Student Loans: Is it Really All about the Interest?

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Congress is once again fussing and fuming over how to use another festering problem that faces the American people as a club to beat one another with in partisan rumbles.

This time, it’s the ridiculous cost of higher education, specifically the cost of  student loans.

The amount that people owe in student loans has doubled in the past five years. Those were the same five years when jobs vanished, wages for the jobs that were still around stayed flat or dropped and the net worth of families decreased due to the falling housing market. They were also the same years that saw gasoline go up and up and up along with the cost of everything from a gallon of milk to a new pair of jeans.

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Students can no longer graduate from college and look forward to landing a job that will allow them to pay their student loans. As anyone who’s ever had one can attest, owing on student loans is only slightly preferable to owing the Sicilian Mafia. They won’t break your legs if you can’t pay your student loans, but they will break your financial back.

Every time you have to put payments back, the loans pile up penalties and interest. This increases the amount you owe in a geometric progression, piling debt on debt until there is no way anyone earning one of today’s salaries and living with today’s cost of living can pay off the loans in a normal lifespan.

Student loans can force young people to delay marriage, put off starting a family and forgo buying their own home. On the other end of life, student loans force at least some people to delay or even give up retirement. I personally know an individual who is well past retirement age, but can’t stop working because of payments on student loans.

Students loans were a great idea when they were first implemented. The plan was to open the doorway to higher education to young people who wouldn’t otherwise have the money to go. The loans made a lot of sense when tuition for a state university cost $12 or $15 per hour, text books could be had for less than $50 and good jobs at a living wage were plentiful. They were an extension of the American dream based on the kind of earnings that went with the almost unfathomable industrial might this country possessed.

Unfortunately, we’ve exported our industrial base and our government is now in the process of squeezing the last bit of financial reserve out of the population by making them pay for unnecessary armaments for what has become an endless cycle of war. Layered on that is corporate raiding of the national treasury which uses Congress to transfer money from the people to corporate welfare programs for those who pay for their campaigns.

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Meanwhile, our institutions of higher learning have not been slouches at getting their cut of the economic joyride. They have lived large on the student loan gravy train since the program was implemented. After all, these are intelligent people They know a golden goose when they get one.

I’ve served on a board of regents in my time. I was the truculent one who voted against fee increases. Then, when I was a legislator, I was the unpopular one who voted against allowing the state schools to set their own tuition with no legislative oversight.

I’d heard all the arguments.

“Vote for the fee increase. No one will be denied an education. They can get loans.

Or,

“Vote to let the schools set their own tuition without legislative oversight. It won’t stop anyone from going to school. They can get loans.

But, for the simple reason that I could add, I knew that there was a day coming when the costs would outpace the rewards for students. We passed that day a while back. I also knew that the job requirements were getting stupid.

Nobody needs a college degree to be a cop or a firefighter or a lineman for the local electric company. Those jobs were held for decades by people without college degrees and they did them very well. A college degree is not necessary to do most jobs. Employers are requiring the degrees because  they have so many applicants for every position that they use the degrees as a weeding out criteria.

The question that arises is whether or not this is a legitimately useful criteria. Does a college degree actually mean that a person is going to be a better employee? I doubt it.

I’m not against higher education. But I am against this endless round of cost increases tied to the argument that there’s no reason to practice good usage of resources because, after all, students can always get loans to pay for it. I am also against job requirement inflation that tacks a supposed need for a college degree onto every position.

Which brings me to the latest legislative brinksmanship in Congress. It seems that there is a plan afoot to double the interest rates on student loans. Congress, with its usual unwillingness to think of the people or the country ahead of its partisan loyalties, is fighting over what to do about it. The Republicans want to tie the interest rates on student loans to interest on the 10-year treasury note. Based on what I’ve read, I think the Democrats want to block the proposed rate hike, which, I presume, would hold the rate at its current level.

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Meanwhile, the amount of student loan debt in this country has risen from $550 billion in 2007 to a trillion today. That’s not government funny money. That’s people’s lives nailed down and unable to progress because of a burden of overwhelming debt.

