The College Trap
By James Donahue
There was a time not too many years ago when young people were encouraged to attend schools of higher learning so they could nab one of the many available opportunities in the American workplace. High schools were linked to specialized vocational schools so those lacking a desire for college could learn technical skills that filled the need for workers in their own communities. Colleges were cranking out engineers, physicians, mathematicians, teachers and a wide range of other skilled men and women to fill a tempting field of new opportunities.
When I attended college in the late 1950’s both students and professors still clung to the old thinking that colleges and universities also taught higher levels of thought. We delved into philosophy, the arts and other aspects of higher learning. As a potential writer I studied proper grammar, the code of good journalism and read the works of the great authors of the past. What we were doing was considered an expansion of our personal perspective on the world.
What was grand in those days was that we could earn enough at summer jobs to cover our cost of tuition and books. Part-time work in and around campus helped us pay for room and board. Many of us graduated debt free.
That was then. So what has happened since? Non-stop war and a rising cost of new technology in building war machines appear to be a major factor. This has created a dramatic inflationary increase in the cost of everything. This is coupled with a world-wide competition for jobs, commerce and profit.
Needless to say the students have become the losers. Due to the extreme cost of tuition and the disappearance of middle-class families the quest by many of America’s potentially gifted students to acquire a college degree has become a trap. Those who acquire even a four-year degree must find and maintain high-paying jobs for much of their lives to pay off the money they borrowed from the government’s student loan program.
According to Wikipedia the total outstanding student loan balance now stands at nearly $1.4 trillion. And some 43 million Americans are now burdened with student loan debt with an average balance owned standing at $30,000 per student.
That might not be such a big issue except for three factors: There appears to be a shortage of good paying jobs so many college graduates find themselves struggling at minimum wage level positions and unable to pay off those monstrous debts. Also there is an accumulating interest rate that is constantly raising the balance owed. And federal law makes it impossible for student loan debt to be written off via bankruptcy.
College scholarships can be some assistance, but maintaining this financial assistance usually calls for demanding academic achievements that many students cannot meet. When this happens the scholarship is revoked.
Halah Touryalai, in a recent article for Forbes Magazine, noted that the student debt problem is the result of the rising cost of education and the relationship between the lenders and student borrowers. “Students without much of a credit score or credit history are being approved for thousands of dollars in loans by lenders who are betting they’ll be able to pay it back after getting a college degree,” Touryalai wrote.
But she added that “the wake-up call occurs after graduation when many students realize their loan debt exceeds any annual salary they’re able to earn . . . if they can find a job, that is.”
Touryalai wrote that about one-third of the millennials now say they would have been better off just taking whatever job they could find after high school instead of going to college.
Indeed, we have personally known physicians and lawyers who have privately admitted that they are forced to charge high prices for their services because they are burdened with both student loan debt and the high cost of liability insurance. Because they usually must remain in college for eight years or longer to acquire their degrees, their debt can more than double that of a graduate with a four-year degree. Consequently everyone who seeks professional services is caught up in the student indebtedness trap, either directly or indirectly.
The current interest rate on student loan debt ranges from 4.5 to 7 percent, depending on the level of learning that is being financed. Students seeking masters and doctoral level training are charged the higher interest. There also is a “loan fee” ranging from 1.06 to 4.27 percent withdrawn by the lender in each disbursement by the bank to the student. Thus the student never receives the full amount of the money loaned, but is responsible for paying the full amount back. These rates are set by an act of Congress. It will take an act of Congress to fix this problem.
Several attempts have been made to provide financial relief. President Barack Obama proposed tuition free junior college but that never got off the ground. Unsuccessful student loan reform bills in past years have flown through Congress but they never get on the floor for a vote. Now Senator Elizabeth Warren is carrying the torch for reform. With an extreme right-wing Republican-controlled House and Senate, however, Warren’s efforts to get this issue fixed are also running into stone walls.
The economic consequences are being felt all across the board. Older Americans, still struggling to pay off those student loans, are staying in the workforce longer, making it harder for younger workers to fill those positions. Also workers burdened with delinquent student loan debt are showing low credit scores. Consequently they are unable to borrow to buy new cars and new homes. This is causing a chain reaction in an already sluggish economy.
Rich Rieder, Chief Investment Officer for BlackRock.Blog., noted in a recent report by the National Association of Realtors that over 70 percent of would-be first-time home buyers say student loan debt is stalling their decision to buy a home. The report noted that home ownership among college graduates by age 30 is much lower than ownership among workers who did not attend college.
While a college degree is still considered a must for ensuring good employment, many good students who cannot afford college without loans are discouraged from considering college. This is resulting in the possible loss of some of the best minds in the nation. It is looking more and more like college is available only for children of wealthy families rather than the finest students.
All of this is creating a worsening of the class divide that has resulted in the loss of the nation’s Middle Class.
Rieder concluded in his report that “the growing student loan burden is a hardship for much more than just the borrowers. It’s a major, long-term headwind to the broad U.S. economy that needs an elegant fiscal-policy solution, the sooner the better.”
