The College Debt Crisis Looms—Likely to Mimic Mortgage Crisis
On June 9th , President Obama signed an executive order that would limit borrowers from having to pay more than 10% of their monthly income toward their student loans while encouraging a more comprehensive Senate legislation aimed at the repayment burden. The bill’s chief supporter, far-Left Democratic Sen. Elizabeth Warren of Massachusetts, was present along with student loan borrowers for the media promotion.
The congress created an income-based repayment plan, dropping the maximum monthly payment to drop from the present 15% of income to 10% in July 2014. However under that plan, only new borrowers are benefited. President Obama expands the Pay-As-You-Earn program to all federal student loan borrowers, affording them a monthly student loan payment at 10% of their income. This is expected to assist up to five million additional borrowers, starting in December 2015.
To put this in the context of a growing burden placed on American taxpayers, in March of 2010, President Obama ended a 45-year-old private lender program, making the government the only source for subsidized loans. The U.S. Department of Education granted approximately a third of the loans through the direct-lending program, now makes 100 percent of them. Banks can continue to make non-guaranteed college loans, which are more costly, to private borrowers. Students who are looking for the best value now have only one choice: the government.
The White House media promotion covering President Obama’s signing of the executive order was framed in a feigned concern for the burden of rising tuition costs on the middle class. The Federal government revenues, however, come from the taxpayers, who are now providing the means to support the credit for tuition. The taxpayers are also on the hook for federal student loan forgiveness, cancelation or discharge options of those tuition fees.
The budget for this program should have been considered before implementation. However, NYPost.com reports “that when asked about the cost, Education Secretary Arne Duncan said the administration won’t know how much it will cost until they go through the rule-making process to put the expansion in place. ‘We actually don’t know the costs yet,’ Duncan said. ‘We’ll figure that out on the back end.’ ”
Gary Goldberg, President of Financial Services appeared on Fox News’ American Headquarters Sunday. Goldberg noted that colleges’ loan criteria is not tough since they make a profit from student attending their institutions and because it is partially guaranteed by the government. He went on to point out that the average endowment fund for a college or university hovers around $700 million dollars and has basically become a professionally run pension fund for the administration and institution. Wikipedia lists U.S. institutions of higher education with endowments greater than one billion dollars according to National Association of College and University Business Officers (NACUBO).
Usnews.com reported that “more than 7 in 10 college seniors in 2012 graduated with some amount of student loan debt, which was $29,400 on average. Nationwide, outstanding student loan debt totals to more than $1.2 trillion, surpassing credit card or auto loan debt.”
Dylan Matthews wrote a 10 part series for the Washingtonpost.com. “The Tuition is Too Damn High”. The cost of tuition is skyrocketing. Matthews reported that the average tuition, fees and room and board in 1964-65 was $13,233 a year; in 2010-2011, it was $31,395, an 137.2 percent increase.
This is not simply a matter of education costs sapping Americans’ discretionary income—the parallels between student lending and the subprime mortgage crisis should not be dismissed. The Federal Advisory Council told the FOMC in a meeting as far back as Feb. 3, 2012 that student loans growth “now exceeds credit-card outstanding and has parallels to the housing crisis.” In the USAToday.com report, “the bankers told the FOMC that student lending exhibited characteristics similar to those seen in the housing crisis, including ‘significant growth of subsidized lending in pursuit of a social good’—this case, higher education rather than expanded home ownership.”
The similarities are evident. “Just as the mortgage lending boom pushed home prices upward, student loan lending has put upward pressure on tuition. The bankers said both examples showed a ‘lack of underwriting discipline.’ “
Washington appears to be incapable of responsible—or competent problem solving. The mainstream media consistently fails to identify the cause and effect for the average citizen to make sense of the devastating economic situations facing America. And the radical Left wing of the Democratic Party continues to mask destructive policies and programs as beneficial to the middle class, while pushing us toward the proverbial economic cliff.
Not only are the taxpayers being burdened with additional national debt, students have no choice but to start out their work life steeped in debt.
Case in point
My husband and I went out for Sunday breakfast at a well-known national franchise. The young woman who waited on us was of such a high caliber that my curiosity got the best of me so I inquired if she was working to supplement college. I leaned that she had her Masters in foreign language. She was working four jobs to pay her loans off, sharing she didn’t borrow wisely. She didn’t take advantage of any scholarships or government options, taking full responsibility for her lack of borrowing savvy. She is an adjunct professor at the University she graduated from, teaching French, which she is fluent in. Her course runs 16 weeks, and is paid all of $2300.00 for it. Only the university administration is paid well. This state university is millions of dollars in debt. So she works as a server in a local franchise, is an exercise instructor and holds a fourth part time job where her father works. This young woman is stunning, and could easily have modeled part time through college earning a much better part time wage. Apparently no one ever suggested it.
In addition to speaking French fluently, she also speaks some Spanish. I suggested looking into becoming a professional translator and interpreter in Washington DC. She looked as though a light bulb went off. My first thought was, what are the universities doing to connect the dots for these student? Do they not offer any counseling with regard to finding work in their field?
This nation is being sold a philosophy that in order to find quality work, you need a college degree. The voter is told that education is an absolute priority for our children. So every election the Left in particular, rolls out the rhetoric and the plate of shallow thinking is set before us so we pull their proverbial lever. Meanwhile professors and educational administrators have endowments to keep them well heeled in retirement, but debt keeps mounting, tuition is skyrocketing and our kids touting Masters Degrees can’t find decent work. Whether we like it or not, the Law of Supply and Demand is in operation, whether you consider it or not.