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Care for a little crisis with that diploma?

Loan debt is emerging as a huge problem for American college students

October 27, 2013
Messenger News

You'll back me up on this, parents. How many of you have been on a college visit with your young scholar-to-be, reeling from sticker shock and trying to figure out how room and board at a major Iowa university manages to cost more than the actual education does, when you've heard something like this?

"Oh, don't worry about the cost. No problem at all. We'll just put you down for more student loans."

That's how it works these days. The cost of higher education has skyrocketed at triple the rate of inflation, with no one taking notice because the government has made it so easy to just take out another loan, and another, and another. Feel like dropping some hard classes although it will cost you an extra semester? No problem, we'll put you down for another loan. Wouldn't a "study trip" to Disney World or sightseeing in Europe for interim be nice? No problem, another loan.

I had a talk with my two younger employees about this the other day. At 21, one has $45,000 in debt after attending Buena Vista University, while her roommate leaves with over $80,000 owed - an amount that would buy a pretty decent family home around here. The other has no idea how much is owed despite being out of the University of Iowa for several months - it seems nobody has ever really told him what those loans would cost him eventually, so he'll just cringe until the first monthly bill comes due soon.

Unlike other forms of loans, there is no escape in the form of bankruptcy allowed for college students taking loans. They will be paying those bills, at a rate similar to their parents' mortgage payments, very possibly into their 40s - in some cases, for a lifetime.

It has come to this in just one generation's time.

When I went to college, it was quite feasible to work your way through - in fact, I actually came out ahead after four years at Iowa Central and Iowa State. No matter who you were or how poor your family might be, if you were willing to work fairly hard, live in a frugal manner and hold down grades decent enough to qualify for a few scholarships, higher education was reasonably within your grasp. Fast forward - my son now goes to that same university, but "working your way through" is virtually an impossibility under today's costs. The average college student in Iowa emerges from four years of college with about $30,000 in student debt.

In many cases, they will marry a peer in the same situation - so they start life with the household $60 grand or more in the hole.

Why am I telling you all this? So you can't be like our political leaders and claim you didn't see this coming when it cripples our economy before too long.

We are creating a debt bubble that will dwarf the farm crisis of the 1980s and the burst housing market of a decade ago. Student loan debt has now raced past credit cards as the biggest debt load in our country.

Think about what's happening. Already there are many young people who are realizing they can't afford to have children, or to dream of home ownership or starting a small business, because up to 50 percent of their gross income has to go to feed the insatiable college debt meatgrinder. Some are leaving the country. We're beginning to see mental and physical illnesses and even suicides because of the stress of this crushing debt. And I'm told that some people are being refused jobs or fired when employers check their credit rating.

You'll say - and you'll be right - that no one is holding a gun to a kid's head and telling them to go to an expensive college and take a bunch of loans for it.

But consider too that we are talking about teenagers here, many of whom have never been involved in a serious financial transaction on their own. In a moment, under the pressure of sitting in a financial aid office on a college visit, they may sign a document that will heavily impact their life for 25 years or more to come. Parents aren't much help - they are emotionally vulnerable as their darling baby birds are fluttering out of the nest. They feel obliged to sign anything offered to them, and feel they must not be good parents if they question it. Even if it means erasing their retirement savings to help send junior to his first-choice college. Traditionally, college tuition cost about 4 percent of a typical family's income. It's now 11 percent and climbing. Society will have to cover when aging parents have no money left for their own care, and their children are too bill-strapped from college to pay for educating their children. Just watch.

What really bothers me is that for the first time in my lifetime, I'm hearing people - including recent college graduates - wonder aloud if education is worth it any more. College should be an option for all - not just the very wealthy, or the very poor and minorities who may qualify for additional grants and quotas. This is one of the ways that we are quickly killing off a middle class.

Is college worth it? Of course it is - it's a priceless experience. But it is true that a degree no longer guarantees much. These days, often even low-paying, low-benefit jobs may expect a four-year degree. And even investing in a master's degree doesn't mean you won't be collecting carts at Walmart if there are no openings in your chosen field.

Let me say that Iowa Central Community College in this city does do a good job of making sure money expended goes to the classroom - but that isn't the case everywhere. There are fly-by-night schools, for-profits and diploma mills that can draw up to 90 percent of their revenue from federally subsidized student loans. There are plenty of big name universities that spend scores of millions on tabernacle athletic stadiums, luxurious student housing, outrageous amenities from campus malls to waterparks to attract shallow teenagers. Many spend fortunes on celebrity coaches and professors - with very little of that money actually doing anything to impact the quality of the education in the classroom. There is nothing in the system to weed out irresponsible schools or control rising tuition rates. It is a bottomless cycle of debt that is sucking the blood from a generation of young people.

There is a lot people don't realize about the student loan business, too.

One, the same rules that must be followed with free-market consumer loans don't all apply. Students often don't have the right to refinance debt. Actual APR rates may not even have to be disclosed. How many students have any idea what interest rates and fees they are agreeing to, and what they will eventually be billed per month for their actions? I'd wager precious few. The Student Loan People last year called our office almost nightly hunting down an employee - and he was making his student debt payments. That kind of harassment wouldn't be allowed for any other kind of loans.

In 2010, the Obama administration pushed a bill to mostly remove private banks and lenders from making student loans. The well-meaning idea was that having the government basically run the entire student loan system would eliminate the middle man and keep costs lower, allowing for huge amounts of money to be channeled into more scholarships and Pell grants that don't add to student debt. It hasn't really worked out that way.

According to a recent investigative report in Rolling Stone, the Department of Education projects to profit $184,715,000,000 for the next 10 years from lending, with you, the taxpayer, subsidizing it all.

What is government doing about all this? Precious little, of course. In July, due to congressional inaction, students faced the possibility of having their interest rates doubled. As is their practice these days, on the last possible day, leaders passed the flimsiest of temporary solutions, kicking the can down the road a year. The student loan rate could still explode as high as 7.25 percent within five years - what we're in effect charging our own kids to get an education. Unconscionable.

College has always been the place where a young person turns for hope and a chance at a better tomorrow. If we are not careful, we'll soon be handing out despair and a lifetime of debt that outweighs that diploma.

Dana Larsen is editor of the Storm Lake Pilot Tribune and a former Messenger staff writer.

 
 

 

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