ARE STUDENT LOANS CONTRIBUTING TO HIGH COLLEGE COSTS?

Are student loans the solution to education?

One modern day perfectly legitimate example of a “money changer” transaction is one called “factoring” – when one organization has money due from someone, and “sells” that right to another organization. That sale provides sellers their funds “up front,” so they don’t have to worry about collecting money due in the future. Usually the seller guarantees the transaction so may have further risk of “non-payment.” The seller goes on to do what it’s good at. This useful type of transaction often is used by small and growing businesses.

A similar type of transaction has come to higher education – it’s called the “student loan program.” The college agrees to accept the student’s obligation, the federal government steps in to pay the institution up front, and then collect (hopefully) the funds over time from the student.

Who “wins” in this situation? The student wins because there is an organization willing to provide further education (the college or university), and another entity who is willing to provide the necessary funds if the student can’t pay up front (the student loan program). The college also wins because they receive their funds up front and have no further risk nor guarantees. But do they all win in the end?

So, what’s the problem?

I understand there’s approximately $1 trillion of student loans outstanding to about 40 million people, with 30% of these not being “paid as agreed!” And as past due loans increase, the federal government “sells” these loans to capitalists that attempt to make collections. These organizations attempt to collect as much as they can and receive a fee for the effort. If they don’t successfully make the collection, the government “makes up the difference.”

The government is now considering a debt forgiveness program of some sort to help graduates who are swamped with debt. If no risk exists for the college or university, and if the government “makes up the difference” for any non-payment, who ends up assuming that risk? It belongs to American citizens – you and me as taxpayers.

A complicating factor!

Another “elephant in the room” is the rapid acceleration of college prices. Many have increased the price of a 4 year degree by a multiple of 20 times since my graduation in 1969 – and this statistic isn’t out of line with the norm! I am suggesting that:
• “Easy loans” from the federal student loan program create demand which drives prices up.
• With funds for this program apparently “unlimited,” there seems to be no conversation about controlling rising college prices, just discussion about how and who will pay.
• Student loans have interest rates that are being questioned by politicians and others. But they are very similar to predatory loans for other reasons. Given the inflated education costs, I believe it’s irresponsible to help young people get “tens of thousands” of dollars in debt without them understanding the consequences of paying it back later.
• My concern applies especially for that young person who plans to go into a low paying, often “humanitarian type,” career?

What should we do?

The student loan program probably is too ambitious and isn’t benefiting a certain segment of the student population due to the high cost of education and the low pay of some professions. Let’s bring back some accountability as follows:
• Given where we are, perhaps some loan forgiveness is necessary. But, I must ask if it’s fair to forgive some loans while others have paid theirs in whole?
• Let’s consider some limits on colleges that turn out high numbers of graduates who default on their loans.
• Perhaps we should tie the level of federal grants to loan repayment performance for a particular institution.
• Maybe colleges and universities need to focus more on income potential of a given major. Many may be interesting, but are not practical in terms of “earning a living.”
• Let’s see if we are fairly promoting trade schools as a worthy provider of practical education with an almost guaranteed payback for the graduates. I heard the president of Dunwoody say that about 70% of graduates have a job offer when they receive their diploma. That’s a great statistic, and those jobs are also well paying.
• Let’s consider having independent individuals consult with students about the consequences of their higher education costs. With no stake in the students getting a loan, these consultants could provide objective reasoning for those not knowing what they are doing.
• We must remember that educational institutions are not totally independent because they profit when the student receives a student loan. For-profit colleges seem to have figured it out. No cost financing for tuition provided an entry into the business. And some may believe they are scams.

• And, encourage people to plan early and start saving!

• Obama suggested a cap on loans of $57,000. I agree with that.

Ultimately, we must have a conversation on the cost of college education. But Obama also thinks the problem could be solved easily by making college free. If institutions can’t control their costs with the present system, I can’t imagine how high the costs to taxpayers would go if all education were government funded. And high schools are free, but the dropout rate is staggering. If kids won’t fininsh finish free high school, will they finish free college? High school dropouts probably make up most of the folks in poverty; I am concerned about how to fix that.
Will this “easy credit” education loan program contribute to escalating costs of higher education? Will many students to be frustrated and end up with a high likelihood of lifetime government dependence and even poverty? Will taxpayers be ever more burdened by covering student loan losses? Will we ever focus on the right kind of education for earning a living?

Make no mistake! I fully believe in getting a college or any education that helps people make a living. I also highly respect the work of professors and others in colleges who are making a difference.  But if we don’t get it under control it will continue to elude people even more.