In recent years the United States housing market took a severe downturn as an artificially built up market was destroyed by an inability of homebuyers to pay for their unsecured loans. As a result, the government of the United States ended up bailing out the financial institutions who had issued the many loans to under-qualified home buyers. Today the US government has its hands in another loan process that is giving huge amounts of money to under qualified borrowers. That new debt accumulation is on a similar scale as a mortgage but without a home to live in. This fast growing debt bubble is student loans.
The average yearly college cost varies depending on the school. The average spectrum of tuition costs $3,000 per year for public two-year colleges, $7,500-$12,000 for public four-year schools, and around $27,000 per year for private nonprofit four-year colleges (CollegeBoard, 2010). These are the pricings undergraduates are faced with as of 2010.
One question that may be asked is: Why are private colleges so much more expensive? One of the reasons lies in the 90/10 rule in which private/vocational schools are legally forced to raise their tuition prices every time the government raises the financial aid available to students. They have to receive at least 10% of their incomes from non-federal government sources. To accomplish this, these schools are forced to increase their tuition costs or try and find external income sources. (InflationUS, May 14, 2011)
The US government has taken over the loan market for student financial aid. They are handing out loans to almost anyone. There is no requirement to show proof that you would be able to pay off this debt in the future. No employment record is necessary. The loaning body doesn’t even care how much is being borrowed for the type of degree received. This means that someone who is looking to become a chef and decides to go to a culinary school is given the same possibility for a loan as a pre-med student doing undergraduate work. They are both able to get the same amount of government loans with no differentiation between the future likeliness of timely repayment.
Because of these trends in lending practices, students are able to borrow more money than they need for their college expenses. There are very limited checks and balances in place to stop this and it ends up burdening the tax base in which these funds are drawn from. This is just one more draw on tax payers’ resources which should stay in the hands of those individuals.
The majority of students who qualify for large government substantiated loans would no longer be eligible to receive the copious funds under the direction and administration of private banks and lending institutions. These institutions would look for applicants who have potential to repay the balance of their loans. Beyond that they would keep a closer track on how much a student needs to borrow for their education, decreasing the over-lending that is common place under the Federal loan program.
By giving the loan process back to banks, it will allow competition in the private sector to come back into play, increasing the free market economic system’s ability to balance itself. Colleges would be forced to find ways to cut their costs to the balance of their student body in order to make education affordable, or be faced with the inevitability of closing their doors. This may be a positive step in increasing the value of a currently depreciated college degree.
According to The New York Times, Colleges are increasing their tuitions along the lines of 6% each year (Steinberg, October 22, 2010). The number of people attending college is also going up. As of 2009, 70% of high school students enrolled in college following graduation (InflationUS, May 14, 2011). If everyone has a college degree, the value of the degree becomes miniscule. Experience, passion, and motivation, along with many other traits in a productive individual, have become more of a value in today’s job market.
The college experience as we know it now will soon have to change once again to survive. Student are starting to demand change, as riots at UCLA have demonstrated. The student body was infuriated at a farcical 32% tuition increase, causing them to take action. This is a trend that may become much more common in the years to come.
This is no shock as an average college student has more than $20,000 in debt at graduation while the average salary for a new graduate is only around $30,000 (Weston, 2009). Many have been told, and will argue, that by going to college you will increase your long term earning potential by about a million dollars (InflationUS, May 14, 2011). This is a façade created by skewed facts and manipulation of data. A person who ends up with an increased earning potential of a million dollars will on average have at least a six year degree.
“A person who goes to college will make 1 million more in their lifetimes. Most people who make this much more take at least 6 years to graduate college. With average college price and a 5.15% annual inflation total cost to earn this extra 1mil will be about 186k. Paid back over 10 years at a 6% interest rate would be about 62k of interest for a total cost of 248k. Lost income would amount to about 212k over their 6 years of schooling if they didn’t hold a job. This makes it about 460K over 6 years to earn the chance at an extra 1 mil over a lifetime (InflationUS, May 14, 2011).” While these numbers could easily be high because of implausible number manipulation, even at half of the total cost NIA estimates, the six years of college will amount to about $175,000. This is still a hefty price tag to gamble with in hopes that a lifetime of work will accumulate a gain in overall income.
