13
Is student-loan debt becoming a crisis?
Economics editor Chris Farrell
To view this content, Javascript must be enabled and Adobe Flash Player must be installed.
TEXT OF INTERVIEW
Bill Radke: For those aspiring college students who got their applications in promptly, the early acceptance letters are starting to show up in the mailbox. It is such a weird college market right now. Enrollment keeps on rising even though tuition keeps going up, at a time when people can least afford it. Marketplace's economics correspondent Chris Farrell is here to explain it. Good morning, Chris.
Chris Farrell: Good morning. And Bill I have to tell you that I am living this right now because my youngest has been accepted to college. Wonderful day, but now I have to think about how to pay for it.
Radke: Yes. OK. Well then maybe you can explain this to me, Chris. How can it be that tuitions keep rising like they are, but enrollment is rising right along with it?
Farrell: College enrollment is a socially-acceptable form of unemployment. You know, it's a terrible job market. So even though most people graduate from high school now do go on to college, those numbers are even bigger than before. So that's one aspect of it. The other aspect, though, is take a look at these colleges and universities. Their endowments have been devastated. State funding has been cut. So their finances are terrible. So what are they doing? They're raising tuition.
Radke: This economy may or may not turn around by graduation time. What kind of student loan burdens are these young people going to be facing?
Farrell: I'm really worried about this. I think the student-loan debt burden is coming close to a crisis. I just can't come up with a scenario over the next couple of years of a lot of job growth in this economy. Secondly, here's the most disturbing number that anyone can contemplate. Since 2000, the real wage of young college graduates has fallen after you adjust for inflation. So I don't know about you, but here's the basic mathematics: you borrow more, you earn less. Let's a recipe for trouble.
Radke: Do you think the model we have now for college financing is sustainable or is it changing?
Farrell: I don't think it's sustainable. And I think that's what the Great Recession has really pointed out. That this model of high tuition, high student-loan borrowing has reached its endpoint. The pendulum swung too far. No one disagrees that young people should own part of their education, and pay for part of their education, but I think that we have reached a point where we need to rethink the model. And quite frankly, the public needs to support a college education more than it does right now. Families and young people are tapped out.
Radke: Marketplace's economics correspondent, right in this particular pickle. Chris Farrell, thanks so much.
Farrell: Thanks a lot.
Pages
The key here is the high national unemployment rate. If graduates were able to secure employment they would be able to pay back their loans. Where would guide your college aged child to apply to college or trade school for a job that will enable them to have decent wages for decent life?
I am sorry Greg, but these people are going to public universities, and hell even at University of Oklahoma. One of the cheapest places to goto University. In state pays 20k and out of state payus 25k and international students pay 30k per year. Its a public school. So I don't understand why you think public schools are receiving plenty of money because students who attend them are all in the same tight situations with debt. You have no clue whatsoever on what you are talking about. I will apologize for my poor english though its my native language. I speak 4 other languages from living overseas. Interning overseas, Studying abroad that you said you hate paying for. Yet my degree dictates that I do I study abroad or I get no degree. It tells me American's atittudes towards the situation, and how little they really know about what college students are dealing with. This is why I believe Gen Y is fucked. It's generalized as rich kids going to school in nice cars despite that only being 2% of the student body. The rest of us are taking up stifling debt, and having to struggle to make ends meet, hell to even eat!!! This gross generalization of us that isn't very accurate is what's going to hurt us in the end I believe.
I recently came accross your blog and have been reading along. I thought I would leave my first comment. I dont know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often. Alena http://grantsforeducation.info
Here are some eerie similarities with the mortgage crisis:
http://studentlendinganalytics.typepad.com/student_lending_analytics/200...
This is an educational bubble in every way possible. Tuition is rising. Books are overpriced. Housing is overpriced. But Federally-backed loans are making further inflation possible. Just listen to the chimes of "education is a solid investment" or "more education improves your marketability" for a subtle echo of the housing market.
I don't argue that education is useless. But the minute you're paying tens (or hundreds) of thousands of dollars for it, education must be viewed with the same level of scrutiny as a (highly leveraged) financial investment.
No one gets denied an educational loan. NO ONE. And if the Boomers don't start retiring (despite their savings losses), expect to see the first round of education-loan defaults.
There is another variable that you forgot to mention: the interest rate on student loans. When I graduated from college in 1991 the rate on my student debt was around 3%. The rate on my current masters level loans is anywhere between 6 and 8%. I graduated in 2008 and still have some in deferrment. I'm making a small amount more than I was before, but nowhere near enough to cover the debt. I think a lot of people have taken/are taking on more loans for themselves or their children not realizing that the interest rates are 2 to 3 times the rates they paid when they were undergrads. The situation is worse than just higer tuition and lower pay, which is bad enough on its own!
I am also not interested in funding Vassar or Harvard or spring break plans. However, as someone who will also soon be supporting a child in college, I am also very aware of the REAL cost of public universities and community colleges. The cost of even a state school has spiraled out of control. My child will attend a community college for the first two years then switch to a state school to save money. Nonetheless, I expect the cost of 2 years at community college and 2 years at an in-state school will still cost me close to $60,000; that is assuming my child finishes in 4 years, some degrees now require 5 (those would be degrees that actually qualify you for work after school not sociology). For another year, just add another $25,000, the estimated cost for tuition, books, room and board at many PUBLIC state schools, because not everyone is fortunate enough to live within commuting distance of a university. Where are most people going to come up with that much extra money without resorting to loans?
As to the salaries of the "instructors", oh please!!!! Most classes at major universities are not taught by full-time faculty members. They are taught by graduate students and non-tenured part time faculty that often are paid so poorly they qualify for food stamps. Tuition doesn't just cover the salaries, it covers building maintenance, paper work, secretaries, councilors, librarians, and football teams. It’s nice to have a lovely campus but someone's paying to mow the lawns. So to make some sort of an assumption that all tuition would go to faculty is just so naive.
This is news? This has been the case for several years. A college degree in the US is the equivalent of a High School degree forty years ago. If you borrow to get it, you get diminishing returns, but the investment in getting a higher education still pays better than not doing so.
Will this continue to be the case? I don't know. But I know I still owe 70K from grad school. I still spent several months unemployed this year. More and more people can't find jobs, so they borrow to go to school - and student loans are NOT dischargable in bankruptcy. The schools make money, because they have a product in demand. And the taxpayer will be left on the hook.
I do think student loans should be more regulated. It doesn't make sense for the taxpayer to subsidize people's educational costs if there isn't a decent return on the investment.
Pages
