It’s the next big financial crisis that no one wants to talk about: college student debt in the U.S. is nearing one trillion dollars, with no end in sight. The debt is growing at the rate of $2,853 per second.
Cost Of Higher Education Rising At 2 – 3 Times The Inflation Rate
This means that the cost of higher education is currently rising at two to three times the rate of inflation, so it’s no wonder that many students are leaving college with more than just a degree. They are weighed down by staggering student loans.
Currently, 67 percent of students graduate with debts; the average amount for the class of 2009 was $24,000.
Price Of Admission: America’s College Debt Crisis
But why? How can this be? And why is no one paying attention? These are some of the questions that CNBC’s excellent documentary “Price of Admission: America’s College Debt Crisis” sets out to answer.
Scott Cohn, the program’s reporter, came up with some disturbing information. He found admissions officers encouraging widespread borrowing by students, often with little regard for their ability to pay.
As a result of this increasing student loan debt come rising student defaults. Student loan defaults have doubled since 2005, with seven percent being the official default rate, but in fact this number may be much higher. Many critics believe that colleges and universities are hiding the true default rates in order to keep the government loan money coming.
Increasing Student Defaults
They can do this because the government comes up with that seven percent by measuring loans only in the first two years. In addition, loans are deferred if the former student becomes unemployed, so they are not considered in default. Likewise, if the graduate decides to take a forbearance, a loan is no longer counted as in default. (With a forbearance, the lender will delay their right to start punitive measures or to levy fees and other charges as long as the graduate can catch up to the payment schedule within a certain amount of time. So it is a good solution for someone with a temporary setback.)
So, as Senate Education Committee Chairman Tom Harkin (D – Iowa) stated on the program, “We don’t really know what the default rate is.”
For-Profit Colleges: $24 Billion Per Year In Government Money
The Obama Administration overhauled the student loan system so that the government is now the primary originator of student loans. Noting this fact, “Price of Admission” took an especially close look at for-profit colleges, which take an astounding $24 billion in government money every year.
At these institutions, an estimated 96 percent of students borrow money to attend. And we are talking big business. According to CNBC, the University of Phoenix, the largest university in the country, with 470,000 students, made a staggering $3.8 billion in revenue in 2009.
Schools Using Students To Make Profits
What’s wrong with this picture? How can a group that cares about students and their education treat those same students as simple money-making machines? And there’s more: HigherOne is a Connecticut company that allows students to receive some of their loan proceeds in the form of a debit MasterCard.
There are clearly some ruthless business people involved in the world of higher education. It is unfathomable to me that they apparently could care less that they are landing young people in mountains of debt from which they may never escape. For unlike other debts, student loans cannot, in most cases, be refinanced or wiped out in bankruptcy.
Schools Keep The Money, Students Keep The Debt
Harkin put it this way, “Schools keep the money, students keep the debt, and taxpayers lose out.” And a disproportionate number of students at for-profit colleges are from low-income backgrounds, another disturbing factor. (By clicking here, you can read about Harkin’s Oversight Investigation of Federal Dollars going to For-Profit Schools.)
Shame on unscrupulous colleges, and thank you, CNBC, for focusing a spotlight on this crucial issue.