In tough economic times, the student loan system must not contract
A photo by upsuportsmouth, a Flickr.com user, shown under Creative Commons
Under the worst economy since the Great Depression, students face a dubious job market. The national unemployment rate reached 6.5 percent in September, the highest in two decades. While tuition rates and living expenses increase for students, private lenders have reduced or stopped offering student loans altogether.
“We need to do everything we can to prevent students from becoming the next victims of the financial crisis,” said Senator Edward M. Kennedy, chairman of the Senate Education Committee.
“They have yet to find real jobs in their field, so they’re out there slinging hash to make ends meet. And then their loan payments come due,” says Alan Collinge, founder of Student Loan Justice. Regardless of whether a student finds employment, he or she must repay both public and private loans that have high interest rates within six months. Defaulting on a loan would result in a bad credit score, hurting their job prospects, and possible liens against property and bank accounts.
Yesterday, the Bush administration informed lawmakers it would leave President-elect Obama with at least half of the $700 billion bailout fund that was approved by Congress this Fall for the financial industry. In the 60 Minutes interview last night, Obama assured homeowners that a program would be set up between banks and borrowers to help protect against home foreclosures. As I write this, Democrats are inching toward emergency legislation to provide the auto industry with $25 billion.
So far, neither Bush nor Obama has laid out major plans to aid students, who are becoming the next victims of the financial crisis.
Last Wednesday, Treasury Secretary Hank Paulson announced that the government would provide funds to credit card, auto and student loan companies to encourage these companies to continue their lending. With the dire state of the economy, however, this is no guarantee. Private lenders may not be encouraged to lend with no end in sight. Further, the industry is notorious for predatory practices by selling high interest loans to high risk borrowers.
The federal government may need to focus on expanding federal student loans, in light of increasing tuition rates and living expenses, instead of reducing them. Last week I was notified by Financial Aid that there would be a $5,000 reduction in my student loans for Spring 2009. Compared to private loans, federal loans have easier conditions but it is not available to all families and does not always cover all costs. In tough economic times, the system should not contract. The alternative is to allow many students to fail financially at the start of their young adult lives, which would prevent them from attaining needed employment to pay off debt. The student lending system should not saddle young people with spiraling debt during the worst financial crisis since the Great Depression.
This is right. But not only loans levels, the interest rates should also go down, and payment schedules extended.
Too many people are buying too much money to find they cannot get good paying jobs in their field. We the people do not need to fund education that has no meaningful bearing to hireability or ability to repay loans. Furthermore, debt is not a solution and we should not be loading on the backs of Americans, especially young people though older people go back to school, too, more DEBT.
If you cannot afford the pricey school to which you have applied and attended, please get a job and work while in school, or transfer to a more affordable school.
Do not go further into debt and say debt is a solution to your “problems”. The world does not owe you a living… nor does the Federal Government owe you a loan.
Perhaps the price of education needs to be driven down by the market. If you keep “anteing up” with a limitless supply of student loans, then you are creating a market in which the colleges and universities do not need to have a “tight belt” and can continue to create more demand for higher tuition.
Loans may be the problem here - and are not the solution for a number of reasons. Please see the larger picture, and not just what you think is your own self-interest in a tight spot in time.
Tough love. Sometimes it has to say, “No”. It’s still love, it’s just not permissive and is more strict than some constituuents think is “fair”. What is “fair” to people who are fueled by their own self-interest?? Whatever is in their self-interest with no view to the greater picture or the rights or needs or “fairness” to others.
We had a mortgage meltdown and this current economic crisis as the result of increased loans. The Government should not be in the loan business at all.
Please come up with another solution. Perhaps one in which you pay for your own education more by working more or attending a more affordable school… and the whole market shifts as the result of this on a larger scale… and tuitions come back down in price instead of rising with no “cap” due to unlimited resources and power to demand increased tuitions through their own waste and lack of fiscal responsibility or conservativism.
Grace.
Hi Laura,
To play the devil’s advocate. What about the lowest common denominator–people without college educations? Are underprivileged students who cannot afford loans be denied college, and a decent wage because the government, and society as a whole do not owe them anything?
According to 2003 US Census report (http://www.census.gov/prod/2004pubs/p20-550.pdf) roughly 60% of Americans do not have a college degree.
Should they be denied college degrees, and financial support because prices are high (demand weighing in higher than market supply)?
A true market driven solution would have the government invest in higher education to allow schools to increase enrollments, open new schools–to dramatically increase the number of seats available, increasing supply. This would drive the cost per seat to become much more affordable.
