We know all about the easy-money policies that lured people into crushing amounts of mortgage debt, but we hear less about how those same policies have encouraged impossible amounts of debt related to higher education, for undergraduates and graduate students alike – especially in the wake of the financial crisis, when the job picture for these students is so bleak. (Many of them have indeed found employment, to be sure, but not quite the jobs they were looking for.)
In early 2009, Forbes magazine told the story of Joel Kellum and Jennifer Coultas, who met at the California Western School of Law and were later married. When they graduated in 1995, their combined debt was $194,000. Each got a six-figure job. But even with one of them moonlighting, they managed to come up with only $145,000 in loan payments. That reduced the principal of the loan by $21,000. Just $173,000 to go.
When they divorced last year, the couple cited the crushing burden of law school debt as a key factor in ruining their marriage. “Two people this much in debt just shouldn’t be together,” said Kellum.
Or there’s Mindy Babbitt, who enrolled at Davenport University in her mid-20s to get a degree in accounting. She borrowed $35,000 at 9 percent interest, and assumed the income she could command with her degree would make it all work. Instead, the entry-level job she found upon graduating barely kept her above water. She deferred her loan payments, and for a while was out of work. At age 41, she told Forbes she despaired of ever paying off her loan. She earns $41,000 per year – $10,000 more than the average high school graduate. But by now her student loan balance has risen to $87,000.
In May 2010 the New York Times reported on the case of Cortney Munna, who graduated from New York University with $100,000 in debt. Of course, the Times could have chosen a great many individuals to profile for such a story; the number of people leaving college with over $40,000 in debt had increased ninefold over the previous decade. Munna and her mother bought into the propaganda: forget about the money you’re spending on college, since the rewards you’ll reap will far surpass them. In fact, she barely scrapes by, working for a photographer. That plus her degree in religious and women’s studies is what her $100,000 investment yielded her.
But perhaps we are being too cynical: what about the extra $1 million that college graduates are supposed to earn over their lifetimes compared to their high-school graduate counterparts? Forbes tackled that one, too. The $1 million figure is arrived at by taking the difference in annual income between college graduates and high school graduates, and multiplying it by the 40 years of the average working life. Where this claim falls short is that it assumes that the additional income earned by college graduates is caused by the college education, when it more likely reflects the fact that smarter, more motivated people are more likely to go to college in the first place.
Meanwhile, the combination of compound interest and low salaries is leaving wreckage everywhere. The four-year cost of undergraduate tuition, room, board, books, and fees at a public university is $46,700, and $99,900 at a private one, even after financial aid and scholarships are included. That also doesn’t include four years’ worth of foregone income – in other words, another $125,000. Bankruptcy won’t save these poor souls: college debt is one category of loans that cannot be written off in bankruptcy proceedings. They’ll follow you forever.
Of course, it is the subsidies themselves that push tuition costs ever higher. Here’s the obvious point everyone pretends not to realize: colleges know the students have access to low-interest loans courtesy of government. Aware that prospective students enjoy artificially increased purchasing power, college administrations raise tuition (and cut back their own aid programs) accordingly. When tuition thus continues to rise, as any fool could predict, we hear huzzahs for the government – for however could students pay this high tuition without government assistance? It is the classic case, as Harry Browne said, of the government breaking your leg, handing you a crutch, and saying, “See? Without me you couldn’t walk.”
This, by the way, is how the government defines affordable. As with housing, government programs artificially increase prices. What makes those inflated prices “affordable,” in the government’s version of things, is that you can get a government-subsidized loan to pay them. Letting prices fall in the first place, so people might be able to pay college tuition or buy a house without enslaving themselves to debt for the rest of their lives, is not even on the table. (Incidentally, Fannie Mae, which was created in order to foster affordable housing, makes loans in excess of $938,000. Hooray for “affordable housing” programs!)
Just about any professor, left, right, or center, can tell you how few college students today show the slightest intellectual curiosity about anything. Give me my B-minus and let me out of here. Even with all the grade inflation and the dumbing down of curricula, the National Center for Higher Education Management Systems found in 2006 that the six-year – six-year – graduation rate for students seeking bachelor’s degrees was a mere 56.4 percent.
For those students who actually belong in college, though, a combination of falling tuition and increased private aid – along with more part-time work, in place of full-time drunkenness – will keep college within reach. One form of private assistance that would no longer be crowded out by government involvement should subsidized college loans be phased out is Milton Friedman’s proposed human capital contract, by which students would pledge a portion of future earnings in exchange for tuition assistance in the present. Such a proposal has the added benefit of not making every single American into a debt slave the moment he enters the workforce. Students would not have to live in terror that their future salaries might be insufficient to repay their student loans. Repayment according to the terms of these contracts would be based on the student’s earnings and thus his ability to pay. Investment funds could spread out the risk of default by purchasing these contracts in large quantities. Shares in the funds would be traded analogously to how shares in real estate investment trusts are purchased today.