Student Loan Industry Getting Out of Hand?

If this story in USA Today doesn’t show that there is a degree bubble in American higher education then I don’t know what does. It highlights the challenge young Americans face when they graduate, and the exploding amount of debt that college students have accrued in just the past five years.

The numbers are incredible:

The amount of student loans taken out last year crossed the $100 billion mark for the first time and total loans outstanding will exceed $1 trillion for the first time this year. Americans now owe more on student loans than on credit cards, reports the Federal Reserve Bank of New York.

Students are borrowing twice what they did a decade ago after adjusting for inflation, the College Board reports. Total outstanding debt has doubled in the past five years — a sharp contrast to consumers reducing what’s owed on home loans and credit cards.

The article mentions the difference between this bubble and the catastrophic housing bubble in 2008. The difference is that, unlike in housing, the opportunities to declare bankruptcy and walk away from student loans are far fewer. Students will shoulder this burden throughout their lives.

There has been an increase in for-profit schools that tend to take on high-risk students in large numbers, so that is one of the reasons for the increase in student debt, but that can’t explain all of it.

I don’t know if there is an easy answer to this problem. A lot of the best jobs require a degree, but the degree itself is no shoe-in. I think it speaks to how American institutions are in flux and how there needs to be a greater focus on cost-cutting and economizing in education. Using new technology to bring education to students at a fraction of the cost is certainly one alternative.

Some schools, like the University of California-Berkeley, are posting video lectures online for free. While the classes themselves may be free, students still don’t receive the credentials to use in a job hunt. Unfortunately, the credentials are often the only reason people even go to college. Universities are gatekeepers every bit as much as institutions of education. The process of getting into the school and getting through the process is more of the test than the courses.

Still, with all of the current economic problems, higher education cannot and perhaps should not remain immune. The changing circumstances might be a perfect opportunity for reform and improvement. That is how the American economy has worked and is one of the reasons why it is so dynamic.

The increase in loans for degrees is deeply worrying if those degrees are not consistently translating into success. It’s similar to how the United States is racking up debt right now to spend money and pull itself out of the recession, but is still barely growing at all. Those trends are troubling to say the least.

What do you think? Are there any reasonable ways to reform education without breaking the system, or should Americans just accept the higher cost and hope that things turn around?

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3 responses to “Student Loan Industry Getting Out of Hand?

  • college mom

    I have thought for years that college expenses are way out of proportion to the rest of the economy. Part of this is government involvement: when students can get loans from the government, the institutions have zero incentive to keep costs under control, and students and their families suffer. Also, one needs to evaluate the school very closely to see if it a good fit for the student and not just a “name” that is way overpriced.

  • jstepman

    I agree with you College Mom. I believe that one of the problems with the student loan industry is that it relies far to much on federal funds instead of state or even local funds. That trend has been going in the wrong direction for years and is one of the reasons why there is an unbelievable amount of waste.

    You’re right too about not going after a “name” school. I got a political science degree at a big California public university, but I would have done much better in a smaller, less well known program. The classes were too big and the way they taught didn’t fit with my philosophy in that field of study. I fortunately went to a community college first and saved a lot of money, but I would have received a better education elsewhere.

  • Tori

    A big part of the issue with the loan industry is that most students are receiving loans to attend public universities, which keep raising costs because they can’t foot their own bills. As the cost of educating students gets more expensive, the government – which subsidizes a majority of public education – can’t afford the rising cost. So universities get less money from the government, while the costs of education go up. They have to make up the difference somehow, and that difference comes from the price of tuition.

    Honestly, I’ve been working in higher ed for several years, and I don’t see a huge difference between this industry and any other. Our higher-ups are paid too much, and consumers (students) are charged too much to cover those costs. There is a distinct lack of willingness to balance outrageous salaries with outrageous tuition prices, though, and that’s where the real problem lies.

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