Subsidizing large loans for education is just substantially increasing demand for a limited number of seats. It drives up the price of tuition, and ruins the cost/benefit ratio in regards to employment for everyone.
First off, a competitive market will not solve the problem of costly higher education. They sit at a unique position as the gatekeepers into most careers and all professions.
And the view that taking loans out for an education should be avoided like borrowing money for a car or boat that isn’t necessary fails to understand education as an investment. Borrowing money is fine for college, and probably always going to be a necessary part of the process.
But i agree with Jin, increased government support is necessary. But reform is needed in university management. For those of us at large schools (UTK myself), it doesn’t take long to see that when private funds are brought in, new stadiums get build, when public funds diminish, classes get cut.
The gov’t should certainly not be bailing out industries. It does take an economics expert to understand the forthcoming moral hazard of american industries not facing consequences for their lack of profitability and innovation. That said, much of their failure comes from over-regulation and the unions (UAW) having way too much power. How is an industry supposed to compete when it can’t shut down its unprofitable plants or fire nonproductive workers?
The bailout of mortgages is said and done, but what’s scary about that is that president-elect Obama and his team of Clinton cronies (Change?) will be controlling the latter half of the 700 billion.
Are you sure about unemployment being at 11%? http://www.bls.gov/news.release/empsit.nr0.htm In any case i don’t think its as bad as the inflation and unemployment going out of control during the Nixon years…
Thanks Ryan for the correction. I edited the entry.
A latest survey shows that it will rise to 7.5%.
http://www.marketwatch.com/news/story/US-jobless-rate-hit-75/story.aspx?guid={61CADAF1-46F2-489C-9F2A-8D2F3C4B048D}
It seems that these arguements fail to account for a larger question which is, “Is college really important?” Perhapse the shrinking of these institutions is a Darwian effect which the government should not try to correct.
theo,
college is important. you would not want a surgeon who did not go through the rigorous fundamentals of their education (talk to any premed) in college operating on you, neither would you want an engineer who did not learn the fundamentals of their craft. College is a prerequisite for any skilled/professional career.
On another note, as the subject of the post is in regards to reduction in funding for education, your comment about institutions “shrinking” has no merit. It is not the schools getting smaller, but the availability of money for students who can ill afford to pay for school without financing.
I would think student loans are less risky than home loans. We are bailing out foreclosures while lowering the loan amounts to students? They should increase the amount of student loans!
Students are just one more group of people hurt by this credit crisis because banks gave bad loans to people who couldn’t afford them.
I would agree with Theophilus in questioning whether or not college is important. Of course, there are careers which demand a college education (such as a doctor), but too often, people are required to obtain a degree for a job that doesn’t necessarily need one. These are the people that complain about having to take core classes, and these are also the people for which these core classes are dumbed down. There are plenty of people in my parents’ generation that do not have a college degree; however, when I am my parents’ age, there will be far fewer that do not have a college degree. This is simply because somebody (probably a democrat) decided that everybody should get a college degree. Now so many people have degrees that employers require them for jobs that don’t necessarily need them. How does one compete then? Well, one can get a Master’s degree until somebody decides that everybody should be able to get those as well. And then everybody will start getting PhDs.
The government just needs to back away from college education. If not everybody can get a college degree, then some employers will have to start accepting employees that don’t have one to fill a position that doesn’t necessarily require one in the first place.
Theo & Buffet:
In an earlier entry, I cited several statistics. Of all high school graduates in the US, only 53% enter college and 35% graduate with a college degree. Each year, a staggering 1.2 million students nationwide drop out of high school. 17 of the 50 largest cities have graduation rates below 50 percent among high school students.
Considering the statistics, would you still question the importance of college?
“There are plenty of people in my parents’ generation that do not have a college degree; however, when I am my parents’ age, there will be far fewer that do not have a college degree. This is simply because somebody (probably a democrat) decided that everybody should get a college degree.”
There are probably many reasons, but one is that we’re likely getting smarter over time. Google the Flynn effect — its wikipedia page has a good overview of the various proposed explanations for the effect.
Another reason could be the explosion of colleges and majors due to Morrill Land-Grand Colleges Act, which gave federal land to the states to create colleges. The somebody who decided that everyone should get college degrees was a Republican, Justin Smith Morrill from Vermont, and the bill was signed by our first Republican president, Abraham Lincoln.
