The Questionable Consequences Of Student Loan Programs

Last year, Americans took out $100 billion in student loans.  This year, the total amount of outstanding student loans will exceed $1 trillion.  Amazingly, Americans now owe more on student loans than they do on credit cards.

The story of federal student loans is one of a well-intentioned program that has produced unintended consequences.  The underlying concept was that a college education has value and that qualified students shouldn’t be deprived of that value simply because they couldn’t afford tuition and boarding costs out of pocket.  Since many members of Congress went to college and enjoyed the experience, this concept wasn’t a hard sell.  And if the funds were loans that would be repaid, and couldn’t be discharged in bankruptcy, what was the risk?

Now, people debate whether student loans and student aid have contributed to the constant increases that have made tuition at most colleges exorbitantly expensive.  (Some, like Education Secretary Arne Duncan, argue that there is no connection, but simple notions of supply and demand dictate that if there is a greater pool of funded applicants — i.e., demand — the price of the service being supplied can be increased.  Does anyone really doubt that if fewer people were going to college, colleges fighting to attract candidates from that shrinking pool would engage in price competition?)  The ready availability of student loans also has led to the proliferation of “for-profit” colleges, on-line programs, and schools that teach students technical skills or the “culinary arts” — in many instances, skills and capabilities that used to be taught by “on-the-job” training at no cost to the person learning the trade.  And how many parents decided to forgo attempting to save for college as their children grew up because they figured a pool of loan money would be available when the time came?

There can be no dispute, however, that for many student-borrowers the decision to finance their higher education through student loans has become an albatross.  Some years ago I sat with some associates at lunch when the topic of student debt came up; one of the associates mentioned, grimly, that on her current payment plan she would pay off her debt when she was in her 50s.  In good times, the payment obligations necessarily restrict the job options that the graduate can consider; if you will owe thousands of dollars a year, you may not be able to afford taking that low-paying, but likely fulfilling, public service job.  In bad economic times, the debt load becomes crushing.  You can’t find good-paying work, and what you can find pays barely enough for food and rent.  You fall behind on your loan payments, late fees get imposed, debt collectors come knocking at your door and that of your co-signing parents, and suddenly you are trapped in a desperate debt death spiral.

Recently I heard one of the Occupy Wall Street protesters interviewed.  She explained that she had received a history degree from a reputable college, and it meant nothing for her in the job market.  How many of the OWS protesters are frustrated recent graduates who see their futures swirling ’round the drain as a result of their student loan debt?  Isn’t it time that we re-examine this program, to see whether our good intentions have simply paved the road to a hellish lifetime of being dunned by debt collectors for a generation of college graduates?