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Wait, we don't have a student debt crisis?
Do we not have a student debt crisis? That's what The Atlantic's Derek Thompson says.
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Attention: The Consumer Financial Protection Bureau wants you.
This week they called for consumers' suggestions for policies to ease repayment of student loans, which they say are preventing young borrowers from climbing the economic ladder. Last year, for the first time, the amount of student loans taken out passed the $100 billion mark. And this year, also for the first time, total outstanding student loans will exceed $1 trillion. That's more than the entire American population owes on credit cards. This is a crisis, right? Well, the Atlantic Monthly begs to differ. They argue that the numbers tell a very different story -- a story they illustrate with an infographic in the March issue of the magazine. Derek Thompson is a business editor for The Atlantic.
"So the sticker price of lots of school is $50,000-60,000 a year. I think one year at Harvard right now costs about $57,000, which is right in line with a lot of these elite, private institutions. But that's the sticker price and not a lot of people end of paying the sticker price. In fact, I think the average costs of these schools is much closer to $20,000 even after you include all the various amenities and the costs of living. What we wanted to look at was, OK, we know that people are afraid of this student debt crisis and that the number is especially big because in the recession a lot of kids went back to school and so student debt continued to rise. But when you look at exactly what students are getting in exchange for their debt. It does seem like a pretty good bet, especially when you compare it to all sorts of other investments that you can make with money," says Thompson.
Thompson says he doesn't want to downplay the huge amount of money that students pay to attend college. Of course, education is expensive, but he notes that students do have a long time to pay back the money. "Getting student debt, essentially investing in an education, does tend to pay off down the line in higher wages, which you can use to pay off the student debt that you've acquired," says Thompson.
Forty-three percent of students owe $1,000-$10,000 after graduating, but tuitions are rising. At what point is the student loan too burdensome?
"One fact that I would look at is what economists call the college premium. You can basically think of it is as the bonus that you should expect to get from going to college. That college premium has stayed pretty strong throughout the recession and throughout the last 10 years," says Thompson.
And what about parents who are bankrupting themselves to pay off their kids' student loans? Instead of facing a student aid crisis, could we be facing a middle class collapse crisis?
"The thing that a lot of economists say is where do you start to fix the middle class crisis? You start with giving the middle class more skills. You start with improving what they call the human capital of the middle class. You give them the capacity to start their own jobs and be smarter and more clever and skilled in the jobs that they're working in. And I don't know the best way to do that, except to say that we seem to have a college system that, for all of its faults, is still the envy of the world," says Thompson.
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This guy obviously has no clue what's going on and I'll gladly enlighten NPR with a reality check.
1. The student loan relief measure failed so interest rates will double. Too many people have quit trying to repay their loans because they can't afford to pay them and feed themselves at the same time. It can take up to 90 days to have it show up on a credit report and some are taking parents down with them on their Parent Plus loans. Low and behold Mom and Dad, Aunt or Uncle can't really help you either. Skipping payments on one load in order to make other payments is not going to work either.
2. Just because you have a more advanced degree with all the right qualifications doesn't mean that company you applied for will hire you - they're hiring more STEM foreign workers than Americans. Even Hollywood is doing this. Why hire an American when you can hire someone who is happy for half the pay and no benefits? Set up requirements impossibly high, then whine you can't find a qualified "American" for the job. Why not do a story on this? There's even a provision in the Amnesty bill to allow even more foreign workers (currently 42.8 MILLION are here now) into the US.
3. Patent trolling is suffocating innovation and invention. I keep looking through patent application processes and have found I can't afford the $15,000 + required just for a provisional patent! Yet I could be sued for millions by someone who won't bring a product to market who holds a patent so broadly defined it could be interpreted for just about anything.
4. People who can't find jobs have run to the military branches! Just try to get a recruiter to call you back within a month, never mind a week. They've become more picky about new recruits because they are so many to chose from now.