So far as I’m concerned, we need to look at two things: The inflationary cycle in the cost of a college education, and the inflationary cycle in downright stupid job requirements.

You don’t need to be an engineer to change a lightbulb. Somebody needs to remember that.

From the Wall Street Journal

Student loan debt has nearly doubled in the past five years, according to a congressional report released Tuesday, less than two weeks before interest rates on federally backed student loans are set to jump to 6.8% from 3.4%.

Sen. Amy Klobuchar, a Minnesota Democrat who is the vice chair of the congressional Joint Economic Committee, released the report and said it underscores the need for “immediate action” to block the rate hike scheduled for July 1.

With little time to head off that hike, however, a bill has yet to clear the Senate. A pair of competing bills failed test votes earlier this month. The House in May passed a bill basing interest rates on the 10-year Treasury note.

The report highlights the burden of debt on students now. Debt has increased from $550 billion in the fourth quarter of 2007 to just under $1 trillion in the first quarter of 2013, it says. (Read the rest here.)

 

 

  • vox borealis

    Is it possible that widespread student loans—guaranteed and backed by the federal government—has been greatly responsible for driving up the cost of education? I’m in higher education, and am no anti-university zealot. However, student loans as used in the US strike me as another sort of ponzi scheme.

    • hamiltonr

      Student loans were certainly used as an argument to vote for fee increases when I was on the board of regents, and they were also used as an argument to pass legislation which every legislator knew would result in higher tuition.

      I can attest to that from personal experience.

  • TheodoreSeeber

    6.8% would be affordable- If there were any jobs out there.

    • Dan F.

      The issue with the increase isn’t whether there are jobs today but jobs in 3 or 4 years when the student is getting out of school – that’s why so many of my friends in the last few years opted to go back for a master’s degree rather than even really try the job market in their fields – no jobs available meant no money to pay the loans which meant their best option was more debt deferred while they were in school.

      I have so many clients who’s debt payments are the equivalent of a mortgage payment – it’s sickening really.

      • TheodoreSeeber

        Given that the employment utilization percentage peaked at 68% in 1998, and has been going steadily DOWN since and is now at something like 49% of the population, I’d say the answer is no, there won’t be jobs in 3-4 years unless you are *very* lucky and have picked a STEM major.

  • http://ashesfromburntroses.blogspot.com/ Manny

    I’m not knowledgable to comment on whether student loans should be linked to the 10 year treasury bill, but I can tell you the reason college costs so much is because of the easy money available from government in either loans or grants that are avaialble. This is really welfare for universities, and they are taking FULL adavantage of the system. Somehow we’ve got to cut off their milking of the system. Unfortunately the intermediary are the students and anything you do to stop the universities from this welfare is going to appear that you are harming students. There will be an unfortunate short period of adjustments that will hurt students. BUT THIS WELFARE TO UNIVERSITIES HAS TO STOP NOW. College costs have been going up at around 3 three times the rate of inflation. No one (except the universities) is winning under the current system.

  • hotboogers

    Yes. We began saving money for our children’s college educations when they were born. So we have about 3 years worth at a state school available. Kids will have to work for the rest. They will be able to graduate without debt if they attend state schools; otherwise, it’s on their shoulders. We have also talked with them about getting into debt and how to calculate how much debt is too much. So if, for instance, math genius son wants to get an advanced degree, he can do this kind of economic balancing analysis.
    I also think student loans should be stratified according to the student’s field of study. For one example, an engineering student should have an easier time getting a loan, as compared to, say, a gender studies major (what kind of job prospects does that course of study really provide to a young person anyway?). Factoring job opportunity and expectations into the loan process.
    Oh, and Manny is right on about the universities hiking tuition to suck off the teat of the government via govt-backed loans and grants. Shameful on all sides.

  • Jeanne Schmelzer

    The 6.8% is divided up so that 2% will go to pay for the government’s Obamacare. And 2.8% approximately would actually go to the loan itself, whereas the rest goes somewhere else. I forget where. Obamacare is being funded on the backs of students.


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