Wednesday, July 18, 2012

On "Nightmare" College Debt

In a recent NJ Star-Ledger Reader Forum letter, Liana Laurenceau complained about her "Nightmare Debt"--student loan debt, that is:

Student loan debt is going to be a crisis if our politicians do not agree on a plan of action. As a student, the debt that looms over my head haunts my sleep every night — if the rate were to double from 3.4 percent to 6.8 percent. The purpose of college was to have a brighter future and a more stable life. As a student, I urge Congress: Don’t double my rate.

One can sympathize with Liana. But the bottom line is, she incurred the debt to begin with. On the other hand, the cost of college is beyond reason. I left the following comments under my screen name:

June 27, 2012 at 1:46PM
RE: Nightmare Debt--
Instead of quibbling about student loan interest rates, we should be phasing out and ending all government involvement in college funding, including government-subsidized student loans. First of all, it is immoral, because it forces some people to pay for other people’s education or educational ideas that may violate their convictions.
Furthermore, student college subsidies, as is always the case when government finances things, have driven the cost of college into the stratosphere. It has created a college-craze bubble, in the form of a mindset that a college degree, rather than a marketable skill, is the path to “a brighter future and a more stable life.”
The flood of government money has created a curriculum inflation of useless courses: How much of what is “taught” in college is needed toward the career choice of the students? How many occupations really require a full college degree, as opposed to much more condensed specialized training?
The “crisis” of student loan debt is a government-created one. Students “haunted” by their debt should ask themselves: How much of what you are paying for through college debt do you really need? How much of the knowledge you do need could have been acquired much more economically, such as through a combination of part-time study and work, along the lines of apprenticeship programs, or with much less full-time college time investment?
It’s time to burst the college bubble mentality. The focus for high school grads should be on acquiring chosen career skills as economically as possible—possibly beginning in high school—rather than on chasing a college degree. That adjustment won’t begin to happen until we get government largess out of the college equation.

One of the problems that I see is that so much college loan debt is out of sync with what the graduate could earn in his/her chosen field. It's hard to imagine private lenders extending credit on this basis, because you would think they'd like to be paid back. As a matter of self-interest, lenders would have to make certain that the potential future earning power is enough to cover the loan payments, just as (until recently) home mortgage lenders tied mortgage loans to appropriate income levels. but government interference into the education loan  market greased the skids with easy money in the form of subsidies and guarantees.

But don't worry, the government fixed the problem by cutting out the bank middlemen, and taking over the student loan market directly. Yea, that'll solve it. Look for the bubble to really expand, making the bust that much bigger.

See also:

The Wasteful Destructiveness of Tax-Funded Education

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