5. No regulation at all on what interest rates banks can charge. I've seen students kicked out by their parents taking on loans with interest as high as 27%! Students have no recourse on loans as even welfare (including Social Security and Disability) can be garnished to pay for these loans. Students have no rights either. They pay up or get their credit score demolished even if they are working two minimum wage jobs just to eat and keep a roof over their heads. Many private lenders don't offer deferment, charge interest rates at 8% or more while the student is enrolled in college, and no longer defer payment (used to be 6 months to a year) even if the student has no income.
6. Stress induced health problems. Thought credit card debt was bad? What about owing 100K and finding that your job is being shipped overseas where you aren't welcome and the job markets are tougher than the US? Get ready for your health to take a nose dive working those odd, dangerous jobs that offer no health insurance. Your paycheck will be too small to cover everything so get used to being worse off than you were before going to college.
7. No investment in education. Funding for higher education could have cut the head off this monster but some idiot decided that people in this country are just here to bail out banks and make them rich. I paid higher tax for CEOs but screw the people who would actually create jobs in this country if the opportunity wasn't stolen from them by the rich welfare parasites in this country.
8. Scholarships, grants and "financial aid" are only for the very very poor, illegal immigrants or the minorities. If you're just poor, white or even lower middle class you will get NO financial aid, grants or qualify for scholarships. I saw nothing but racist scholarships stating the applicant would not be considered unless the were black or hispanic - or that preference would be shown to that skin color/ethnicity. There were no MERIT-Based scholarships at the colleges I transferred into and out of. ZERO. The financial aid he pressed on about is nonexistent. What college was he referring to? I don't know anyone with just 20K in student loan debt unless they didn't finish earning their degree. Many have no choice but to work so the children of the rich already have another leg up on them. How long can you work 30 hrs a week and do 60 hours of class work with no days off?
9. Limited or nonexistent repayment options. You can pay at a rate you can't afford right now as you have no job OR you can pay at a much higher rate that will leave you homeless. Lenders also keep ratcheting up interest on loans to the point it becomes impossible to pay off. Sooner or later the student will quit paying. People can only take so much hardship before they've had enough and some are going to bankruptcy court ready to prove they'll be homeless as they can't find a job that will both feed them and the greedy lenders.
10. Lost wages/earnings/investments from these students due to predatory lenders will hurt the economy even worse than illegal immigration and foreign workers. Money siphoned off of a consumerist economy by those sending money out of the country and those who aren't keeping it will hurt buying power overall in the US. If junior can't afford a home and rents his entire life he'll have little equity or net worth to show for it. No new or used car, no kids, no retirement nest egg which means the welfare programs we have now strained will be drowning in the red.
If they were to actually bother interviewing these students they'd find an ugly truth. College degrees in the US aren't worth it. Employers want temp employees, contract only, no benefits, no overtime pay, and very limited rights. Rick Perry is recruiting companies to come to Texas because they wages here have been depressed by illegal immigrants and foreign workers. Don't believe me? We have cities where no one speaks English and 24% (too low a number in my opinion) of workers are uninsured. Welfare costs are rising to unsustainable rates and no one wants to admit this is the next bubble to burst. The riots in the US will make those in Europe look like a cakewalk when the Screwed Generation takes matters into their own hands.
11. Colleges don't work with students on job hunting, recruiting employers, or even disclose the ROI their degree will afford them.
This is by and far one of the biggest complaints aside from no financial aid. You can take a stupid personality test but when hunting for that entry level job you're on your own. You would think a college would want to boast about their student hire rate but the reality is they're there only for your loan money. There is no penalty for creating more people who will be dependent on welfare in this country.
The bottom line is that US companies want free labor from skilled employees with no overhead cost. This system can't last much longer.
People CHOSE to take on debt for college. They chose to go to overpriced schools. There are lots of good colleges that don't charge 50k a year. You can get scholorships with good grades, grants, and could save money befor going. You could also chose to put others first and join the mitary and get the National Guard or the GI Bill to pay for it.
The debt held by students is their choice, I'm sorry but I see this like those who get addicted to alcohol and drugs. It is sad and it would be nice if they could work it out, but I should not have to pay more taxes to help them avoid the consequences of their bad choices.
