While Americans are finally beginning, it seems, to recover from the 2007-2008 mortgage crisis, another generation is borrowing itself into yet another credit bubble.
There are approximately 37 million student loan borrowers with outstanding student loans today. Of these borrowers, there is almost $1 trillion in outstanding federal student loan debt. Add that to the amount of outstanding private student loan debt and the number is way into the trillions. Forty percent of those with outstanding debt are under the age of 30 and 42 percent are between the ages of 30 and 50 with the majority of that group falling below the age of 40. With so much of this debt falling on the shoulders of younger Americans, it isn’t going anywhere anytime soon.
Going to college is a rite of passage for today’s young Americans, and a college degree is marketed as a necessary tool in our modern economy. Barack Obama has stated numerous times that a high-quality education is a necessary right for all young Americans, and he has made it his mission to provide avenues through which students can achieve that education.
However, one has to wonder whether or not a college degree is really worth the cost. Should we be encouraging the youth of today to reject the idea of becoming a skilled HVAC technician or electrician in favor of a high-priced degree in a field where they cannot find a job? The looming student loan bubble suggests that this encouragement is misguided.
The government practically throws student loan money at those who wish to go to college. If an individual cannot get all that they need from the government, then there are private lenders standing in line waiting for their opportunity. Money for student loans is extremely easy to come by, much like mortgages were very easy to come by before the financial crisis. Just as lenders were willing to hand out mortgages to unqualified borrowers, the federal government is willing to throw money at 18 and 19 year old students who have no guaranteed method of being able to pay them off.
Patrick Hedger, a policy analyst at FreedomWorks, further compares the coming student loan crisis to the infamous mortgage catastrophe:
“In an attempt to get every family into a ‘3 bed, 2 bath’ house somewhere in the suburbs, the federal government promoted tremendously risky borrowing practices in the form of government-backed subprime mortgages.”
Now, in an attempt to provide every student an affordable education, the government is promoting the same risky borrowing practices.
And colleges and universities play into this “cruel charade” of student loans by profiting off of the loans and the students. Seeing that students are willing to pay whatever price to attend college, and seeing that the government is willing to cover whatever price that is, university administrators have seen no need to lower their tuition rates. Instead, they are raising education costs further compounding the problem.
Almost 2 million students graduate college every year. If they do not go on to further their education, they have to start paying back their loans almost immediately. The latest statistics suggest that as many as 53 percent of people under the age of 25 with a college degree are unemployed or underemployed. Furthermore, they are taking jobs traditionally held by high school graduates.
Do you see the problem here? Tuition costs are rising, the amount of student loans is rising, federal student loan debt is rising, but job prospects for college graduates are decreasing. Members of “Generation Jobless,” (the term many have attributed to younger Americans) are finding themselves with overpriced degrees, a mountain of debt, and working in jobs where they didn’t utilize that college degree.
The problem seems simple, but Congress and the President don’t see it. The federal government continues to con students into borrowing more than they should in the name of “more affordable” education. An editorial in the Washington Times lays it out simply: “Government meddling has turned a college diploma into an expensive credential of increasingly dubious value.”
Does the government not care that it is subsidizing a heaping mountain of debt that is increasingly becoming unsustainable? Well, that’s another problem. The mission of making higher education more affordable is a winning political message. When President Obama can stand before a crowd of young Americans and promise that they will have the right of an affordable education backed by the government, they listen and they are happy. It is a horrible thing, however, for the government to be saddling so many young Americans with so much debt that they just do not comprehend.
The government should be encouraging students to pursue other, more economically beneficial options, not encouraging them to sign away future paychecks for increasingly more worthless degrees. The Times editorial succinctly concludes, “Families should be able to weigh the true costs and benefits of college. This can’t be done while Congress continues to ‘help’ students by subsidizing a debt that has reached $1 trillion.”
Mortgage-backed securities dealt a severe blow to the economy because those involved, including the government, assumed that real-estate values would never begin to decrease. They did. Now the same thing is happening to college degrees. Something has to be done before this bubble bursts like the last.
