The Irrational Way To Discuss Student Debt

As a society, we tend to take a short term view of problems instead of dealing with the underlying issues. Take: student loans, for example

At a protest last year at New York University, students called attention to their mounting debt by wearing T-shirts with the amount they owed scribbled across the front – $90,000, $75,000, $20,000.

On the sidelines was a business consultant for the debt collection industry with a different take.

“I couldn’t believe the accumulated wealth they represent – for our industry,” the consultant, Jerry Ashton, wrote in a column for a trade publication, “It was lip-smacking.”

Though Mr. Ashton says his column was meant to be ironic, it nonetheless highlighted undeniable truths: many borrowers are struggling to pay off their student loans, and the debt collection industry is cashing in.

As the number of people taking out government-backed student loans has exploded, so has the number who have fallen at least 12 months behind in making payments – about 5.9 million people nationwide, up about a third in the last five years.

In all, nearly one in every six borrowers with a loan balance is in default. The amount of defaulted loans – $76 billion – is greater than the yearly tuition bill for all students at public two- and four-year colleges and universities, according to a survey of state education officials.

So, there are people falling behind on their loans. That’s not exactly a shocker with Obama running the show and the economy stuck in the toilet. Eventually, at some point, either Obama will leave office or the natural vitality of the economy will reassert itself and businesses will start hiring again. Then, many of the people who are having trouble paying their loans will be able to get back on the right track.

Getting beyond that, maybe we should be asking a different question: Is a college degree worth what it costs? Although most college students do make enough money over the course of their lifetimes to justify what they paid, there are exceptions. For example, if you’re taking out $90,000 in college loans to get a philosophy or women’s studies degree at a private college, you’re probably not going to get your money’s worth.

Additionally, maybe we should be asking: why the cost of education is rising so fast.

College tuitions soar each year, advancing far in excess of the inflation rate. The overall inflation rate since 1986 increased 115.06%, which is why we pay more than double for everything we buy. On the other hand, during the same time, tuition increased a whopping 498.31%.

For example, if the cost of college tuition was $10,000 in 1986, it would now cost the same student over $21,500 if education had increased as much as the average inflation rate but instead education is $59,800 or over 2 :½ times the inflation rate.

…Yet, the main reason tuition continues to rise is a dramatic change that took place regarding the Federal Stafford Loan more than a decade ago. When Uncle Sam opened the floodgates to government-backed student loans without parent income restrictions in 1992, colleges welcomed the news with open arms. The sudden injection of millions of additional aid dollars only furthered tuition increases. Add to that the government’s continued promotion of the Stafford Loan as a low-cost program, and you have the formula for hyperinflationary costs.

Instead of kvetching about student loans, maybe we should start addressing whether government should be giving kids loans that they know, going in, that they will later have trouble paying off. Maybe we should discuss whether that money would be better spent as seed corn to fund more colleges, which would increase competition, and reduce costs across the board. At a minimum, that would be more productive than the endless moaning that we hear about people who don’t want to pay back their college loans.

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