It would be better if we heard more about avoiding student debt than how because of that debt people can't afford to take out other debt.
The reality is that the 'average' college debt has now grown to over $26,000 (for the class of 2011). And I'd like to think that most people don't take on the liability for the heck of it.
Minimizing debt and maximizing value should always be a priority, but family finances do vary, especially when the cost of living is up (particularly for those with a healthcare/insurance burden), and we have a 'combination' of both sub-par employment and college costs at all time highs. Not everyone is going to join the military (even if government $$ could support that) or get big scholarships. So it's not surprising that many people must find alternative/supplemental funding, depending to some degree on what they think they need in an education.
I would like to see, though, more exploration of options, and how other programs can be recognized as equivalent to the 'holy grail' of a conventional degree.
Study that shows college grads make more is misleading and authors know it. Your smartest and most motivated kids go to college, doesn't necessarily mean that those same kids wouldn't have been successful if they hadn't attended. In order for the chart to actually mean what it implies, you'd have to compare to kids that were qualified for college, but instead went directly into work to their college graduated equivalents. Of course there is no data set to use because nearly every smart kid is told they need to go to college to be successful and given unlimited credit to do so. Also, there has been tremendous inflaiton in degrees, so now jobs that previously had been staffed with smart high school grads, employers set a bachelors as a minimum standard becase they're so plentiful and is an easy way to screen for good candates.
Anyone find it strange that in a discussion of the benefits of a 4-year college degree -- particularly in relation to the ' college premium' -- there was no mention of the fact that incomes for people with college degrees have remained stagnant since at least 2000?
What kind of economics is 'Market' Place trying to sell here?
http://www.epi.org/press/wages-young-college-graduates-failed-grow/
I found it difficult to listen after the first few statements. The guest is not living in reality. Yes, some uncompetitive private schools may show a $50K a year sticker but offer so much in scholarships that the pricetag is half...but competitive schools (I'm not talking Ivy Leagues) are not. My son a highly competitive student, was accepted to most schools applied to but the end discussion revolved around the complex finances involved. He sadly settled for a highly rated in-state school (although not completely happily, and it's not really the best fit for him) because he/we could afford it. That said, it's still $20K a year. The competitive private schools he applied to...all begged poor, spending untold dollars chasing him after accepting him, but stating that their scholarship endowments had been decimated by the financial mess and couldn't offer as much as they would have in previous years. Nowhere near half as suggested by the guest. We were told he had been given their largest grants/scholarships, and were still left with $40K and up a year remaining. Ridiculous. This is the problem, noone will ever address these issues when the purported "experts" are so off-base in their public statements.
What Derek Thompson failed to recognize is not so much the numbers side of the student debt crisis, but the quality of the student debt situation. The majority of critical student debt is handled by private institutions & creditors which are usually inflexible. Currently, despite reforms to many mortgage and other financial products, there is little or no regulation of privatized student debt, particularly in regards to interest rates. Coupled with a tight job market, graduates usually encounter situations with relatively low-paying jobs and once their grace period has expired, often will defer until they cannot defer any longer and are forced to forebear at which point the interest on their debt is exceedingly high. The other factor here is the American higher education system which in recent years has become flush with accelerated-learning courses, colleges and degrees, often promising a trade or certification or degree in a shorter period of time at relatively the same cost as a four-year college or university. They provide the promise of a new career, but no guarantee of employment. While there have been new rules and standards set on these academic and technical institutions to ensure their value, there is still no set of controls regulating privately held student debt. And that is really where the crisis takes hold. In order for graduates and those changing skills in the job market to have a fighting chance to gain new, higher-paying employment, they require more consumer protections and options for negotiating and paying back their student loan debt.
Thompson missed the main point - college is overpriced. Yes, it *may* be a good value in the long run. But a much better one would be to get the same education at a fair price.
