 1992, they stopped the bleeding pretty good. I mean, they'd stopped it really well. And in the 2,005, they stopped it even better. It's difficult to guess from that.

Ryan Maruyama [00:30:52]:
What would have happened? Would default rates have continued to go up? Who knows? But I will say it's my conjecture that obviously they would have, but if we're using the guardrails thing, we're just trying to keep them in between this lane, basically, then why did you have to tighten the lane and then tighten the lane again? Why did you have to do that?

Hannah Maruyama [00:31:13]:
And I said this on TikTok, you and I are big how I met your mother fans, but there's not a sign that says no boogie boarding in the bar because nobody boogie boarded in the bar. That's ridiculous. There's signs because somebody did and they broke something.

Ryan Maruyama [00:31:23]:
There's a story behind every sign. Yeah. And so there's a story behind every law is what you're saying. There's a reason why, right? Let's go in the how I met your mother and one of those episodes, they go boogie boarding, and they crash into McClanahan's window. It all happens off camera, actually, but there is a sign there that says no boogie boarding on stairs or whatever. And they're like, we're in the middle of New York. Why would anybody boogie board on stairs? And then it'd be like, there's a story behind that because somebody did it. And so same thing, the legislature They're, oh, crap.

Ryan Maruyama [00:31:52]:
We're gonna get

Hannah Maruyama [00:31:52]:
into big trouble for this.

Ryan Maruyama [00:31:53]:
Yeah, exactly. And this is why would you legislate any of this? Well, it's because it's already happening. It was happening and they needed to do something about it.

Hannah Maruyama [00:32:02]:
Well, not only that now this has led me to another thing that I have to do a deep dive in. And so for those of you listening and going, wow, she sounds crazy. This is what I do. And Ryan frequently has to just go, what? And then he has to ask me, wait, what did you find? What about this? And that really helps. But basically I realized 2 things now, one, something a lot of people don't know about is the SLABs, the student loan asset backed securities. If you're listening and you have not seen The Big Short, go watch it right now, because it very much feels, I think to Ryan and I kind of like the beginning of that movie where they say, and the people that saw the 2,008 crisis coming, they were able to see it because they did something else. No one else would. They looked.

Hannah Maruyama [00:32:40]:
And looking at this, if they had not passed those laws, if you just continue to draw this and I should just draw this graph out, but if you continue to draw this graph up to now, it's bad. It's like 75, 80%. If you just continue this up and just let it run its natural course, it's extremely high.

Ryan Maruyama [00:32:58]:
Yeah. So that's exactly what I was getting to, which is I believe it would have been the majority would have started defaulting. And now I wonder at what point do legislators and the government have to step in? Well, they already did. Right. So they push their chips into what they did, which is they pushed it onto the consumer and they said, no, you're not going to get out of this. But I wonder at what point if they didn't do that and they decided to take a different tack and they were like, okay, we're going to go this direction instead. At what point would they have to be like, you know what, guys, we're not going to give you any more federal money to the colleges, the federal money stops, but then nobody wants a less educated. And I'm using that in quotes for everybody watching

Hannah Maruyama [00:33:44]:
less papered.

Ryan Maruyama [00:33:45]:
Yeah. Nobody wants a less educated population. And so nobody running on any ticket on the left on the right for Congress, for the Senate, for presidents, for even the cabinet, for any of these people, nobody's going to be like, yeah, let's make everybody dumber, which is congruency or which is like, they equate college too. And that is how dangerous it is to equate education to a purchase of something. It's like, no, no, no, no. That doesn't make any sense, guys. Like we can have an educated population without them going to college. It's not the same thing.

Ryan Maruyama [00:34:21]:
But I do wonder at what point if they didn't pass it on to the consumer and they didn't make it so that when you were 17 years old and 18 and 1920, cause I mean, I will say if you're went to all 4 years, 5 and a half, cause that's the average time. But if you went to all 4 years and you graduated in the time that they said you were supposed to graduate in, you did kind of make the purchase decision 4 different times. And then you made it every single day when you woke up and went to class too. I mean, just to hold your accountable. I know it because I did it.

Hannah Maruyama [00:34:51]:
But they were children.

Ryan Maruyama [00:34:51]:
No, no, I know. But I'm just saying like 17 years old, you can claim that you're a child once you signed on for the 1st year and you said, yeah. Okay, cool. And then every single day you kept going and kept going, but then, okay, You can argue and you can say, I'm going a little off the rails here, but this is just what I see to be truth. At some point you could have been like, yeah, I'm not going to keep making this purchase in the 1st year of college and okay, then you could argue. After the 1st 2 weeks or whatever, your money is like in the college and you can't pull it out. Okay. That's true.