Accumulating large amounts of debt, that cannot be discarded by law, makes it a necessity to find a job immediate after graduation. With this huge amount of debt and a poor job economy " a whopping 85% of college seniors planned to move back home with their parents after graduation last May" according to Jessica Dickler of CNN Money (Dickler, November 15, 2010). In the past, graduates would find jobs and buy houses. Now they have student loans in the amount of mortgages without a home to show for it.
The amount of student loan debt is now higher than credit card debt. Fox Business reported, " nearly $830 billion of student loan debt compared to the more than $825 billion of credit card debt. Unlike credit card debt, people cannot have federally-guaranteed student loans erased by declaring bankruptcy. And the government can garnish Social Security payments and tax refunds if a person defaults on student loan payments (FOXBusiness, September 21, 2010)." This huge amount of debt, owned by tax payers through the Federal government, will soon be more than our economy can handle. This could easily lead to another bailout situation like that of the housing market when its loaning practices finally caught up to it. The debt forgiven by the printing of money will cause inflation and the depreciation of the US dollar.
While college is an important structure from which to extract information in a guided way, it is becoming or has become, depending on the source, a fiscally irresponsible path into the workplace. The availability of information is now at the tips of our fingers. We don’t need to retain the vast quantities of knowledge, propagated though colleges, to be productive members in today’s workplace. The focus is shifting to a workforce that must be able to manipulate and sort information based on a particular companies ideologies and standards. Past are the times when a single standard dominates an industry.
Adapt or die is a common phrase heard throughout businesses in our era. This is a motto that colleges must be willing to embrace. Student body activism must start being more common. The students of UCLA should be the spark that motivates others to take action and correct this dilapidated system that is currently in place. A movement to change the spending habits of the government should be set in motion. Allowing free market economy to correct the inequities of the current college loan system would be a good starting point. This would cause some colleges to close. It would cause others to go online and re-engineer their programs to be able to focus on the needs of specific industries while lowering cost. The technology and the infrastructure is available to move college in a more economically conscientious direction while increasing its focus on the specific needs of both the students and the industries that they will work for.
While college has its major flaws, primarily fiscal, it is still a path into a lifestyle of knowledge and prestige for those individuals motivated enough to take advantage of the opportunities that the institution presents. The Federal government must find its way out of the student aid market, find a way to somehow fix what they have in place, or risk continued devaluation of college education. Students must become more active in the shaping of our education system or forever be indebted by it. The power to promote and instigate change is within everyone’s grasp. It is a choice that must be embraced to facilitate the recovery of our education system, our economy, and the way our government is involved in our lives.
References
CollegeBoard, (2010). What It Costs to Go to College. Retrieved October 8, 2011, from College Costs: FAQs – BigFuture | College Board
Dickler, J (November 15, 2010). Boomerang kids: 85% of college grads move home. Retrieved October 8, 2011, from http://money.cnn.com/2010/10/14/pf/boomerang_kids_move_home/index.htm?iid=EL
FOXBusiness, (September 21, 2010). Student Loan Debt Surpasses Credit Card Debt-What to Do?. Retrieved October 8, 2010, from http://www.foxbusiness.com/personal-finance/2010/09/20/student-loan-debt-surpasses-credit-card-debt/#ixzz1aDE5hLJS
InflationUS, (May 14, 2011). College Conspiricy. [Streaming Media]. - YouTube National Inflation Association .
Steinberg, J (October 22, 2010). Average College Debt Rose 6 Percent to $24,000 in 2009. Retrieved October 8, 2011, from Average College Debt Rose 6 Percent to $24,000 in 2009 - The New York Times
Weston, L. P. (2009). How to blitz your college debts . Retrieved October 8, 2011, from http://articles.moneycentral.msn.com/CollegeAndFamily/MoneyInYour20s/HowToBlitzYourCollegeDebts.aspx