College costs more than it should. I have personally gotten a second degree (an associates in accounting) at a community college, which I later converted to a four year accounting degree at a four year state college. Having experienced the level of education at both, taking in some cases the very same courses (when they did not transfer), I can attest that the community college program was equal to the four year college program. This may not be true always, but it shows that a good education need not be so costly. Quite honestly I taught myself some of things I had to take classes in, which shows that a good education can even be free. So the problem is not about providing loans or somehow convincing students that 60,000 dollars of debt is a good deal, but about getting the skyrocketing costs of education back down to reality again, raising the standards of high school so that students aren't using their freshman year for remedial education, and creatively find ways recognize education when it comes in different ways (self-education, experience, training) so that students are not forced to pay for classes in subjects that they have already mastered.
I'm just a business guy with thirty years experience in hiring and being hired. This is what I see:
The key word in the Atlantic Monthly article is "aggregate." That's like saying "in the aggregate" your chances of dying in an auto accident are 1 in 100 during your lifetime, without taking into account how you maintain your car, whether you get enough sleep, how many miles you drive, whether you text or call while driving, etc.
To say that a college education has a premium attached also is based on what happened over the last thirty years or so, not what's going to happen from now on out. Thirty years ago you could graduate with a degree in history, take a few business courses and get a job in marketing and earn a pretty good living (that's my personal experience). Today a history degree will get you a lot of months of looking and applying only to get no reasonable job offers, unless you consider retail clerk, food service or pizza delivery as acceptable offers.
The aggregate analysis also doesn't take into account the very fast change of technology. Those pushing an expensive college degree want you to think they give you skills that will last a lifetime. This is silly. Maybe they teach you advance problem solving skills. But try to sell that idea to the guy hiring for a specific job. Even if you had training on how to use a specific type of scientific equipment twelve years ago, that technology is way out of date now. And your problem solving skills just mean you need a little less on the job training than someone else. Almost no one in the corporate, technology or finance world gives on the job training nowadays. They have a lot of people to choose from and hire for very specific skill sets. Your advance problem solving skills are worth little in this environment.
The aggregate numbers also don't take into account the devaluation of the college degree relative to its cost in the Internet age. There are dozens of online universities peddling over-priced degree programs and delivering little in the way of real job opportunities. As long as we have this triangular relationship where the student gets the government to be the financier and the private for-profit online universities can get by making lots of money off low value degrees, we'll have this bubble building. And I have to say that public universities aren't much better. As long as they continue to pass along double digit cost increases year after year, they will be building the pressure inside the bubble, also. This is exactly what we had in the recent housing crisis. Watch for the bubble to burst in the next ten years to the great ruin of a lot of great young people's lives.
For me this is the real problem with the nonsense of the aggregate numbers: They don't relate at all to the realities in the lives of real young people trying to find their way in the world and get a family started. Most young people today won't do what my wife and I did and have three kids before we saw our 28th birthday. But they may want to get married, buy a house, own a car, have a child and so forth before they turn 35. All of this is seriously threatened by carrying $50,000-$100,000 in student debt that must be repaid (the US Govt. won't ever forgive this repayment so plan on paying it off). And of course, the young people who carry these larger amounts of debt are those without other options - no money from mom or dad, already working a part-time job, little grant money - so their opportunity to have a middle class life-style is very narrow. And consider how having this much debt plus all the other strains of life as a young person affects your mental state day-to-day. Add to that the very weak economy with few opportunities for advancement, rising gas prices and all the other financial challenges and you get a pressure cooker environment.
So before you take on that college degree with a truckload of debt, think about your own employment picture in four years. Do a real cost benefit analysis for your own particular situation, not some aggregation of a general situation. Maybe a technical specialty or tradesperson training will pay back faster and give you peace of mind sooner. Consider a ten year payback not a twenty to thirty year payback. Given how technology is changing you will have to go through some major re-training again in ten years. You can always pursue your interest in liberal arts or some specialty subject on your own.
Most of the information about the value of a college or university degree is complete claptrap. Think hard before you strap yourself to the burden of trying to make it pay off for you. I'm not against advanced learning and great knowledge. I just want young people to dig deeper for a better understanding of what will work for them in particular. Good luck to every student who seeks a better life and a chance at a family.
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