Don’t forget the other somebody who decided that everyone should get college degrees, Harry W. Colmery. A former Republican National Chairman, he’s the drafter of the G.I. Bill — the legislation that sent WWII veterans to college.
Reflexively sniping the other party doesn’t really further the discussion, especially when you’re wrong.
The failing of higher education is not their expansion, or bills that put more people in college. It is the departure from the purpose for which the university was originally started thousands of years ago: to cultivate young minds into a civic minded, critically thinking, responsible citizen. Today, the perceived role of the university is to provide technical training for a careerist, dodging the responsibility of instilling a critical intellect for a professional that recognizes his civil responsibilities.
Also, society has moved towards “professionalization”, or requiring certification and degrees to partake in many vocations. Though the “(probably a democrat)” comment may have been presumptuous, it is liberals pushing for the expanse of professionalization. Take Nevada for instance, where everything from an interior designer to a prostitute have to be legally certified by the state to practice.
Wouldn’t a “true” conservative say that a government-sponsored student loan is a handout? I don’t know where ideology comes down on this one. Practically it seems obvious that its better to have an educated workforce and that most banks wouldn’t extend credit to students in the absence of a government guarantee. I have to think that the current situation is more a symptom of a poorly structured market as if the loan was risk-free or nearly so, I can’t imagine a bank not making the loan.
I apologize for my presumptuous comment; it was written hastily, and I would like to clarify it. Ryan Locke, in response to your comments, I do not doubt the positive impact that both parties have had in regard to higher education and education in general. I agree that Morrill’s legislation was paramount in establishing higher education in this country. However, somewhere along the way it seems that higher education has moved from being accessible to everybody to being necessary for everybody. There are plenty of people, regardless of their IQs and the Flynn effect, who do not want to nor deserve to go to college and only do so because the job that they want requires it. I have learned this by teaching science labs for non-science majors. If more people were able to obtain degrees from a vocational or technical school and that be okay, far less money would have to be shelled out in the form of loans, and education could be more affordable.
In this regard, I think that Ryan stated it well in saying, “today, the perceived role of the university is to provide technical training for a careerist.” This is a far cry from the goals of the universities that were established as the result of the Land Grant College Act.
On the same hand, I would encourage more companies to require certification for technical jobs such as with computers and networks.
While you may view the downside as these things being “unnecessary,” I’d say with all confidence (I work in the financial transaction sector) that my company’s preference with as many certifications as possible is that security and safety are paramont. I don’t hire people who aren’t certified with handling Cisco routers, because the exclusive knowledge that goes with handling that product means that the person has been trained to do it well and ensure the security of your data on the Internet and across digital lines.
Licenses cover a majority of our nation’s special qualifications for service jobs - such as requiring my wife to be licensed in the state of Nebraska as a stylist. It requires she remain on top of the health regulations and chemicals she uses. To become licensed, she has to attend more school.
Making someone pay for a license makes sure that people take the job seriously. It also provides the state with money to improve the circumstances in which the people work.
So there is no easy way around the certification process. There are many jobs that I would say it is necessary and they don’t do ENOUGH to make a person get their license, and there are several jobs that don’t require them that they just impose licenses/certifications on. A lot of people don’t understand what goes into the education required to maintain the level of knowledge needed to perform the job at the optimal state. Some colleges and universities are seriously underwhelming in that aspect.
No one has mentioned corruption in our education system. Textbooks should not cost $500.00 per semester and government subsidization has attracted other vultures and leeches.
People should not have to attend college to afford to live. College is not for everybody and throwing more money at the issue won’t turn the argument. Too many people are attending and too much credit has artificially inflated costs of higher education, while the subsidization has attracted legions of predators. College has unofficially become required education in the same vein as highschool and illegitimately so.
We need a return of labor in this country - people who have trades and can work with their hands - not just shelling out fries at drive through windows or ringing up groceries. There is nothing wrong with not investing in higher education and there is enough wealth at our disposal that for hard working people, they should have enough wealth left to them to afford a home and a family. That’s one of the biggest differences between now and the Great Depression. Back then, people had trades and knew how to actually do crap. Now, no one knows how to do anything besides operating cash registers and mass telemarketing.
So no, we should not have a bailout of our higher educational institutions. Like the real estate market and the stock market, our educational market is inflamed and needs to contract.
BTW, Ryan, your comment about the UAW is spot-on: http://info.detnews.com/video/index.cfm?id=1189
Too bad we can’t have real work for real workers here in the US - instead we have to ship all of it off to Brazil, India and now Russia.
