11.26.2012

The New (Old) Face of the Student Loan Crisis

It is widely accepted that there is a problem with student loans in America. Terms like 'bubble' are being used with increasing frequency to describe the situation whereby the ease of getting loans has allowed more to go to college, which has, in turn, allowed colleges to admit more students at higher prices. This has had the end result of putting more people, including those who might not be able to do much with their degrees, in an extraordinary amount of debt. This is of course a problem at the graduate school level as well, as many recent law school graduates can attest to.

It is important to point out that loans are not inherently a problem. Student loan programs have made higher learning a reality for many who, though qualified, would not have had the means otherwise. This is, of course, underpinned by the idea that those who take out loans will be able to monetize their degrees via better jobs and higher earning than they might have had otherwise.

However college isn't necessarily the best choice for many of the people who go, and many individuals leave without a degree, do poorly and/or go to institutions without the name recognition that would allow them to command high salaries upon graduation. This state of affairs is compounded by the fact that colleges are not really doing anything to deter these results as administrators have become more interested in their mission to increase revenues than their mission to educate young people.

While this would all ostensibly be a young-person's problem, it is becoming increasingly clear that the practical implications of student loan debt are reaching through the decades and impacting some individuals all the way into their retirement years. This is happening in two ways. First off, student loan problems tend to snowball once they manifest, and often roll out of control. This can mean that they follow individuals around for decades, often into retirement.

In a slightly different scenario, and as costs have risen, many parents (including those who haven't attended any institutions of higher learning themselves) have co-signed for loans they don't realize their children will never be able to pay. These parents have increasingly been put on the hook as today's twenty- and thirty-somethings have become more and more likely to default. In essence, in addition to those individuals whose problems have followed them for years, there is a whole subset of debtors of retirement age who, perhaps unwittingly, have put their retirements at risk.

This story might be sad if it meant late bills and nasty phone calls. However, it has become nearly tragic due to the fact that one of the repercussions of not paying on loans is the garnishment of social security payments. Because of this, it is not overstating the matter to say that many recent students who have fallen behind on student loans have put their parents' retirement in jeopardy. This is doubly true considering recent studies indicating that many Americans rely almost exclusively on social security to fund retirement.

That so many Americans rely almost solely on social security is a problem in and of itself, and one which really needs addressing if America is to remain strong. However, for now, it is a reality, and one which makes the student loan situation even more dire.

So, what solutions? It is not entirely clear unfortunately. Clearly there need to be repercussions for default, and it is helpful to many to be able to utilize co-signors. Student loans, as noted above, are helpful for many. Because of all these factors and more, it is not clear that immediate structural changes would be the most immediately beneficial approach.

While it doesn't help those in trouble now, perhaps it is supply and demand which will come to the rescue. One good example has been provided by the law school space recently. It has been widely reported over the past two or three years that employment in the legal profession has been declining. As a result, there have been many less applications for seats at schools the past few years. This has resulted in less seats being required, and will likely lead to closures of lower-ranked, and therefore less useful, schools in the future as the trickle down of students unable to make better schools dries up.

In the end, it might just be good disclosure of what the real costs and benefits of education (and as a corollary, taking out loans) are. While some might still fall into traps, the number of people doing so will fall on both an absolute basis, and as a percentage of graduates, the more people realize that college and/or grad school just might not be for them.

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