Ryan Maruyama [00:35:25]:
Then at 17, you made one bad decision. You were a kid. You could have stopped making that decision at 18 years old and then at 19 years old and then at 20 years old too. And then at 21, if you stayed in that long. And so anyway, they pass that's a little bit of an aside. They pass it on to the consumer. And because you made those decisions that you did now, you have to live with the stress of it. Now you have to live underneath, like with this boot on your neck.

Ryan Maruyama [00:35:52]:
Be with all of these student loans that you will literally never get rid Literally they've proven through generations that they don't want you to get out of it.

Hannah Maruyama [00:36:01]:
No. It's on purpose. When you zoom out and look at it like that, it's freaking wild because they've done such a good job marketing too. There's a comment I saw. They said, I'm gonna get a degree anyway, because then I won't be a corporate slave. I'm like, I'm sorry. Let's just pause really quick, because there is literally no legal way for you to get out of paying your student loans. You cannot.

Hannah Maruyama [00:36:22]:
You are in a box. You are in a prison. It's the same as debtors prison. And I'm watching these people send their kids to debtors prison for jobs that they don't need to buy degrees for. And it's wild, but they've convinced them that they have to do that to get any good jobs. But the reality is very few jobs are gonna be good enough to get them out of this.

Ryan Maruyama [00:36:41]:
Hey there. I hope that you're loving this episode of the degree free podcast. We spend a ton of time every week creating this content for you. So my only ask is you take a quick second to leave a review or thumbs up on whatever platform you're on. It's one of the best and easiest ways that you can support this podcast, and this simple action can help bring more people into the degree free community. At degree free, we wanna help as many people as we can thrive and succeed without needing a college degree. Your review will be a step in that direction. If you could do this small favor right now, pause this and leave a review.

Ryan Maruyama [00:37:12]:
It would truly mean the world to us. Thank you and back to the show.

Hannah Maruyama [00:37:15]:
And it's worse for the people who have what we call high cost, high risk degrees. I just saw somebody the other day that said, I'm an optometrist, and I suspect that the ROI on this is negative. But they're 3 years in, and it's like they're too deep in their mind to get out of it. But they're in it going, I don't know how this math is gonna work out. The answer is, it's not going to work out. They're going to be a doctor, and they're not gonna be able to pay it back, even if they're high earning. But there's people going in right now that are not going to be high earning, because in that time where you and I talked about this, and this is something I didn't even get into, but not only did the types of degrees offered change, because of course, you're going to invent more crap products for people to buy. That's why you get all these nonsense degrees.

Hannah Maruyama [00:37:54]:
They have negative return on them because they're not necessary. It's just another avenue for them to rope somebody in and say, oh, come in and buy a journalism degree. Oh, come in and buy a sociology degree. Oh, come in and buy all these degrees that you don't need to get those types of jobs. And it's unbelievable because they've been so effective at selling it that people will send their kids without thinking about it. And I think we need to do this. I think we need to eventually do that graph and see what it looks like if they had just let it go. But my last thought is about the student loan asset backed security.

Hannah Maruyama [00:38:22]:
So that's something that people need to know about. It's like the mortgage loan market, where they were reselling. They were just packaging and reselling mortgages that were not rated appropriately because people weren't going to pay their mortgages because they were bundled together. The risk was lowered as they said, oh, this is a secure investment because the risk is lowered because it's diversified. But really it's just a large basket of crappy mortgages. What's crazy about this. And what's wild about this too, is they now have that market built on student loans because there's no legal way for people to get out of them.

Ryan Maruyama [00:38:53]:
The fundamental difference between that and this is that the mortgages that they were buying and selling, they were secured by the value of your home. It just inherently like, okay, we're assuming because you got the mortgage for $300,000 that your house is somewhere within the realm of $300,000 There's no way because the bank gave you that loan. They've got underwriting guidelines 100%. Right? I mean, this is what the people that are buying these asset backed securities do. And there are these subprime mortgages and collateralized CDOs. Collateralized debt obligations. And when they're buying these things, they're like, yeah, there's just no way. Right.

Ryan Maruyama [00:39:34]:
And then everybody pays their mortgages. So So the value of your home, isn't going to go down. Okay. So that was a huge, huge assumption that they made. Obviously it was wrong, but this isn't that because you're not making an assumption based off of the market. The market value of your home is the thing that is securing mortgages. If you are wrong, like they were wrong about assuming the market value of the home, well, then the mortgage itself is bust, Unless if they stop paying, then it's bust. But for this it's fundamentally different because they being you listening to this, who has a student loan legally can't get out of it.

Ryan Maruyama [00:40:16]:
So I think they got it really right this time. Bad for you listening to this great for them.

