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On Student Loans

April 26, 2012

As one of the people unfortunate enough to have started my undergraduate degree the year before the democrats decreased the interest rates on college loans (which also means that all the loans I have taken from the government AFTER the tuition decrease will remain at the doubled rate, 6.8%), the ongoing battle over interest rates for Federal Student Loans offends me.

The fact that I still have to pay the doubled rate because the Dems didn’t feel like including my ongoing loans in their rate decreases in 2007 also offends me. Obviously it is easy to understand that there were budgetary restraints involved, but it nonetheless seems to have been a cop-out to halve the rates for incoming freshmen while I had to concurrently take out loans at twice their interest rate for no reason other than that they started their college education a couple years after I started mine.

But of all of this, the part that offends me the most has almost nothing to do with my personal financial circumstances. In all the hubbub over the interest rates, the underlying problem continues to be ignored. The part of the problem that I find truly offensive is this:

Since 2001, median weekly earnings for 25-34 year-olds have fallen 5%. In the same period, college tuition rates have increased at a rate of 8% per year on average (http://www.americanprogress.org/issues/2012/04/student_loan_interest_rates.html).

For those of you too lazy to do the math, that means this:

Today’s young people will be receiving 5% less money than their counterparts from 10 years ago while paying about 216 percent of the total tuition costs of those counterparts. 216 percent. And that’s not even taking the interest rates into consideration.

It is profoundly disturbing to me that college is becoming more and more necessary for young people who want a place in the workforce while the education sector as a whole is starting to look more and more like a racket.

The aggregate student debt of the US now stands at $876 billion, and for the first time in recent memory there is more student debt than credit card debt in this country. Of that debt, currently $85 billion is classified as past-due. When accounting for the fact that a large portion of that credit card debt is credit card debt held by students (just under $3,200 in credit card debt per student on average, which calculates out to $57 billion total credit card debt held by students; http://www.asa.org/policy/resources/stats/default.aspx), this becomes an even more remarkable statistic.

When one includes the fact that around 50% of student loan recipients are in deferment or forbearance due to circumstances such as ‘currently getting an education,’ and another ~9% of loan recipients have defaulted on loans for which they are in the repayment period, problems become even more apparent. That means that ~20% of the student loans that are actually in their repayment periods are in default, a much more notable and troubling statistic than the aforementioned 9%.

The bottom line is this: the US is in desperate need of reform in the higher education sector. This is an economic model that is obviously and fundamentally flawed, and we need to address it before it becomes a serious economic and fiscal liability moving forward.

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