I linked to another article on a possible bubble in higher education, and here is another indicator of it, with so many recent graduates struggling with digging-out-of-student-debt
When Angela Moore looks into her future, she sees checks for $500, $147, $280 and $250 piling up like leaves in a forest. Those are the amounts she could be paying every single month on her four student loans, which total $92,000, for the next several decades. If she postpones payments, the amounts she owes will go up. If she skips them, she could ruin her credit and end up in court.Moore, 26, graduated with a bachelor’s degree from the University of Hartford in 2009 with $25,000 in federal student loans and $67,000 in private loans. She devotes about half of her paycheck to those bills and resorts to credit cards to cover other expenses. Says Moore, the first in her family to graduate from college, “It’s heartbreaking to have a college degree and not be able to pay for normal things because I have to pay student loans.”
Moore works at an orthopedic surgeon’s office, the same job she had in college. She would like to move on someday but can’t afford to make less than her current wage of about $18 an hour. Nor does she see an obvious way out of her predicament. “If you’re in that much debt and have a house or car, you at least have something you can give back. I have a piece of paper. I have nothing to give back.”
Meet the young and burdened. Of borrowers who graduated from four-year colleges in 2008, 10% walked away with $40,000 or more in student debt, almost three times the number of students who borrowed at that level in 2000, according to the Project on Student Debt, an advocacy group. The default rate for students who entered repayment between fiscal year 2006 and fiscal year 2007 was 6.7%, the highest since 1998.
You’d think bankruptcy would be a solution to massive student debt, but for most people, it is not an option. You must demonstrate to a judge that repayment would cause “undue hardship,” a term interpreted by some courts to mean the “certainty of hopelessness,” according to Deanne Loonin, of the National Consumer Law Center. This strict standard applies to both federal and private student loans. Proposed legislation in Congress would change that standard for private student loans, making them eligible for discharge under the more lenient rules that apply to credit-card and other consumer debt.
Meanwhile, federal loans offer programs that let you reduce payments or even qualify for loan forgiveness. As for private loans, some lenders are offering deals to borrowers rather than see loans go south.
The part of this that is rarely mentioned is this: there are disturbing similarities between the housing bubble and the higher education bubble.
1) The federal government has subsidized many people who probably shouldn’t have gone to college in the first place, by encouraging them to borrow beyond their likely means to pay it back, just as many home buyers were encouraged to take home loans they couldn’t afford, due to federal policies pressed upon lenders to make more loans to “the disadvantaged.”
2) Those education loans were made in the assumption that people would always be able to find good paying jobs in an endlessly booming economy, just as the home loans were made in the assumption of always rising home prices and constant boom times in the housing industry.
3) The easy availability of money has made many education institutions incredibly inefficient, with top-heavy management, many unnecessary programs and initiatives, more and more staff (not to mention faculty) who have little to do with the main business of teaching and learning in the classroom, etc.
4) The federal money (and federally subsidized loans) have given the federal government the ability to meddle and regulate in higher ed, just as it did in the housing market, to the detriment of both. If you want the money, you have to toe the line.
I have a student who recently told me that he is going to be $60,000 in debt when he finishes his undergrad work. He is a talented musician (a composer), but he will have to do very well in order to be able to pay off that loan, or else seek work in some job not related to his college major. He is considering graduate study.
Even if he was pre-med, instead of a music major, I’m not sure I’d advise going deeper into debt in the current medical industry marketplace, with all kinds of unknown effects to be expected from yet more government meddling and regulation. The music industry is far less secure than that.
This is, of course, an “admission against interest,” since my job depends on the availability of students to keep my institution open, and many of those students depend on federal dollars, often in the form of loan subsidies. So I don’t know quite what to say…. but the signs are disturbing, and if the economy doesn’t turn around fairly soon, I’m not going to be surprised if the endless federal gravy train of college loans dries up, with the inevitable effect on the available pool of college students.