Hannah Maruyama [00:40:21]:
But it's kind of not because that's what I'm saying. Actually, when I was getting into this the other night, this actually spooked me a little bit because at least with the housing, there was an asset. There was something they could take. The bank could seize, they could repossess, they could make some sort of value out of it. There's nothing backing this but labor. It's people's lives. It's their labor for the rest of their life that's backing these. Like not having enough people.

Hannah Maruyama [00:40:42]:
People are literally not gonna have enough children. Nobody can buy a house. People can't make enough money to survive and also pay the loans once they're garnishing their wages. That's what's happening.

Ryan Maruyama [00:40:51]:
I wanted to key in on one of the things and go back to one of the things you were talking about, which was, you know, putting young adults into debt for degrees. They don't need that type of thing. And when you're talking about that, it reminded me of a conversation that I was having with a fellow fireman. When I was a fireman at the time, we were stationed together. We were actually recruit mates and he is considerably younger than I am. He was, I think he was 19 when he got into the fire department. By the time that we were having this conversation, I believe he was 20 or 21. And we were sitting down and he was talking to me about going back to college or going to college period, trying to get his degree.

Ryan Maruyama [00:41:30]:
He was 21 at the time he got in at 19, so he didn't go to college or he might've went to a local community college. He went to 2 years at a local community college to get all of his fire science certs and everything like that. And he came into a group class with all of that. That's what happened. And then he was like, oh, I think I'm going to go back for 2 more years or 3 years or so to get my bachelor's degree. And I was like, okay, do you have that money? And he was like, no, but I could just take out student loans. He had a job already. He had a full time job making a full time salary with fire management, which is not a lot of money, but it had a full time job and he was just going to go on his off time and at night and things like that.

Ryan Maruyama [00:42:14]:
And he was like, well, yeah, I have a job and that I could also just take out student loans. And I was like, for what reason? Like, why would you go and do that? And he's like, well, you know, as you get further in our career, you know, to gain a little bit of knowledge, to be a little bit smarter. And I was like, all of these were just, like, really, really weak reasons. And I was just like, why? To what end? I will stop and say for us at the time or for him, I think if when when you take the captain's exam, you get points for college degree. I think you get like 2 points.

Hannah Maruyama [00:42:48]:
See military service makes sense for that one. Right. Cause they give you points if you've been in the military. That makes sense because you were in a military organization and firemen are paramilitary organization. So it makes sense because you're actually trained. A college degree means absolutely nothing.

Ryan Maruyama [00:42:59]:
Military kind of makes sense, but then just because it's a military and a paramilitary organization, depending on me, you could have wrote a bench. You could have wrote a desk. Sure. But I'm just saying the job really.

Hannah Maruyama [00:43:09]:
No, you're right. You're right.

Ryan Maruyama [00:43:10]:
If you wrote a desk, then why would you get points to be a captain to run into burning building and then direct people to test should be the test.

Hannah Maruyama [00:43:19]:
And you should just pass it or not pass it.

Ryan Maruyama [00:43:21]:
Right. Exactly. I was

Hannah Maruyama [00:43:21]:
just thinking, I was like, wait a minute, why did they do that? They shouldn't do that.

Ryan Maruyama [00:43:24]:
That's not fair. Anyway, that's a little bit of a side and it made sense for 2 points. But then I asked him, I was like, so you're going to spend tens of 1,000 of dollars and all of your nights and weekends and your days off doing this work for like 3 years to get 2 points on a test. And it's not like if you have a college degree, you get a higher pay. Like you don't get a higher pay. You just get 2 points on the captain's exam eventually when you get there 10 years from now. And I was like, you're going to do all that work for 2 points on a test that you're eventually going to take 10 years from now. Why don't you just study for 10 years, the material that we're actually going to get tested on instead of an English degree or a psychology degree or a whatever degree.

Ryan Maruyama [00:44:09]:
Why don't you study fire and everything having to do with our actual job. And by the time that 10 years rolls around, you won't need 2 extra points.

Hannah Maruyama [00:44:20]:
That's education for those of you listening in. That's what we're talking about.

Ryan Maruyama [00:44:24]:
But my main point when I was talking to him, I said, look, not to get into your personal finances or anything, but do you have any debt right now? And he was a very responsible young man. Him and I are oil and water.

Hannah Maruyama [00:44:35]:
But a lot of respect for the way he lives his life.

Ryan Maruyama [00:44:37]:
Totally. We can cohabitate in a bottle together, but we do not miss. We do not mix a short and infrequent doses for the both of us. He feels the exact same way about me. I love him to death. I love him to death short and infrequent doses, please. And what what I was telling him, I was like, oh, yeah. Are you in debt? And he's like, no, I don't have any debt.

