“A hundred wagon loads of thoughts will not pay a single ounce of debt.”-Italian Proverb
Welcome to The Golden Sense! The young generation of America has a problem and it's a problem they were conned into. The average student walks away from college with $28,000 in student loan debt. Some graduate with $100,000 or $200,000 in outstanding student loans. The new generation, my generation, may be educated but they are faced with expensive education and are drowning in debt.
There is roughly $1 trillion in total outstanding student loan debt in the United States today. This debt along with the lousy job market and decreased value of a college degree is restraining this generation of Americans with payments that will last well into their mid 30's, if not longer. While a college education is an important step on a pathway to prosperity, it's turning into a financial sinkhole for some borrowers who aren't able to find stable paychecks.
The thing is...it hasn't always been this way. College tuition rates used to be rather stable. We can learn a little by looking back at past student tuition rates.
Yale University charged an annual tuition rate of $33 from the year 1810 to 1850. The price never rose. By the year 1918 the annual tuition finally reached $160. This increase in rate can generally be attributed to inflation that was caused during the civil war era. Both the North and South central banks inflated their currencies to pay for the war expense in the 1860's (Griffin). For the latter half of the century prices rose accordingly.
More recently, college tuition in community colleges alone have risen 40% over the past decade. As for four-year public schools, their rates have gone up by 68%. Today, the annual tuition rate at Yale University is approximately $41,000.
Back in 1918 the average pay at Ford Motor Company was $5 a day. That means that a worker would have to work 32 days to pay for a whole year of college at Yale. Today the median personal income is $43,000 a year. That means a person has to work 348 days a year just to pay for a year of college.
Back in the 1950's and 1960's many people worked their way through college. College tuition was still low enough that the expense was manageable. Today, it is nearly impossible for a student to work their way through college. In addition, the value of a college degree has diminished. A liberal arts degree doesn't really give you the edge over anyone else.
You can now see that college is much more expensive today than it was in the past. Inflation alone cannot explain this dramatic disconnect of income compared to college expenses. There is however, one unique difference about college today than in the past. Today, the majority of students receive a government subsidized student loan to help pay for college.
A subsidized student loan is one in which the government basically co-signs on the loan and actually pays the interest while a student remains enrolled in a qualified college or university. After the student graduates or is no longer enrolled the student begins paying the interest and principle on the debt.
These government backed student loans actually came into existence in the 1960's but did not expand rapidly until 1993 when congress passed the Student Loan Reform Act. Now, the FSA (Federal Student Aid) programs are the largest source of college financial assistance, each year providing billions of dollars in funding through a variety of methods.
The FSA lending standards are very low. These loans are given to 18 year old kids without caring what major they are pursuing, proof of income, potential income, or collateral. Due to these standards, student loan default rates have been accelerating year over year.
But why is tuition rates rising year over year?
Classic economics states that prices will rise as demand increases for a product.
Today, any student can come up with the funds to pay for college by getting a government subsidized student loan. Universities in turn raise tuition rates due to the amount of enrollment demand. You see, it doesn't matter how high tuition rates go up, students can always pay for it by acquiring a larger government sponsored student loan.
In essence, students are bidding up the price for college.
The Universities just want to make money, so they have no problem raising tuition rates. The result of this dynamic is that the Universities are benefiting while the students are getting stuck with the bill and the government is enabling the whole process.
Due to ridiculously high tuition rates students now have a sense of dependency on government subsidized student loans. They see these astronomical tuition rates and cannot fathom paying them without the support of these loans. What they don't realize is that it's actually the government sponsored loans that is causing the prices to go higher.
So what is the answer to the problem?
We must look to the old adage..'suppose they gave a war and nobody came'.
Government subsidized student loans should be abolished. By doing this college enrollment would immediately plummet. The Universities would HAVE to drop their tuition rates to levels that normal people could pay without acquiring a loan. There would be no choice but for universities to drop their tuition rates. This would make college more affordable. In addition, students wouldn't have to take on any large debts.
Classic economics states that prices will decrease if demand falls.
This doesn't mean that students wouldn't be able to go to college. They would absolutely be able to go to college. When the tuition price falls accordingly students will be able to attend college just like they did in the past and not be burdened by the debt.
It should not be outrageously expensive for anyone in the United States to better their knowledge by attending college. College is a privilege, but should not put a person in debt for the rest of their life.
It is plain to see that the universities are the one's benefiting from government subsidized student loans and not the students.
This is just another case of government getting involved in a free market transaction and causing a distortion that turns into a bigger problem. Unfortunately, an entire generation is affected by this horrible reality.
Over and Out,
T.Norman
References:
Griffin, E. (2008) The Creature from Jekyll Island. American Media. Westlake, CA
http://en.wikipedia.org/wiki/Household_income_in_the_United_States
http://www.usnews.com/news/articles/2012/03/06/5-shocking-facts-about-student-loan-debt
http://en.wikipedia.org/wiki/Henry_Ford
http://bber.unm.edu/econ/us-pci.htm