Well, once production and technical jobs that take manual labor in this country return to this country, we can invest in it. Right now, the only manual jobs that are available in any quantities are fast food and on-location jobs.
Right now, I send in my appliance to get it fixed, they give me a refurbished one, and the old one is sent back to China to get it fixed/refurbished to give to someone who sends in their broken appliance, etc.
New Republican, yes, I still believe that college, as it currently exists, enjoys an overstated importance. I believe students are paying for classes which do not particularly benifit them and earning a degree which does not guarentee a job.
As a side note, fantastic site. This education discussion is so much better than the drivel I get from the TEA.
McCloud, I believe technical schools are the way to go. I think they are gaining respect but still do not enjoy the reputation of a four year college. I think that is unfortunate.
Finally, colleges are not the gatekeepers of many professions. I have been teaching for 11 years and this is my last because my friend offered me a job which will gross twenty thousand dollars a year more than my teaching salary. I wish someone would have pointed out to me that a college education wasn’t the be all end all for which I mistook it.
Face the future buddy. The only manual labor job in the US should be fixing the robots that do all the work, and maybe eventually we’ll get other robots to do that too. We need an educated workforce.
I disagree. Is a robot going to fix my sewage? Is it going to install your solar panels or build a house?
More importantly, do you consider a worker who has earned a certificate to fix copiers or weld uneducated?
How ’bout we stop the massive influx of psychology, sociology, anthropology, philosophy, geography, history, etc. majors? Come on kids, don’t be surprised when you can’t get a job with these majors. People are more interested in paying for work than your opinions. I’d put a hard and fast limit on majors like those and so anyone who can’t pass muster to get into those programs under the limit must go into engineering, entrepreneuring, computer science, law, medicine, etc. And if you don’t want to do that, don’t go to college. Learn a trade - mechanics, carpenters, electricians, etc. can make good money if they spend the time and effort in training and working hard. That’s the solution to this problem in a nutshell.
Look, I went to a 100th tier crappy public school because I got a full ride on tuition, housing, books, food, and a stipend. Screw you if you want money to pay back your loan so you could go to your Ivory Tower school with your fancy computer labs. Thanks for making me pay for it now that I’ve lowered myself to find a menial job.
This post, unfortunately, takes a completely unconservative tact on this issue. While the federal government should offer help to students to get a higher education, offering free money causes prices to rise in proportion to the amount of free money out there. For example, if everyone got $5000 from the government to attend college, college tuition everywhere would increase by $5000, since there would have been no change in supply and demand (or, costs could go up more if demand increases rapidly through government encouragement). People would be just as willing to pay the same amount, but the college would get that plus $5000. The school simply acts in its own best interests according to free-market principles, but the net result is detrimental to the sector and the country as a whole.
There are several problems here not on the side of the ability of demand to pay, but on looking both at the supply and the demand side of this equation. First let’s look at demand:
There are more college students today than ever before in history. The question is whether everyone needs to go to college. High schools all push students into some college environment irrespective of whether they should actually go. Automotive workers, who do not need a college education, are making at least twice as much as I am as a college-educated worker. Many of these excess college students are also ill-prepared for college. Some get into college without understanding algebra or simple composition. The ill-preparedness derives from the failure of our public education system to actually educate effectively.
On the supply side, the professors are being paid above and beyond what they realistically should, and are constantly demanding more. Schools are simply raising prices because the government gives away money. Many schools spend tons of money on Italian marble columns and excess crap like that. The book companies are blatantly ripping students off, and schools are offering no ways around this.
The conservative way to address this issue is to demand education reform on the pre-college level and demanding accountability on the college level. This would then begin to bring costs down (slowly, and with great difficulty admittedly) as schools do not have to spend money on remedial efforts and have someone making sure they’re not spending money on frivolous costs.
I have to agree with a lot of what you said Chris… but from what I’ve heard, there are lots of rip-offs in the student-loan system. Dick Morris supposedly talks about it in his book Fleeced that I’m geting for Christmas. So, after I read what he has to say, I might have a better perspective on this issue. I definitely agree with you that the quality of pre-college education is definitely a factor in the cost and quality of college education. We waste a lot of funds/tuition on college students who are not ready for college. Its welfarism applied to higher education.
Leave a comment!
Latest Video
Recent Events
View more photos >
Connect On
Subscribe
© 2009 The New Republicans. All rights reserved. By using this site, you accept our Terms of Use.