Looming debt crisis: How much is a college degree worth?

“As millions of American families struggle to cope with college costs that are rising at twice the rate of inflation, CNBC investigates a system that encourages widespread borrowing—often with little regard to a student’s ability to pay—leaving the average college graduate with tens of thousands of dollars in student-loan debt.

How long can the system be sustained? Are student loans the next subprime mortgages? And if the bubble bursts, who will pay the price? CNBC Senior Correspondent Scott Cohn speaks to borrowers, lenders and school administrators to measure the real “Price of Admission” to the nation’s higher-education system. ” CNBC

I recorded this show, and watched it today - and was truly alarmed. Here’s another ‘bubble’ about to burst, courtesy of the lassez-faire, anything goes Reagan/Bush theory of free markets. If you think the mortgage debt crisis was bad, just wait until you see the numbers of students that are already in default, or about to be in default, on crushing student loans.

If you’re of the TeaParty/Libertarian persuasion, you might be tempted to say that it won’t affect you, and furthermore, what were these people thinking - taking out more debt than they could handle. Once again, simplistic ‘answers’ for complex problems.

First of all, our society has been fed a constant diet of ‘you must have a college degree to get ahead’. This was fine back in the day of the GI Bill. It was even fine back when I was in college, in the 1970’s. With my scholarship on the University of Utah debate team, I ended up paying about $250 a semester - and that included books. You can’t even buy the books for that much now. This type of thinking was fine as we transitioned from a largely agricultural/rural workforce in the middle of the 20th century. But the fact is, not everybody needs a college degree to survive, raise a family, or to even get ahead- then or now.

One of the wealthiest men I knew in Salt Lake City, had a fourth grade education. He also owned a sizeable chunk of downtown Salt Lake. Today, people like Bill Gates pursue their dreams, having dropped out of college. Success is simply not dependant on a college degree. My sister-in-law, who is a retired president of a large mid-western community college, and has a doctorate in education, told me that perhaps a quarter of the workforce actually needs to have a four year degree or more.

Look around you. Do you really think the folks running the busy kitchens in your favorite restaurant need a college degree? How about that fantastic plumber? Probably not. We need skilled people to be sure. We need people with passion, drive and the confidence to make their way to success in a society that provides the tools to get there.

Who’s been selling this idea the hardest? The for-profit schools. They are ‘educating’ - and that’s a generous term - nearly 10% of the students in America, while sucking up nearly 25% of the available student loan funding. Hmmm? I’m sorry to tell you this, but places like the University of Phoenix, Kaplan University, Embry-Riddle University et al are very profitable diploma mills subsidized by the American taxpayer. I’ve yet to hear a professional educator tell me that these ‘diplomas’ are worth the paper they’re printed on.

The Project on Student Debt has this to say about for-profit colleges:

“The U.S. Department of Education released new data showing that the national “cohort default rate” on federal student loans is 7.0 percent. The default rate at for-profit colleges is highest at 11.6 percent – almost double the average rate for public colleges. Nearly half of all defaulters (43 percent) attended for-profit schools, even though these schools enrolled only about ten percent of all college students during the relevant time period.”

Take a look at this: Subprime Opportunity: The Unfulfilled Promise of For-Profit Colleges and Universities.

“As with the collapse of the subprime lending
industry, the showdown between for-profi t
colleges and the government shows how the
aspirations of the underserved, when combined
with lax regulation, make the rich, richer and the
poor, poorer. For-profi t colleges provide highcost
degree programs that have little chance
of leading to high-paying careers, and saddle
the most vulnerable students with heavy debt.
Instead of providing a solid pathway to the
middle class, they pave a path into the subbasement
of the American economy.”

I don’t know how much clearer that could be. These for-profit schools have been a hoax, and it’s about to blow up in everybody’s face just like the mortgage crisis.

According to the CNBC show, and other reputable internet sites I could find, the extent of the student loan debt crisis has been grossly under-estimated, since the government only takes a two year ‘snapshot’ of these loans. The huge crisis is happening out further in time, but it’s been in the interest (financially) for both non-profit and for-profit schools to look the other way, and keep reporting bogus numbers like defaults being in the range of 4 to 7  percent.

This is so typical of how we, as Americans, view every institution in our country anymore. Rather than insist on continuing to build the best free - or at least low cost - public educational system in the world - which doesn’t seem to put enough easy money in a few pockets fast - we ‘privatize’ it. It’s quick. It’s dirty. And it will wreck our economy. But the director of Sallie Mae, Al Lord, is on-board with reform. He reduced his salary to only $1 million annually. He kept the kept the 244-acre golf course.

Uh, if I had a school age kid right now, I’d be reading all this stuff very closely - and figuring out how to stay out of this trap. And if you think that as a parent, you can avoid this … think again. Thinking about co-signing on a student loan? Don’t be too quick. If something unforeseen should happen to the student - say, accident or death - Mom and Dad will still be on the hook for that loan amount. And these loans can not be wiped away by bankruptcy.

According to StudentLoanJustice.org:

“Congress removed bankruptcy protections, refinancing rights, statutes of limitations, truth in lending requirements, fair debt collection practice requirements (for state agencies) and even removed state usury laws from applicability to federally guaranteed student loans. Congress also gave unprecedented powers of collection to the industry, including wage, tax return, Social Security, and Disability income garnishment, suspension of state issued professional licenses, termination from public employment, and other unprecedented collection tools that are used against borrowers for the purpose of collecting defaulted student loan debt.”

This crisis affects us all - even Libertarians living in their compounds notwithstanding. In one case cited in the report, a student was doing just fine paying off his loan, until he became very ill. The crushing debt from the medical bills - since we don’t want that damned Socialist universal health care here in America! No sir! -  got this young man so far behind that he’ll never dig his way out of the medical bills or the student loan - which continues to accrue interest and penalties. Again, this cannot be wiped away by bankruptcy.

The bottomline here is two-fold.

First, the American taxpayer, already hit hard by the sub-prime mortgage mess, is about to get hit again. Secondly, the dream of a college education as the sure-fire entry ticket to prosperity has already become a distant dream.  This is about rationing opportunity - like you see in the other Third World countries.

If destroying our economy was a goal for those in the ‘damn the regulation’ department - like Rep. John Boehner, R-OH, and those who’d like to eliminate any federal involvement in education, then this ought to just about do it.

-maven

Resources and Links:

StudentLoanJustice.org

How you can fund college by paying cash for school.

Student Loans: Avoiding deceptive offers

Trends in college pricing

Student Loans.gov

Student Loan Borrower Assistance

FinAid-  a guide to student financial aid

Decoding the Financial Aid Letter into plain English

Student Loan Analytics