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Student loans could be the next economic 'debt bomb'
A student at the Admissions Building at Harvard University in Cambridge, Massachusetts.
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Here's a story you think you've heard before: Go to college. Work hard. Get a degree. Find a good-paying job. Buy a car, a house, and maybe raise a few kids. Life's good.
But these day's there's a new twist to that plot: It's called student debt. And the latest facts and figures on that debt from the Fed are sobering. Total student debt now stands at nearly $900 billion - about $200 billion more than total credit card debt - and about 15 percent of us are saddled with it.
But here's what really caught our eye: as many as 27 percent of borrowers are behind on their monthly student loan payments. Consumer bankruptcy lawyers say they're seeing a big jump in the number of student loan borrowers knocking on their doors. They're even talking about it as the next "debt bomb" for the U.S. economy.
We headed to the campus of the University of Southern California to talk to students about the debt they're racking up. And we talked to Marketplace education correspondent Amy Scott about the impact it is having on those students' future and the economy.
"There's some evidence that young people might be postponing big purchases like cars and homes, and even putting off starting a family, things like saving for retirement or for their own kids college." Scott said. "So that's money that isn't going into the economy. So the impacts are beyond the individual level."
The numbers make that clear. The average student loan debt is $23,000, according to the New York Fed. About 10 percent of borrowers owe more than $54,000. And 3 percent owe more than $100,000.
For more on the options students have to deal with that debt, and for insight on the value of a college degree, listen to the full interview above.
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Everyone should check out this free service for students, PayBackSmarter.com. It lets you explore all your loan repayment options in one place, which makes it easy to see how long it'll take you to get out of debt and how much it's going to cost you.
I realize not everyone can save for college, but you as the student has years to save up when you can take side, cash, and summer jobs. Your parents had about 18 years to help you with this. To say there is no option (for some people) is just poor planning. I took scholarships given by the state, but we did not take out any loans. I was able to finish school with help from my parents and working jobs while attending school.
Just like the housing bubble, a source of subsidized credit creates a bubble that will only be resolved by the inevitable bust. This story contains a lot of misinformation. Part of the reason people earn more with a degree is because since they're so common, employers think you must be a flunky if you don't have at least a bachelor's degree. It isn't that they think that things you learned will make you that much more productive, after all, people are doing the same jobs today with degrees that their predicessors did without.
The inflation in the cost of a college education is a result of the subsidized lending. Without it, prices would be lower, and people wouldn't NEED a loan to go to school. With all the advancements in technology, the price of learning should be FALLING, like other technology areas, rather than rising.
Prices are signals, and when anyone can get a loan to study anything, no matter how impractical, you create inflation in prices. The government needs to withdraw from student loan market and let prices fall to affordable levels. Bright students with appropriate majors will still be able to get loans if they really need them.
The other cost to our economy is that we are delaying the entry into the work force for many workers while they study things unrelated to their eventual occupations. This creates an artificial shortage, and drives up the price of labor and makes our economy less competative. We have too many young people tied up in wars and studying nonesense instead of working in productive jobs. Many people can learn on the job as they used to do up until the last couple of decades.
Lastly, there are many economists on the record that say borrowing to go to college IS NOT the best option for a young person depending on where you go, what you study, and whether or not the course of study is completed.
I heard this story and nodded in agreement that students exiting school saddled with debt will have to put off buying houses, cars, or other big-ticket items. I know this dilemma well.
What this story does not mention is those of us who left school 10, 15, 20, 30 years ago and are STILL saddled with debt, and are STILL having to put off big-ticket items. I find my debt burden (13 years in and 17 years to go) definitely is holding be back from contributing to the economy at this point.
I left school with a (selfish) bachelors and masters, and a $30k debt load. I found a decent job, bought a car, at one point owned a house, and was able to pay toward my loans for a long time. Then I lost my job due to the economy. Now I teach college and grad level classes, and don't make enough to make ends meet as well as to pay toward my own loans. I can barely pay rent.
By the way, is this selfish? I’m able to teach at community college, contributing toward educating our veterans, low-income working students, and those trying to get a degree to better their chances out there in the job market. I’m only able to teach there because I have a masters. Are all of us selfish? They want a degree; I did too. They’re working hard to get one. All of us are contributing members of society, and yet many of us STILL have to take on debt. It’s not as straightforward as you make it out to be. I also have seen my own students drop out because having to work enough time to make enough money to go to school means that they can't take enough units at a time, extending the time (and therefore the cost) it will take to get a degree. This is a difficult choice to have to make and a difficult balance to try to find.
And to those who say that anyone can go to school without incurring debt, I'd like to mention several factors that you may not be considering:
a) there are few jobs to find, for students or for anyone else (despite the “recovering” economy and “new job listings” and all the “good” news we hear on this program)
b) the jobs that are there are often don't pay to cover the entire cost of higher education, without working so many hours that you don't have enough time to take classes.
c) building up savings takes time. Were you able to save enough for college while you were in high school? To do so is just offsetting the impact: live at home, work, and save money first, then go to school vs. go to school, work, and live at home to pay off the debt.
d) we're so often told that getting a college degree is necessary and expected to get a decent job in the future, and you call it selfish to go to school to get a degree?
e) student loan has long been billed as "good" debt-- so I was told. I think the true part of this story is that we need to rethink that, and find a better way for everyone to get a good education.
