“Only the mind cannot be sent into exile.” Ovid.
The issue of student loan debt has been at the forefront of the news as Washington looks at a self-constructed election year showdown over whether to keep interest rates at their current low rate or let them return to about double the current rate. This is not a trivial discussion. Doubling the interest rate would have the effect of about tripling the amount of interest students will ultimately pay through the miracle of compound interest.
About 3% of the U.S. population now has a student loan. The average student is reported to graduate owing $22,000.00. Students graduate and can’t find jobs. Increasingly, students are defaulting on their debt. These defaults are ruining credit ratings, affecting the ability to find good jobs, to become licensed in professional fields, to get into graduate schools, and are breaking up marriages. What will be the fallout from an education collapse? There is one huge way in which the housing bubble and the education bubble differ. In contrast to housing, there is no tangible asset in education. There is nothing to repossess. This is the reason that congress, when it reformed the bankruptcy laws, during the presidency of George W. Bush, excluded educational loans from bankruptcy protection. You can’t short sell your mind. There is talk of forgiving all student debt. This would add an additional $1 trillion to the national debt.
We may have to bail students out in the way that we bailed the banks out; just pay off their debt and pass the cost along to the taxpayer. Naysayers will object at this point that there are no taxpayers. That problem needs to be addressed.
We could spend a lot of time and waste a lot of words talking about who the students are and whether they deserved loans. We could also spend a lot of time talking about the value of a college education without reaching any consensus. We need to ask how we wound up with so many college students and so much debt. Why do we have 8.5 % current unemployment?
There was a time in the not-so-distant past that college life was very different. On-line students didn’t exist. There was no “line”. Everyone who went to college did so on a physical campus. Some were there because their parents wanted them to get something that they never had; a college education. Others were there to have fun (that fun was typically short lived), and many were there because of intellectual curiosity. They just wanted to know more. This was never a large part of the population. Most high school graduates went to work after high school. They found local jobs in sales or working on a factory line. It was not a necessity to have a college education to find a job. There were jobs for the uneducated as well as the educated. A college education was not a training ground.
University students were expected to learn how to think. They were expected by the companies hiring them to have enough general knowledge and writing skills to bolster the analytical skills that a university education gave them. Businesses hired history majors. Philosophy majors went to medical school. The important thing was that the college graduate had a good work ethic and could think.
What I would like to raise is the question of whether the availability of loans for continued education has, in itself, created a setting in which Universities have become industries, for-profit schools have appeared which exist only to make a profit for their owners, preparing graduates for careers that can’t pay for their loans. These loans have fueled a rise in the cost of tuition that is double the rate of inflation; a rise that is becoming logarithmic in scale.
In other words, that education is, as housing was, in an accelerated phase of growth fueled by inexpensive loans. And, as the housing bubble burst, the education bubble is about to burst. Banks hold the note on loans prior to 2010. More recent Stafford loans are government loans.
The education bubble and the housing bubble have the same root cause, a decline in middle class jobs, and a decline in the middle class. Previous members of the middle class, faced with being forced into the ranks of the poor, have attempted to regain their status through investment in a home and selling that home for aa significant profit in the case of the housing bubble, or borrowing money to go to school in hopes of finding a job with enough earning power to allow them to pay off their loan and escape the ranks of the poor.
The development behind both of these strategies is the loss of U.S. manufacturing and the out sourcing of those and service jobs to 3rd world countries.
In most cases the businesses behind this development have been international corporations with no loyalty to America.
FinAid.org reports that there are ways to repay Stafford loans through volunteer service in VISTA, the Peace Corps, or AmeriCorps. Some occupations allow for loan forgiveness through community service. This applies to the Medical profession and Law as well as law enforcement and nursing.In some loan forgiveness programs there is a requirement to live and work in an area of low income, or rural setting. For example, State Troopers in Alaska can get their loans for schooling in law enforcement, penology, and similar studies forgiven.
Not everyone, though, can find a route to loan forgiveness. Those who borrowed money from banks, for example, owe the bank, not the government. Some former students who have gone into default can’t get jobs because of legal actions against them.
Taking advantage of this loan forgiveness might be hard or impossible, for example, for a single mother of two, whose kids are in school, and whose ex-husband has visitation rights that require the mother to live nearby.
Bloomberg Business Week reports that for-profit schools give instruction to their students about ways to avoid repaying loans while not appearing to be in default. This advice is, of course, self-serving on the part of the owners of the schools.
Assuming that a large number of students will be unable to find jobs that will pay enough to retire their loan debt, or pay the debt off directly, there will have to be a loan forgiveness program.
We need to learn from the banking disaster. Not the failure and bailout, but the fact that no reforms were put in place to prevent the big banks from playing dice and requiring Americans to pay off their losses again. If we pay off the loans to students we need to reform the system, in a way that we did not reform the banks. We also need to reform the schools and Universities that have benefitted from the loans. If the government is going to be responsible for paying for college education the deal should be directly between the federal government and the recipients of the loans.
For-profit schools should be allowed to take only as many students as they can reasonably assume to be able to find good paying jobs in that field. There are many stories about individuals who sign up for Chef School, or Truck Driving School, or Massage Therapy school, who can’t find a job or can, only, find an entry level job paying minimum wage. One example recently cited in the New Jersey Star-Ledger by Deborah M. Figart and Susan Niemiec, involved a young man who went to a restaurant school. On graduation he owed $30,000.00. The only job he could find on graduation was a job peeling potatoes for $20,000/year. There is nothing unusual about this. The kitchens of restaurants are run in a highly hierarchal manner.
I’m not sure when or how this idea came to me. Some of you might think – outlandish as the idea might seem – that I was in a chemically induced altered state. I can assure you that that was not the case. I have a suggestion for reforming the current system of graduate education. Universities, particularly state universities, should be restored to institutions of higher learning. The large state universities now are money making machines that exist around their sports programs. This is the part where you may think I’ve lost my senses.
College and University sports should be limited to intramural contests. Intercollegiate athletic programs should be split off, turned into farm teams for professional sports teams, and the owners of professional teams should be responsible for training and paying athletes and managing the operation. No more free lunch for professional team owners.
Ultimately, the cost would be borne by advertisers and sports fans, of course.Scholarships could then again be reserved for scholars. Money paid into universities for tuition would be used to buy, say, new laboratory equipment instead of a new stadium. Today, there are few manufacturing jobs. Students go to college to get job specific training. They get degrees with majors in things like “information technology”, or “law enforcement” or “health sciences” or “nursing”. Many get out of college unscathed when it comes to having their mind broadened.There is a need for this kind of education. It should not, however, happen in Universities.
There will be no relief in the current jobless malaise until manufacturing returns to the U.S. allowing those with no intellectual curiosity to again get good jobs that don’t require a college education. The return of U.S. manufacturing is a must.The idea that trees are cut down on the West Coast, floated across the Pacific, turned into toothpicks, shipped back across the ocean and sold to Americans is preposterous. We have been reduced to a source of natural resources and a consumer market on many fronts by corporations who just crunch the numbers.