By James Donahue
There was a time not too many years ago when young people were encouraged to attend schools of higher learning so they could nab one of the many available opportunities in the American workplace. High schools were linked to specialized vocational schools so those lacking a desire for college could learn technical skills that filled the need for workers in their own communities. Colleges were cranking out engineers, physicians, mathematicians, teachers and a wide range of other skilled men and women to fill a tempting field of new opportunities.
When I attended college in the late 1950’s both students and professors still clung to the old thinking that colleges and universities also taught higher levels of thought. We delved into philosophy, the arts and other aspects of higher learning. As a potential writer I studied proper grammar, the code of good journalism and read the works of the great authors of the past. What we were doing was considered an expansion of our personal perspective on the world.
What was grand in those days was that we could earn enough at summer jobs to cover our cost of tuition and books. Part-time work in and around campus helped us pay for room and board. Many of us graduated debt free.
That was then. So what has happened since? Non-stop war and a rising cost of new technology in building war machines appear to be a major factor. This has created a dramatic inflationary increase in the cost of everything. This is coupled with a world-wide competition for jobs, commerce and profit.
Needless to say the students have become the losers. Due to the extreme cost of tuition and the disappearance of middle-class families the quest by many of America’s potentially gifted students to acquire a college degree has become a trap. Those who acquire even a four-year degree must find and maintain high-paying jobs for much of their lives to pay off the money they borrowed from the government’s student loan program.
According to Wikipedia the total outstanding student loan balance now stands at nearly $1.4 trillion. And some 43 million Americans are now burdened with student loan debt with an average balance owned standing at $30,000 per student.
That might not be such a big issue except for three factors: There appears to be a shortage of good paying jobs so many college graduates find themselves struggling at minimum wage level positions and unable to pay off those monstrous debts. Also there is an accumulating interest rate that is constantly raising the balance owed. And federal law makes it impossible for student loan debt to be written off via bankruptcy.
College scholarships can be some assistance, but maintaining this financial assistance usually calls for demanding academic achievements that many students cannot meet. When this happens the scholarship is revoked.
Halah Touryalai, in a recent article for Forbes Magazine, noted that the student debt problem is the result of the rising cost of education and the relationship between the lenders and student borrowers. “Students without much of a credit score or credit history are being approved for thousands of dollars in loans by lenders who are betting they’ll be able to pay it back after getting a college degree,” Touryalai wrote.
But she added that “the wake-up call occurs after graduation when many students realize their loan debt exceeds any annual salary they’re able to earn . . . if they can find a job, that is.”
Touryalai wrote that about one-third of the millennials now say they would have been better off just taking whatever job they could find after high school instead of going to college.
Indeed, we have personally known physicians and lawyers who have privately admitted that they are forced to charge high prices for their services because they are burdened with both student loan debt and the high cost of liability insurance. Because they usually must remain in college for eight years or longer to acquire their degrees, their debt can more than double that of a graduate with a four-year degree. Consequently everyone who seeks professional services is caught up in the student indebtedness trap, either directly or indirectly.
The current interest rate on student loan debt ranges from 4.5 to 7 percent, depending on the level of learning that is being financed. Students seeking masters and doctoral level training are charged the higher interest. There also is a “loan fee” ranging from 1.06 to 4.27 percent withdrawn by the lender in each disbursement by the bank to the student. Thus the student never receives the full amount of the money loaned, but is responsible for paying the full amount back. These rates are set by an act of Congress. It will take an act of Congress to fix this problem.
Several attempts have been made to provide financial relief. President Barack Obama proposed tuition free junior college but that never got off the ground. Unsuccessful student loan reform bills in past years have flown through Congress but they never get on the floor for a vote. Now Senator Elizabeth Warren is carrying the torch for reform. With an extreme right-wing Republican-controlled House and Senate, however, Warren’s efforts to get this issue fixed are also running into stone walls.
The economic consequences are being felt all across the board. Older Americans, still struggling to pay off those student loans, are staying in the workforce longer, making it harder for younger workers to fill those positions. Also workers burdened with delinquent student loan debt are showing low credit scores. Consequently they are unable to borrow to buy new cars and new homes. This is causing a chain reaction in an already sluggish economy.
Rich Rieder, Chief Investment Officer for BlackRock.Blog., noted in a recent report by the National Association of Realtors that over 70 percent of would-be first-time home buyers say student loan debt is stalling their decision to buy a home. The report noted that home ownership among college graduates by age 30 is much lower than ownership among workers who did not attend college.
While a college degree is still considered a must for ensuring good employment, many good students who cannot afford college without loans are discouraged from considering college. This is resulting in the possible loss of some of the best minds in the nation. It is looking more and more like college is available only for children of wealthy families rather than the finest students.
All of this is creating a worsening of the class divide that has resulted in the loss of the nation’s Middle Class.
Rieder concluded in his report that “the growing student loan burden is a hardship for much more than just the borrowers. It’s a major, long-term headwind to the broad U.S. economy that needs an elegant fiscal-policy solution, the sooner the better.”