I'm very disappointed in what I heard from these college students. One wants Obama to pay off her loan. (meaning making the tax payer pay it) Another complains that there is no choice but to take out loans. Yet another that they will be taking out lots of loans for a degree that won't get them a high paying job.
Not one even acknowledged that they were the ones who took out loans. No one forced them to. They all had the choice and made it.
You can go to college with out taking out loans. Scholarships, grants, and yes, that thing called savings. If they were not so selfish, they could go to college for free by simply serving in the military or national guard. But then that is not getting your education just handed to you on a silver plater.
I had my college paid for with the GI Bill, re-enlistment bonus, scholarship, and working three part time jobs. I also felt that I was wasting my time with a good 1/3 of the classes that had no practical reason for being required other than to keep professors employed or to meet the need to drag out your education.
You don't like student loan debt? Join the military or don't take it out. Don't demand that the tax payer fork over higher taxes so you don't have to pay for your degree in left handed gender studies.
Some light must be shed on the percentage of student debt that is tied to the various for-profit vocational schools. However, colleges are a mirror of our expectations for the future. And most schools, profit and not-for-profit, do a very good PR game in targeting these expectations. Young people ready to enter college need to "get real" in selecting their area of study. Colleges need to "get real" in what they offer and the expectations they project. Everyone needs to look critically at the parallel with the sub-prime mortgage industry and the for-profit college industry.
One important issue not covered in the student debt bubble is the connection of ever higher college tuition to the corporatizing of university campuses. Students are paying a small percentage of their tuition towards academics and most of it towards administration. Professors will tell you that this push towards the corproate campus has had the same effect on workers (professors) and consumers (students) as the greater society....the administration is pushing for profits in their campus model over education (product/service). Know where all those profits are going? That's right, to financial services working with leveraging and development of university assets having little to do with the classroom. Just as the reporter stated, the banks are taking this money from the public as with the massive mortgage fraud....inflating the market for fees and when the market crashes, cash in on penalties. Don't think this is illegal?.....we all know it is. Making the only way to get a college education tied to this scam is illegal.
I am also an older student. Much of my degree plan will in studies where I already have 'real-world' experience and expertise - but no 'paper' to prove what I know, so I do not get paid as much as degree-holders without my skills. This program, and most of the comments, are riddled with assumptions and misinformation. Most students are not at private schools, but the right-wing infatuation with 'running government like a business' and inflation have combined to ensure many decent public schools are now charging near private school levels. Buy used textbooks? Actually, the best deal is usually to rent an electronic edition. Student dorms? Meal plans? For the most part, these options are among the most expensive choices a student can take, as the schools run these operations as a revenue stream, or sub-contract the operation as a for-profit enterprise. Whern I graduated from high school in the late 1970's, I was told all kind of horror stories about student debt, and was scared into not pursuing college. I would have spent less for my education, and paid off my student debt by this point, if I had ignored the advice I was given then. I would certainly have been better off with college debt then I ever was with a mortgage. To ensure my ability to be employable, I will never buy a house again, so nothing will keep me from going where the work is. There has always been student debt, and using the same 'life as business' logic the right is so infatuated with, an investment in ones' knowledge and skill-base is not debt, but an investment. Let's try to be consistent (and while we are on the subject: how about ending corporate welfare, and return to what Adam Smith actually advocated!).
I am frustrated and saddened by these stories of the 'poor students who are only making their choices based on the promis of a career.' We are not doing them any favors by first misguiding them and then working to get them out of the choices they've made. I am following a different plan - 22 years old, a Junior at San Diego State University after transferring from a community college, working full time and not a dime in student loans. I am not attending Harvard but I am certainly receiving an education (much of which I find outside of the classroom.) I don't have an ounce of sympathy for the kids in my classes who have openly told me that they expect to fall into a high paying job in their field the second they graduate. Caveat emptor - unfortunately paying for a degree does not automatically lead to success. If my classmates watched 5 minutes of the news they might learn that the job market is still a little bleak and repaying huge amounts of debt immediately after college might be a bit ambitious. I'm all for having dreams but please insert some reality.
Stories on higher education focus on traditionally aged college students. I am in my early 40s and will be graduating with my BS in psychology this May. My student loans at that time with be around $35,000 - and that's for attending public schools. Currently, I am waiting to hear back from a number of universities across the country if I have been admitted to their Industrial/Organizational Psychology Ph.D. programs. Many of these programs would be "funded" (tuition waived and a stipend provided in exchange for research and teaching work), which is great. The one program I have been admitted to is not funded and could add over $100,000 to my debt if I choose to accept their offer. When I graduate I will be close to 50 years old and could have close to $150,000 in student loan debt. I'm sure I am not the only adult facing this agonizing delimnea given the fact that many people have lost their jobs in the last few years and have turned to college and vocational programs to learn a new profession. While a 20-something has 45 years to recoup the cost of obtaining an education, older adults do not. How are people like me fairing in finding good paying jobs in their new chosen professions? Are they able to recoup the cost of their education? What is the litmus test for student loan debt? I have done some research on this subject and no one is exploring it. Perhaps I will have to take it up in my graduate studies.
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