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Student Loan Debt Could Cause the Next Financial Crisis

Student Loan Debt Could Cause the Next Financial Crisis

 

Student loans may be a financial bubble that’s about to burst, warned Moody’s Analytics in a report released in July.  As students graduate with greater debt and fewer job prospects, these “speculative” loans, which are based on the expectation that an investment in education will enable the student to repay his or her debt, are increasingly dangerous.  The average 2011 college graduate carries $27,000 in debt, and that number is only likely to increase as tuitions rise and states slash funding for colleges and universities.

“Unless students limit their debt burdens, choose  fields of study that are in demand, and successfully complete their degrees on time, they will find themselves in worse financial positions and unable to earn the projected income that justified taking out their loans in the first place,” Moody’s warned.

This certainly contradicts the mantra that I heard throughout college: study what you love, and you’ll be able to find a job afterward.  That’s how I ended up majoring in Religion and Gender Studies, two fields that are not likely to make me a millionaire anytime soon.  But as a recent graduate, I can understand how difficult the job market would be to navigate if I carried as much debt as the average ex-student.  Living on an internship stipend would be much harder if, among rent, food and cell phone costs, I had a monthly debt payment to make.

The question is, what’s the solution?  I was able to graduate without debt because my university chooses to offer financial aid grants instead of loans.  But I know that I attended one of the few schools that kept this option open, even after the recession hit.  Andrew Hacker and Claudia Dreifus ask some difficult questions in a piece for The Chronicle of Higher Education, explaining that universities need to be more culpable for the choices that result in higher tuition costs.

“Claudia recently attended a faculty meeting at a well-known school where a series of expensive projects and a 5-percent tuition increase were announced,” they write. “Not a single professor rose to question those decisions, nor did anyone seem to give a thought to how their students would pay.”  Professors’ salaries, they add, have remained mostly untouched as tuition skyrockets.

But is it possible that some students are attending four-year colleges and racking up mountains of debt when they would rather attend two-year vocational schools?  The overwhelming emphasis on a liberal arts education may be blinding us to the fact that a) this education is becoming prohibitively expensive and b) some people do not benefit from such an education.  Massive cuts to vocational and technical schools could result in the same need to accrue debt.

A less educated workforce would place the United States at an undeniable disadvantage.  But that may be the result, if enough students graduate with massive debt that they can’t repay.

Related Stories:

College Students Turn to Sex Work to Pay Off Debt

Pell Grants Spared, Graduate Student Funding Cut in Debt Ceiling Deal

Post-College Debt Grows

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Photo from stevendepolo via flickr.

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52 comments

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4:17AM PDT on May 13, 2013

That's terrible! Thanks for sharing.

8:24PM PST on Nov 25, 2012

The federal government needs to step in and give a helping hand to those who re in debt over a certain amount. They need to do something!

1:17AM PDT on Oct 28, 2011

If students were offered half a day of school and half a day of work for graduate school, and under-grad, and PH.D's then we would have a fair and just system -- with this offer for all students -- the poor to the rich, those with connections to those with no connections. Also, it would pay for the students education. The concept being to give each students a choice of the kind of work that they are capable and willing to do -- that could or indirectly could relate to their studies. Also, give if the student has proposed work that he/ or she created, then that work could be written on paper, and approved by an organization, or the school and that could be in exchange for the school, and school expenses. While these kind of programs have been a success for some students in some programs, there are benefits to having these programs for all students -- poor to rich, no matter the grade -- as long as the students is making the effort and finding what he or she can do best-- and redirected into the kind of work and schooling where each student does well.

Those benefits include: keeping the people -- students on track with what they love or enjoy doing -- so there are less people falling through the cracks of society, less crime, and less harmful drug use. People who stay on track with meaningful lives do not need to abuse drugs, or alcohal. As long as there are other support groups and councilors made available to help people overcome challenges that come into their live

12:24AM PDT on Oct 28, 2011

It is not the Universities only. Students need to be offered grants-- that is free education -- during an economy like this where the richest have more than they need, and funds need to be allocated to the civilians in the U.S.A. as well as taking care of the people in the military.

9:59AM PDT on Aug 19, 2011

@ Robert O – Don’t “most people in business” realize, even now, that the idea of “higher education for all” is what has created this hell for today’s young people ? Everyone was to get the higher education because they could earn more than those without it. If everyone has that education, then who do they earn more than? In Switzerland, for example, higher education is free BUT is restricted to those of high academic achievement. Other people get apprenticeships, learn trades. Students are not in the US trap of having to pay more than they can afford for a degree that earns them nothing more than possibility of having their resume glanced at, and costs them a lifetime of debt and valuable years of their lives.

7:50PM PDT on Aug 18, 2011

Cutting spending on, so called, entitlements is ineffective for addressing the deficit. Cutting programs that support the low and middle class will further strain both who don’t even receive lower prices as a result of the U.S. job losses and create a disconnect that will end in another financial collapse. The justification for attacking government benefits as opposed to raising taxes is the creation of jobs. But where?

Corporations have over-powered our government which now believes that out-sourcing and off-shoring of U.S. jobs is inevitable and necessary with expectations that the middle class should fall on their swords. It is the underlying cause of the financial collapse and borders on national security with the loss of our middle class tax base. Yet, this nation does nothing, not even demand it be restricted by whatever method. International businesses are doing the UN-AMERICAN activity of destroying U.S. salaries, U.S. businesses that hire in the U.S., and as an end result, destroying the U.S. marketplace while still demanding BUSINESS ENTITLEMENTS and protections for themselves.

Infrastructure spending and tax breaks will not replace enough jobs to keep up with the hemorrhaging loss of U.S. jobs from out-sourcing over seas. Neither party will do anything about it unless we begin grass roots efforts to protest out-sourcing and off-shoring of U.S. jobs. If nothing is done we will deserve what we get and it will get a lot worse before it gets better

7:49AM PDT on Aug 17, 2011

It's a frightening financial burden to obtain a college education today. Perhaps now is the time to promote implementation of voluntary "Education in Exchange for Work" programs. Free or greatly reduced college tuition rates in exchange for pre-set work contracts in America's neediest locations (as teachers, engineers, accountants, military personnel, etc.). An updated American version of a local Peace Corps. or a reverse model of the GI-Bill.

Meanwhile, we should all remember that other nations lie in wait for America to continue to lose its grip with academically challenged upcoming generations. Education should always remain a national priority.

11:51AM PDT on Aug 16, 2011

Thanks

5:57AM PDT on Aug 16, 2011

A young friend of mine graduated with a BS majoring in special education with a sub-specialty of autism. Her parents insisted that she get a job as closely related to education as possible and work on her masters in education only part-time. The best job she could get was babysitting with some autistic children. So she has to live with her parents and commute to work.

8:01PM PDT on Aug 15, 2011

I do feel for the people with high student loans, but it is like any other debt that needs repayed, you borrow you owe. As far as high college fee's how about cutting salarys, coachs & Deans make way to damm much money.

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