Ryan Maruyama [00:45:01]:
And I was like, okay, well, look, dude, you are better off right now at 21 years old than more than half of the population, because you don't have any debt. If you have zero debt, you're doing better than half the population.

Hannah Maruyama [00:45:15]:
That's so true.

Ryan Maruyama [00:45:16]:
You don't even have to have any assets. Like how much you have in your background that we didn't get that far? And he said, no. And I was like, boom, you're doing great. Don't do anything else. Stop it. You know, just sit on your hands. And with our young adults that are coming out of high school, making these purchase decisions, we have to frame it like that. Like you look, you're starting off right now better than half of the people out there because you're choosing to not make a purchase decision.

Ryan Maruyama [00:45:39]:
If you just don't sign that paper, if you're like, okay, I don't want to fill this out. If you don't make me waste my time and fill out this FAFSA so that you can go and get more loans and everything like that to go to college, you're going to be better than majority of the people out there. Like right

Hannah Maruyama [00:45:56]:
now. That's an episode right there. All you have to do to get your kid ahead of 50% of the population is don't put them in debt. That's it. That's all you gotta do. All you have to do is not have them sign student loans. It's all you gotta do.

Ryan Maruyama [00:46:08]:
And the numbers are rough. It's 50 something.

Hannah Maruyama [00:46:10]:
That's a lot.

Ryan Maruyama [00:46:11]:
Yeah. That is this week's episode. I hope you liked it. The student loan part of it. I think you came in super hot. I think it was good. And this is with him full disclosure. If you list this far in the episode, you know what? We kind of wind it down.

Ryan Maruyama [00:46:27]:
Now we had to do a couple of different takes. Hannah was so keyed up on these findings and everything like that, that I had to Reel me back in. Well, you were speaking so fast. I read this brief, like I read the whole thing and I knew where you're going with it, but you were speaking so quickly and you were so impassioned that I wasn't even understanding what you were saying. Having read the brief and also slow. Okay, wait.

Hannah Maruyama [00:46:52]:
We'll do a deep dive on this again and I will organize my thoughts better. I'm trying to improve at being a good linear storyteller. I didn't do a good job in this one, but no,

Speaker C [00:47:00]:
no, no, you did a good job.

Hannah Maruyama [00:47:01]:
I probably do better though. And that's like, one of the cuts was Ryan being like, you need to organize this better so that it's more logical for people who aren't inside your mind looking at all of your charts and

Speaker C [00:47:13]:
your theories. Just let me tell you about my theories.

Hannah Maruyama [00:47:17]:
But yeah, guys, I love to find this kind of stuff and investigate and just ask these questions. What's crazy is that to me, is that when I was looking at this, sorry, this is the last thing before we sign off. But when I was looking at this, no one's done this. No one has found this.

Ryan Maruyama [00:47:31]:
Well, I mean, these are visualized.

Hannah Maruyama [00:47:34]:
No, I made those.

Ryan Maruyama [00:47:35]:
Oh, you made these?

Hannah Maruyama [00:47:36]:
Yes. I made these charts.

Ryan Maruyama [00:47:37]:
Wow. I'm even more impressed.

Hannah Maruyama [00:47:39]:
That's what I'm trying to tell you.

Ryan Maruyama [00:47:40]:
I'm even more impressed.

Hannah Maruyama [00:47:41]:
No, no, no. This is proprietary.

Ryan Maruyama [00:47:43]:
What's funny about that is, and I hope people listen this far in, but what's funny about that is I was going to tell you off air of like, Hey, we got a site where we got

Hannah Maruyama [00:47:50]:
The citation is Hannah Maruyama 2024.

Ryan Maruyama [00:47:53]:
I was going to tell you off air as soon as we stopped. I was like, Hey, we got a site where we got these graphs from, because the the people that made these graphs are gonna want a citation because this we can't just use these nice little graphs here.

Hannah Maruyama [00:48:04]:
Yeah. These are ours.

Ryan Maruyama [00:48:05]:
Oh. They belong Yeah. Free free.

Hannah Maruyama [00:48:06]:
Awesome. These are free free charts.

Ryan Maruyama [00:48:07]:
Very, very, very These

Speaker C [00:48:08]:
are my charts.

Ryan Maruyama [00:48:09]:
These are my charts.

Speaker C [00:48:10]:
Look at my charts. Look at my graphs. Alright.

Hannah Maruyama [00:48:14]:
We're gonna

Speaker C [00:48:14]:
go watch the charts.

Ryan Maruyama [00:48:15]:
Alright. We gotta get out of here. Until next week, guys are long.