By Scott Schneider
The idea that higher education is the only way to get ahead in a competitive society isn’t a new concept. In fact, it’s probably something that has been programmed into many of us at an early age. It’s no surprise college enrollment has surged in the last decade, and tuition and fees have skyrocketed as well.
When it’s finally time to graduate, students are walking away with more than a diploma in their hand. They are also leaving with a record level of debt. According to experts, the total owed on student loans is expected to cross the $1 trillion mark by the end of 2011.
To place things into perspective, American graduates now owe more on student loans than the rest of America does on its credit cards. While credit card debt is declining, student loan debt is going up.
According to a report from the Institute for College Access & Success’ Project on Student Loans (projectonstudentdebt.org), college seniors who took out loans to fund their college education owed an average of $25,000. To make matters worse, 2010 graduates suffered an unemployment rate of 9.1% when they graduated in 2010 (up from 8.7% in 2009).
The college debt crisis is huge and should be at the top of the agenda of people who support OWS. Student loans debt is almost never dischargeable in bankruptcy, unlike all other forms of debt illustrated in the graph below.
If someone is in over his/her head in car loans, mortgage debt, consumer debt, health care debt, etc., he/she can discharge most or all of it in bankruptcy and get a chance of a fresh start. Student loans, other than in cases of extreme hardship are not. As long as you are earning income and have an unpaid student loan, you are legally obliged to pay it off.
For many students loans are the only option to attend. While $25,000 dollars does not seem like an overwhelming amount to pay off over the course of 10 or 30 years, the recent financial crisis has made it harder to find a job out of college. Student loans come due largely at a time when one is making the lowest salary of his/her career.
People who may have avoided loans in the past are being pressured to obtain financial aid to achieve their dreams. Parents are taking out PLUS loans to mitigate some of the burden on the financial hardship of their children.
It is especially difficult for students who are forced to take out private loans. Private loans are not backed by the government and in times of hardship are exempt from forbearance and deferment.
With the continuing surge of unemployment, the number of subsidized and unsubsidized loan payments will continue to go into forbearance or deferment and the American taxpayer will invariably pick up the tab.
So why listen to the politicians who encourage us to attend four year universities during recessions? Is it really worth the investment for the possibility it might not pay off? Overall, the answer is yes.
Despite the state of the economy, high school graduates are roughly twice as likely to be unemployed as college graduates. College graduates are more likely to find their jobs satisfying. They are more likely to get health insurance, benefits, and a retirement package.
Attending college usually means losing four years of earnings at a full-time job (in addition to the loans that must be paid off), but oftentimes it’s better than the alternative.
We need reform. The real reform needs to come by getting the government out of the student loan business. The reason the tuition is so expensive is because of government loans. The institutions can continue to raise tuition and be as inefficient as they want. It doesn’t matter because the students are going to get the money to go to school, which is backed by the government. Loans and loan guarantees are the real problem. If we can remove that from the equation, maybe the cost of getting an education can be reasonable again.
There was a time where working a summer job covered most of the expenses of going to school. The baby boomers may remember a time where they could go to City College for free— Totally unheard of in today’s “education lottery.”
The long-term economic consequence of rapidly increasing defaults would be a slowdown in consumer spending and consumption, as disposable income is locked down in paying collection agencies and interest accrued on loans. Even a gradual increase in deferred payments could reduce consumption enough to prevent a complete economic recovery in the United States. If we can’t find a way to fix this, the American Dream is dead…sold before the start of your career.