Today’s college degrees are losing value quicker than a new vehicle as it is driven off the lot. In many cases, unless you have just bought a large Semi, the college degree creates nearly twice as much debt as a new vehicle too.
According to the Institute for Higher Education Policy (IHEP), in March of this year there were over 1.8 Million Student Borrowers. IHEP conducted a study that focused on the student borrowers going into repayment in 2005. The primary findings indicated that for every student borrower that defaults, two more become delinquent without defaulting, and 41% of borrowers faced negative consequences due to delinquency and default.
Being a student borrower myself, I happen to know that there are a number of ways to legally put off payments without going into default or becoming delinquent. So even though there is “only” 41% who did not take advantage of those options, probably twice that number would represent those that were not in a situation to pay back their loans as they come due the first time.
So why are there so many student loans being made to students that can’t afford them? Actually the practice of loaning money to students is based on the idea that the student can’t pay for the education today and is balanced on the student’s hope that after graduation they will be able to land a job that will enable them to effectively pay off the loans. Unfortunately in many cases the balance becomes precarious as a small boat riding exceedingly turbulent waters through these economic times. Lenders actually prefer that the student to take advantage of deferment and forbearance options as long as they can because this allows the interest to continue to compound until a $40K education costs nearly twice that within a short period of time.
It is quite clear that the whole situation is designed to take advantage of and seemingly punish students for going to school. In conversation with a relative, I have even been told that it serves students right to be hounded by their lenders because they should have worked to save up money for college rather than spending beyond their means to get a degree. As it was a choice to take the loans, not something forced on them, they should remain responsible for them for as long as it takes to pay them off. I might be inclined to agree about students being responsible once they are out of school except for the sales tactics used when loans are offered in the first place.
Huffington Post published an article directly addressing lending practices employed by the Education Management Corporation on October 14, 2011. Disturbing practices were revealed including preying on the poor and uneducated consumers in order to use their past mistakes as a way to convince them that college would, “solve all their problems”. This is the same kind of tactic employed by the sub-prime mortgage lenders and we all know how well that turned out.
Of course in this case students are unable to free themselves from bad decisions as student loans are largely ineligible for discharge under the bankruptcy laws. It is rough enough on a person to realize they are in a completely untenable and insolvable situation, just to have the vast weight of student loans lingering like a shadow over their heads. It is especially daunting when the education attached to the loan isn’t able to provide the kind of employment dangled in front of the student at the moment they agreed to accept the loans.
In the early 1990’s, it was the majority of those without a degree that could not find the kind of work they needed. Since the economic crisis of 2008, the number of degreed individuals searching for work has increased right along with the rate of those without a degree seeking for work. The two demographics are being hit almost identically. That leaves graduates in a state of limbo, unable to pay for loans and unable to find work that was supposed to be available after the degree was earned.
The question about how to address the situation remains. At the very least an investigation into lending practices should be conducted by the regulation authorities. I have a personal vested interest in seeing student loan forgiveness implemented, but even objectively it isn’t a bad idea.
The IHEP article indicated that there are over 8.7 million student borrowers that would be affected by student loan forgiveness, a large portion of the country that would have a sudden increase in disposable income. That equates to immediate and tangible economic stimulus which could have an exponential benefit to the economy and that is the point after all.
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