Student Debt

To attend college students are now borrowing at twice the rate they were just ten years ago. Last year alone students borrowed over $100 billion, and the total student debt of the United States today now exceeds $1 trillion.

For recent college graduates, the job market is extremely difficult: half of all students graduating between 2006 and 2011 have yet to find full-time employment. Starting salaries for those graduating in 2009 through 2011, are 10% below the starting salaries of graduates from 2006 and 2007. Furthermore, 40% of those who graduated in 2009, 2010 and 2011, have yet to pay off any of their debt.

Why is all of this happening? First, for the Middle Class, the Working Class, and for each class of graduating students, we are still in a recession, even if the economy as a whole technically is no longer in a recession. Second, many students are graduating with a degree which does not help them compete in today’s marketplace where globalization has shifted huge numbers of jobs abroad, and technology has eliminated many others. Third, we have made it too easy to borrow money, to obtain degrees for which there are no jobs, and at the same time have enacted laws which make it impossible for students to ever bankrupt out of their student debt.

To solve the first problem – our struggling economy – we need to implement some of the ideas in this book, together with many others. But no matter what we do, it is just going to take some time until our anemic recovery finally gets some steam.

The second problem – that students are obtaining degrees that don’t allow them to compete in the global marketplace – needs to be addressed by both education and incentives. The education part is simply letting our students and their families know which degrees have jobs waiting for them, and which ones do not, and further making sure that everyone knows that the time of just getting a college degree and there will be a job for you, so study whatever you want, no longer applies. I am sure we can find better incentives, but a couple of the incentives addressed above such as the Bachelor of Science Tax Credit and Green Cards for foreign students graduating with math and science degrees, would help.

The third problem – that it is too easy to borrow and impossible to bankrupt out of student loans – can be solved by repealing bankruptcy laws which make student loans non-dischargeable in bankruptcy. In 1998, federally subsidized student loans became non-dischargeable in bankruptcy. In 2005, private student loans also became non-dischargeable in bankruptcy. Thus, we now have a situation where the average student who borrows for college owes more than $25,000.00 in debt when they graduate, and this debt is unlike any other debt, in that it is almost always non-dischargeable in bankruptcy. Nobody goes to college so that they can file bankruptcy, but if worse comes to worse, and one were to have to file bankruptcy, their student debt should be dischargeable; just like the debt of all the sub-prime borrowers and the debt of all the big companies that filed for bankruptcy, and all other debt in general, all of which are dischargeable in bankruptcy.

If this were done, it would make private lending a bit more conservative with respect to their student loan underwriting. Sure it might make it a little harder to borrow, and interest rates might go up a little bit for student loans, but that could help push students into degrees for which there are jobs, lessen the number of students attending college for no reason or who simply would not afford it, and lessen the cost of college. Furthermore, under all circumstances, it would prevent our students who fall on the hardest of times and have to file bankruptcy from having to nevertheless remain in bondage to their student loans in perpetuity – just so the lenders could make a little more money.

The party line is that one has to go to college and to graduate to be successful. Accordingly, one should beg, borrow, and sign up for non-dischargeable debt to do it. But then again, Bill Gates didn’t graduate from college, nor did Steve Jobs or Larry Ellison. So think twice before you sign your child up for $25,000.00 of non-dischargeable debt.

• Prev
• Next