An Education Loaner

Assume you’re a financial aid officer at a prominent college or university. An average student comes in and tells you that the $40-50K tuition (excluding room and board) you are charging means he or she needs to borrow about… well… $40-50K a year. To those kids borrowing when only banks were left to lend the money, that would mean $80-100K for the full four years. So what do you tell the kid? Go to a cheaper college, because folks who get degrees from this place don’t go on to earn enough to pay this back and actually have a life? Honest and probably the best possible advice, but somehow, that’s not the kind of message that admissions officers want to send out about their esteemed institution of higher learning.

How about… “I can arrange for you to borrow that money with our local friendly private lenders”? Forget about living under sword that is likely to swing very, very close to the student’s neck after graduation. Why did banks lend knowing that these students would have to share a rat hole with a real rat… living like that for years… if there were any shot at paying this loan back? Because under the revised bankruptcy code, you pretty much have to be living so far below the poverty line to have the slightest hope of losing that debt in a bankruptcy… a mattress in a culvert might be the extent of the housing, but hey, that bank can make a buck, and there’s not much that the student can do about avoiding the debt. Hoping for a nice government job – like teaching – to tide you over and get that loan forgiven? Oh, they’re laying off teachers… Hmmmmm. Blogged that one recently.

Fact is that most colleges, state and private, have been raising tuition costs at a multiple of the annual cost of living. That “basic degree” for a modern world isn’t so cheap anymore; it most certainly not a bargain by any measure, and financial aid is vaporizing in an impaired economy. And those well-rounded undergraduate degrees – you know, the ones that are actually fun and interesting, like English and History – well… they don’t tend to generate that hot job offer down the line. But take heart, neither do those degrees in film, journalism or marketing.

There are ways to defer repayment – like staying in school (even part-time night school might qualify). “[but t]his is not a long-term solution, because the interest on the loans continues to pile up. So in an eerie echo of the mortgage crisis, tens of thousands of p[recent grads] … are facing a reckoning. They and their families made borrowing decisions based more on emotion than reason, much as subprime borrowers assumed the value of their houses would always go up… Meanwhile, universities like N.Y.U. enrolled students without asking many questions about whether they could afford a $50,000 annual tuition bill. Then the colleges introduced the students to lenders who underwrote big loans without any idea of what the students might earn someday — just like the mortgage lenders who didn’t ask borrowers to verify their incomes.” May 31^st New York Times. But since the loans are bets for the future, not an evaluation of current earning ability, exactly how do you factor in a crashed economy, an horrific job market and over-priced tuition? In advance?

Think these students are good marriage partners? They drag that debt with them into any relationship that might want permanence. It’s a common story: “According to the College Board’s Trends in Student Aid study, 10 percent of people who graduated in 2007-8 with student loans had borrowed $40,000 or more. The median debt for bachelor’s degree recipients who borrowed while attending private, nonprofit colleges was $22,380... The Project on Student Debt, a research and advocacy organization in Oakland, Calif., used federal data to estimate that 206,000 people graduated from college (including many from for-profit universities) with more than $40,000 in student loan debt in that same period. That’s a ninefold increase over the number of people in 1996, using 2008 dollars.” The Times. Graduate school anyone? Let’s see how high we can push that debt ceiling!

Fact is, we need college-educated, trade-school-educated, professionally educated young people to build and grow this country out of its malaise. We can’t saddle our future earners with a burden that prevents them from delivering the productivity we need to rebuild our economy. Do we pay for their educations and assess a lifetime higher tax rate, depending on the level of their degree, to allow us to recoup the benefits of that education? That’s one way, and it’s a start, but we need to start figuring out alternatives to unrealistic borrowings to finance even this most basic part of the solution to the question as to whether or not the United States actually has a future. It’s better now that the government has stepped back much more into the student loan space… but the very concept of “borrowing at the beginning” is a concept we really need to review from the ground up. Maybe one of these bright young minds will actually figure out how to cap a deepwater oil leaks or how to end our over-dependence on fossil fuels. If they get educated in the first place! We need better-educated minds! Desperately!

I’m Peter Dekom, and education definitely provides the biggest set of answers to all of the obvious questions about our future.