Student Loan Rate Crisis Echoes Subprime Mortgage Mess, Masks Deeper Problems for Youth | Commentary
Much discussion in Washington recently has centered around the doubling of interest rates for student loans from 3.4 to 6.8 percent APR and the fact that Congress has been unable (at least for now) to implement a rate freeze. Yet, doesn’t this debate simply mask the wider problem of higher education — namely that as the cost of tuition continues to rise, the employment value of graduation simultaneously declines?
Echoing the issues that led to the subprime mortgage crisis, the nationalization of the student loan industry has made greater financing available for students with the promise that the investment in a secondary education is a nominal price to pay for the long-term benefits of higher career earnings. However, this has been far from the case. As tuition costs continue to rise, the return on investment for recent graduates entering the job market maintains its downward trajectory.
This access to easy loans just gives incentives to universities to both charge students more and pay their faculty more, safe in the knowledge that students can use their loans to fund the increased costs. Tuition costs are rising at twice the rate of inflation in the United States, an increase of 25 percent over the past four years. In the meantime, unemployment among young graduates is rising almost as quickly.
While Congress focuses on simply how to keep interest rates lower, 37 million young Americans are currently burdened by some level of student debt. These same graduates are entering a global job market with degrees proving to be far less valuable than the cost of their education would imply.
Students join the working world this year with an average of $30,000 in student loan debt, and not into the high-paying jobs they were promised. Instead, they are encouraged to pursue unpaid internships combined with an evening job at Starbucks at minimum wage. To many, this makes the promise of advanced degrees as a pathway to a better life seem false. And as young people are quickly finding out, this is not a path to prosperity but is instead a path to bankruptcy, lower standards of living, homelessness and hopelessness for their “lost” generation.
Such an unsustainable system has caused the combined total of all national student loan debt to exceed $1 trillion in the United States and with default rates increasing to 13 percent per year, the next question becomes: How long until the whole student loan system collapses like a house of cards?
America is not without options or solutions to this problem, however.
As it stands, students are much more invested in the universities they attend than the universities are in them. To make universities more accountable, tuition payback should be based on a percentage of the graduate’s salary, to encourage schools to be directly tied to the earning potential of their students. In addition, employers need to be firmly included in the development of curriculum so that young graduates are best prepared for the changing global job market and are qualified for the jobs that desperately need to be filled, but that U.S. companies struggle to find suitable candidates for.
It is also becoming clear that a four-year college degree is not the only path to a fruitful career. The growing options available to high-school graduates must be laid out before them so that they can make informed decisions about investing in secondary education.
So as Washington continues to procrastinate, responsibility falls on the shoulders of the American people to ensure that their sons and daughters do not continue to face an unemployment (and underemployment) rate of 16.3 percent, which is more than double the national average of other age demographics. The student loan interest rate debate is a major wake-up call, and together we must answer it with practical solutions that produce young graduates equipped to productively enter the workforce free of crippling loan debt.
David H.S. Pattinson is the founder of David Pattinson’s American Future, a nonprofit organization dedicated to promoting quality career planning and career development for young people in the United States and Great Britain.