By Francisco Gonzalez, JMI Development Director
Posted April 12, 2012
A few months ago, I came across an article in The Atlantic magazine that discussed the “impact” of President Obama’s student loan executive order last year. As the article demonstrated, the impact is so minimal that it’s almost laughable. In general, it saves the average college graduate with a student loan $4-$8 per month.
I would suggest this statistic is also laughable in terms of how the President used this to add fuel to the Occupy Wall Street debates over calling on the wealthy to pay for their student loans instead of honoring the commitment they made when they signed up for them. But then the statistics in the rest of the article paint a more serious picture for our nation and the rising generation that is nothing to laugh about.
One stat that struck me most is that 82% of all student loan debt in this country has occurred in the last 10 years alone! Part of this is understandable to the degree that those with student loans from thirty years ago have, hopefully, paid them off already. But that doesn’t explain the entirety of the amount of personal debt college students are amassing and with which graduates are burdened.
One might also suggest that student loan debt is increasing because college tuition and costs are increasing. But that’s actually not entirely true. In fact, there are many studies on higher education, including a recent one by The James Madison Institute, that are now suggesting it’s the other way around. Because it’s so easy to get student loans, these loans artificially inflate the cost/value of a college education. Colleges and universities can continue to raise their prices (to construct buildings, hire teachers and staff, or feed the bureaucracy) because they know they will still be receiving tuition payments, and they have plenty (if not an increased number) of applicants to deny – while students, parents, and graduates pay for these rising costs in the form of student loans (not with money they have today but with money they hope to have in the future). The funding of higher education is artificial, and thus the increased costs do not reflect the true nature of “supply and demand” that regulates prices – and the true cost – in the free market.
PayPal founder and entrepreneur Peter Thiel was one person who warned about the housing bubble more than a decade ago. These days, Thiel is talking with the same language about the next bubble that is going to burst: higher education. He outlines some pretty troubling scenarios, especially for those who have invested so much time and money – and put themselves into debt – to obtain a college degree. Let’s hope he is not right, but I fear he is.
A word of caution to young people today: guide your investments in your education by being fiscally cautious. Don’t start your adult life out with personal debt, much of which is often acquired during college. I wish someone had given me that advice – and that I had listened to it. If more of us did, our nation’s own problems with debt wouldn’t be as staggering.