The looming crisis from student loans | Eastern North Carolina Now

The looming crisis from student loans

    Some have suggested the United States faces another economic crisis even worse than the "housing crisis" caused by the subprime lending debacle. It has been suggested that the impact of this crisis will rob millions of college students of their future. The crisis? The student loan debacle.

    Here's the short version. More high school graduates have been enrolling in colleges and universities, particularly since 1987 when the Federal Government made college loans more readily available. Not surprisingly, as the demand increased, so did the costs. The cost of attending most colleges, particularly the four-year colleges and universities has skyrocket in recent years. Much of the increase in cost is attributed to states cutting back on public support for both public and private colleges. And a large part of the increasing cost has come because of the explosion of non-teaching, high-paid administrative positions in universities. As tax-payer support retreated, most universities have shifted the burden to students in the form of higher tuition and fees. In addition, for the students, the cost of books has escalated such that this cost often exceeds other costs such as tuition in some schools.

    What all of this has resulted in is an explosion of student loan debt.

    Then comes the recession. This results in college graduates being hit with a triple whammy. First, they are having a much harder time than their predecessors in finding a job upon graduation. Second, even when they do find a job, sometimes many months after graduation, they are finding that those jobs pay much less than they did in the past. College graduates' earning potential is nothing near where it was even a few years ago. And third, upon graduation they must then begin to pay back their student loans. The average amount of debt is $25,000 but many students have much more.

    And one of the glaring problems in all of this is that colleges and universities are complicit in allowing, even encouraging, student to major in programs for which there are few even minimally paying jobs. There simply are no jobs to be found in some fields. Thus, while they have paid for a high-priced education, often with borrowed money, that diploma means nothing in terms of find a job that will allow them to pay the loans off, much less provide a "return on investment" anywhere near what makes economic sense.

    One of the things Barack Obama has done that gets very little attention from the Elite Media is he has federalized the student loan industry. Before, the Federal government simply subsidized private lending institutions making loans to students. But Obama took over the student loan industry from the private institutions so now the debt is owed to the Federal Government. Then, a little known fact to many people and particularly the students taking out student loans, is that with nationalization of the student loan industry the Obama Administration slipped in a provision that student loan debts cannot be wiped out by bankruptcy.

    So many college graduates graduate with a debt that cannot be serviced with the income they receive in the early years of their working career and they can't get out from under the debt in the tradition way of relinquishing their equity, such as in foreclosing on a house or giving up a car.

    But the worst of it all is that they cannot get credit. This means that they can't buy a home or if they buy a car or other big ticket items they are hit with higher down payments and/or higher interest charges because their "credit rating" is much worse than it would be if they did not have the student loan debt.

    For many of these students their first introduction to the "real world" is that the easy money they sought in the form of student loans, not only to pay tuition, fees, books etc. but to live on--some rather highly--becomes a trap from which there appears to be no escape. Expect more of them to "take to the streets" as is being done in Europe rioting and "demanding" that the debt be forgiven. Obama will not be in office when the worst of the crisis hits.

    Parents, you best be moving all that stuff you've stored in your high schoolers' room and getting it ready for the return of the unemployed college graduate--who often have now become accustomed to having the money to buy what they thought they wanted.

    A college education is not what it used to be.

    If you want the details, including the numbers, click on some of the links below (don't miss the comments posted to some of the articles and they all contain links to other sources):

    Carpe Diem blog--The Higher Education Bubble vs Housing Bubble

    Carpe Diem blog--Update on higher education bubble.

    60 Minutes Interview with Peter Thiel

    Carpe Diem blog -Administrative bloat