Thursday, July 11, 2013

The Next Fiscal Crisis; Student Loan Debt


Just at a time when America is starting to emerge from the housing crisis, and just at a time when American banks were showing a small measure of stability, the next fiscal crisis is raining down on us and promising to again derail the economy.  

Student loan debt now stands at $1 trillion dollars!  Even for those of us who have been bombarded with economists who now feel comfortable speaking in terms of trillions, it is still a huge number. The problem is becoming worse as Congress allowed the deadline to expire on those 3.1 interest rates.  Unless Congress acts soon those currently managing student debt will find that they'll be paying twice that rate, and on tens of thousands of dollars in student debt.

As is normally the case, we can blame big government for this staggering level of student debt.  By making student loan money so easily available it primes the tuition inflation pump that has plagued us for at least two decades.  As more money is piped into the system tuition rates continue to explode, rising at rates unprecedented in our history!  There are simply no controls in place that will drive down the costs of higher education.  Parents and students simply pay the going rate and borrow the money to take up the slack between what they've saved for college and what colleges choose to charge.

What we tend to see these days are bloated education systems that pay college professors $150,000 to $500,000 per year, even as they shuffle the teaching tasks to Assistant Professors or even students they are mentoring.    Without free market pressures, and with all the trillions of dollars being slushed through the education system there are simply no incentives to control costs.

As someone who attended Community Colleges and graduated from a small Catholic University, I find it amazing that students and parents opt for universities that charge more than the cost of a home, to be paid in four years, for a four year degree.  Unless you're graduating from Harvard, or Stanford, or an Ivy League school, there is very little success linkage between students who graduate from a state school or mid-level university.  Bragging rights for prestige schools can cost  a student hundreds of thousands of dollars.

When asked, I've advised family members to send their kids to a good Community College for the first two years.  Here's why.  It's going to cost you a fraction of that of a major university, it affords the student the opportunity to slowly integrate into college life and enhances the chance that your kid will stick it out when all the pressure from a major university is not there.  A good strategy:  enroll your student in Community College and have them take core requirements such as math and science and English and such, thus they are free to specialize in their major for the next two years at university.  This will also reduce the chances that your student, two years into a course of education, decides to change their major and ends up costing even more for the additional classes required.

I did a little research the last few days on education costs.  One amazing fact I discovered was that there are billions of dollars in scholarships that are never applied for, this according to a past President of the National Society for Student Aid.  Some of these scholarships are small, as little as $1,000 dollars, yet there are millions of them that can be applied for and won!  Why wouldn't students apply for these and cut down the amount of student debt they accrue?

Finally, another disturbing trend is the severe reduction in the number of students who are willing to take a part time job, either on or off campus.  Not long ago I read an article from a College President who cited the increased costs of hiring outside labor to man campus bookstores or clean tables in the college cafeteria.  This raises the costs of tuition and takes a potential job slot away from a student who's willing to work part time.  Lets' face a few facts:  the average "full student load" is considered to be 12 semester hours per term.  That's four classes a week folks!  Take those four hours per week, allow two generous hours of "study time" for each class hour and you've got a kid spending less than 40 hours per week dedicated to study.  That leaves over 140 hours per week of leisure a part time job just too much for Junior?  Instead, far too many students, encouraged by Big Government, refuse to work, even during the summer, and opt to draw on student loans to pay for school AND living costs!

And so, after four years of college, Junior or Joanie owe between $100,000 to $200,000 in student loan debt just as they prepare to go out and make a living for themselves.    It takes years to pay off a debt burden for which bankruptcy cannot wipe it out; nothing can reduce that burden and young folks carry it with them for years!

We can't expect 18 year old kids to understand the angst that student debt creates....but our government knows better and should manage the program accordingly.  Sadly, our politicians won't do that because this program, like so many others, is used to buy votes.

Sad.  Damned Sad.


Old Bob said...

I have only one, small, comment on a very good essay.

When I was at the U of Minn 1962-72, a 12-credit load meant four 3-credit classes; but each class met three hours a week, at least. That meant 12 hours minimum a week in the clasroom plus another 12-24 hours a week studying. At most just a bit under a full-time job.

That said, I did work part- or full-time all the time I was in college. One grant, as I recall, and federally-backed loans of which I paid back every penny.

I don't know firsthand, but I would agree that the cost of college has risen far more, and faster, than the general cost of living.

Thanks for a good essay!

A Modest Scribler said...

Thanks for your comments, Bob. Yes, the school load, with study, can keep the student busy, but 20 hours a week of part time work is not a deal breaker. Most of my college study was from night classes after working a full time job during the day. So, it can be done.

And yes, the costs of college has risen far faster than the average cost of living so something has to be done or we'll price the average "joe" or "joan' out of going to college at all.

thanks much.

Anonymous said...

It just doesn't matter.
The ed. system in this country is a joke.
I have studied in Cuba, where the professors and students are infinitely better trained and taught to critically think.
Why should Americans pay exorbitant prices for substandard education?
Go to Cuba, it's free to study, you will learn Spanish, and have the time of your life.

TheOldMan said...

Most universities today resemble resorts. Get rid of federal taxpayer backed student loans and tuition prices will plummet. Granted the rock climbing walls, the elaborate student community centers, the diversity chancellors, the post industrial critical feminist poetry degree will all fade away. So? Only real intellectual coursework will remain, mostly STEM. My goal in college (70s) was to be done as quickly as possible in order to get to the earning world.

A Modest Scribler said...

Old Man, your recap of those bubble gum positions, and the accompanying costs, just made me gag.

What waste.

Anonymous said...

The education system is just waiting for a face-lift, don't you think?

I am sure you, like most people have heard of the new online education craze. Well out of this phenomenon has come something that is actually worth everyone's attention.

World Education University (WEU) is an online degree-granting institution providing free education to people all around the world. Students are asked to use their free education to give back to society creating a better world for everyone to live in.

WEU launched at the early part of this year and already have 700 courses in the queue with undergraduate and graduate certificates and degrees.

Just wanted to show you that things can change...