Do you have an outstanding student loan? I’m happy to say that I recently paid off the remainder of the student loans I borrowed in 2004 when I returned to school full-time to get my master’s degree in business administration.
My pay-off amount — a little more than $11,000 — won’t put a dent in the $1 trillion the Federal Reserve says Americans now owe on outstanding student loans. The student loan nut surpasses what consumers owe in credit card and auto loan debt.
The average amount of student loan debt carried is $23,000. It’s not unheard of for students to obtain advanced degrees in law or medicine and carry hundreds of thousands of dollars in student loan debt.
Too big to fail?
It’s no wonder given the staggering amount that families and students are now borrowing to fund college educations that more people are asking: Are college educations worth that amount of debt?
Minnesota teenager Abigail Hansen chose her less expensive state college over the prestigious but tuition-gouging Cornell University on the East Coast. Hansen did the math and figured that paying $150,000 or more for a Cornell education wasn’t worth it. She says some friends have criticized her, but I applaud her decision. It makes sense. More students and their families should be crunching numbers.
Across the country, financial experts are looking at student loan numbers and more than a few are worried. The escalating student debt levels are fueling growing speculation about whether that market will implode just as the subprime mortgage market blew up in 2008.
“If current trends continue, there will be consequences not just for young people, but for all of us,” according to Rohit Chopra from the Consumer Financial Protection Bureau. When that new federal watchdog agency assessed the size of both the private and federally funded student loan market what it found was “sobering.” Chopra concludes what others are beginning to realize: “It seems that this market is too big to fail.”
As the New York Fed points out in its recent study on student debt, the loans are complex and involve several players, including state and federal government agencies, schools, loan guarantors and, of course, students and families. It’s fertile ground for abuses and deception.
Many of the players in the student loan racket have something to gain from students going deep into debt on the promise of brighter degree-holding futures. Remind anyone of subprime mortgages marketed to working class families? Those were people seeking the other great American dream: home ownership. They, too, were easy pickings for the financial sector. Everybody — mortgage brokers, lenders, underwriters, stock brokers and hedge funds — made money pushing bad loans to people who couldn’t afford to repay the money under the terms of the deal.
Those who argue a student loan market implosion is unlikely point out that federal student loans can not be discharged in bankruptcy. Those loans are more likely to be repaid because payment terms can be structured to match the payer’s income and ability to pay. Private educational loans don’t carry such safeguards.
Runaway college costs
Former U.S. Secretary of Education William J. Bennett argues that federal student financial aid has given colleges little incentive to control costs and keep tuition down. Tuition at four-year colleges has continued to rise — fueling the need for larger student loans and more financial aid.
Employers haven’t helped much with this vicious financial cycle. Want ads requiring college degrees for jobs requiring minimal skills and — more importantly — paying barely above minimum wage are common. Those jobs don’t pay enough for young workers to afford to live independently and repay their student loans. Given the state of the American economy and that outsourcing has meant an erosion of wages and high-paying jobs here, many of our college graduates can’t find jobs that pay livable wages.
That may make college a bad investment for many students. But too few people are saying this loudly enough.
I question whether someone graduating with a college degree today will earn more over their lifetime than someone who didn’t go to college. College used to mean higher earnings. It was true when I went to college 30 years ago, but I don’t think the same is true for the majority of today’s graduates. Some grads will earn more; others will struggle. I’m not sure if they will ever enjoy the prosperity that their parents experienced. The game has changed. We need to lower our expectations and stop insisting that kids go to college.
The more I think about it, the more disturbed I am about the U.S. education system. I think it is right to question the need for a college education given such huge debt loads. I don’t think college is right for everyone and I especially don’t think it’s a good idea to start adult life with a mountain of college debt.
Avoiding collateral damage
I could have dragged out my student loan payments another two years to the final payout date. The interest rates were low and I wasn’t struggling to make the payments. But a part of me wanted to get out of the student loan racket. I don’t know if an implosion in the student debt market is on the horizon. If there is a crisis, I know I don’t want to be part of the collateral damage.
UPDATE: Since this blog was published Business Week released its annual look at the return on investment for college degrees at various institutions. Interestingly, the analysis found that at 191 schools, students who graduated had a negative return on the investment in the college educations. They concluded: For students attending these schools, they would have been better off dropping out without completing their degrees.
And, a theater group in Maryland has produced a stage play — “College Fever Live” — that presents a musical about the student debt crisis. They are performing it April 29, 2012, in Camp Springs, Md.