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Student Loan Debt $1.5 Trillion

By Chris Freind

Ahh … spring. The time of year for renewal, flowers, baseball games – and sheer panic for many parents.

Why? Because May is college-decision month.

Sadly, instead of marveling about the possibilities that lay ahead, parents are left fretting about their children’s future – and their own.

While college has always been sold as a path to success, its staggering costs have resulted in a far different reality.

Truth is, the current system has outlived its usefulness, being directly responsible for increasing despair, destroying the earning capital of young people, and demoralizing an entire generation of college graduates living in their parents’ basements because of insurmountable debt – their liberty and dignity stripped away.

The numbers bear out the crisis:

• Student loan debt now stands at nearly $1.5 trillion (that’s trillion with a “T”). By the end of the next decade, that figure will be almost $3.5 trillion. The amount owed is now more than the total debt on credit cards, auto loans and mortgages.

• The average debt of 2016 graduates exceeds $37,000. And that’s not including graduate/law/medical school debts, which can easily be six figures.

• Not surprisingly, the default rate is skyrocketing. The balance defaulted on exceeds $137 billion – for which the taxpayers are on the hook, since the federal government subsidizes many of those loans. The similarities to the housing crisis are eerie.

Naturally, many are wondering if college is worth the investment. The majority believe otherwise, largely because so many college grads face a significant underemployment problem. Yet parents and students continue taking the plunge. To what end?

All their lives, children are told that they can achieve the American dream, with college playing a big part in that equation. But for so many, the truth crashes down hard after graduation, with massive debt and mediocre job prospects crushing hopes and dreams, often for decades.

It goes something like this: Work hard to impress colleges (get good grades, play three sports per season, pay for individual coaching, volunteer 30 hours a week, join 17 clubs, and open a nonprofit making flipflops for the world’s poor); graduate with a boatload of debt; discover that you need an advanced degree, which incurs more debt; realize that your expensive MBA landed you a job at a 1990s salary level; get married – but no kids until you move out of the 700-square-foot apartment; spend years paying down the debt, then several more building up equity for a house; be cash-poor for years thereafter; and end up having just one child despite wanting more – all while watching your marriage dangle precariously from the cliff (if you’re not already divorced) because of the stress trying to make ends meet.

Welcome to the generation with the dubious distinction of not doing better than their parents. And it’s only getting worse, as incomes are growing more slowly than the rate of tuition increases.

What can be done? Here are some ideas:

1. The college tuition/student debt situation, just like the nation’s $20 trillion debt, is a house of cards that will, with mathematical certainty, collapse. It’s not a question of if, but when, as the system is unsustainable. But since these problems are always pushed off to future generations, that point serves only as a harbinger of what to expect.

2. The problem lies in basic economic theory. The more something is subsidized, the more its price increases. Therefore, until the federal government’s gushing student loan spigot is turned down, colleges have no incentive to hold the line on tuition. And obviously, they haven’t. Since 1978, college tuition costs have risen 12-fold – more than 1,200 percent, compared with just 250 percent for food. Tuition even outpaced medical costs by a factor of two, which is really saying something. Between 2008-2010, public universities jacked up their rates an average of 15 percent, with some private colleges increasing even more. Time to break universities’ addition to the federal trough by restricting how much is loaned.

3. Since most colleges are nonprofit, and thus tax exempt, their lavish endowments should lose tax-free status unless two provisions are met: A) tuition costs do not increase by more than 2 percent per year, and B) the endowment does NOT grow by more than 6 percent in a given year. If either requirement is not met for that specific year, they would pay taxes on all gains and income – thereby creating an incentive to use such funds to control costs.

4. If colleges banded together to lower tuition, it would be illegal, with administrators likely prosecuted. Time to revisit that law so that collusion doesn’t apply to price reductions.

Without that reform, almost no school will reduce tuition for fear of being labeled “inferior.” Sure, applications would surge in the first year or two, but would decrease soon thereafter. How ironic. Despite our anger about college costs, we would feel that a lower-priced college wouldn’t be up to snuff. Don’t believe it? Gauge people’s reactions to the lowest-priced Mercedes or Porsche – right or wrong, many sneer (even if they can’t afford one), viewing them as a diluted “poor man’s” luxury car.

5. More college-level courses, both online and in high schools, should be offered, and colleges should be pressured to more readily accept the results. Yes, many high schools offer AP courses, but colleges, fully aware that they reduce a student’s tuition, often create needless obstacles for students to gain credit. And colleges should offer more competency tests to incoming freshmen so that they can “test out” of courses not related to their field, such as math courses for English majors. Striving for well-roundedness is one thing, but mandating pointless standards as a thinly-disguised money grab is unacceptable.

6. How about making highly compensated professors teach more than just a few hours per week? Seriously, how much “research” can they possibly be doing? It’s salt in the wound for parents paying $45,000 per year to learn that their child is being taught by a boring teaching assistant simply regurgitating slides, with students learning nothing except how to best sleep in classroom chairs.

7. Time to control the purse strings. This author is not a big advocate of federal mandates, but since virtually every college in the country accepts federal aid – in addition to federal student loans – there should be common sense stipulations. No federal loan should be used for a university’s capital projects. Dorms and salaries are one thing, but unlimited taxpayer money should not be spent on lavish, and often unnecessary, pet projects – costs that are then passed on to future students. Colleges must always improve to compete, but making them do so with non-federal money would generate a heretofore nonexistent accountability.

8. Tax breaks should be offered to companies sponsoring students specializing in fields beneficial to that business; in turn, students would commit to working for that company for a pre-determined time. Everyone wins: company, university, economy, and most of all, student.

Numerous other areas should be explored: Tuition-free community college; public universities selling assets not related to their core business; outsourcing services to the more efficient private sector; capping salaries and administrative costs; and employing graduates in public service programs to forgive debt. We could even consider a program where universities that fund students’ education would be entitled to a future cut of a graduate’s earnings – thus motivating the school to produce a superior product.

Congress has thus far earned an “F” when it comes to reining in exorbitant college tuitions. If our children, indeed our future, are going to have any shot at realizing the American dream, reforms must be implemented. And you don’t need a college degree to understand that.

Student Loan Debt $1.5 Trillion