Posted 1:39 am Friday, April 27, 2012
Send to Kindle
Do The Homework On Student Loans
In college, students in any number of disciplines learn the difference between addressing a symptom and curing a disease.
Since most members of Congress have been to college, they should know that difference, and realize that no matter how they vote on President Barack Obama’s request to keep student loan interest rates low, they’re not doing a thing to solve the problem of high college costs.
“On July 1, the interest rates on student loans subsidized by Uncle Sam will double to 6.8 percent,” CNN reports. “The upshot? Students taking out loans for the next school year will have to dig deeper in their pockets to pay them off. Unless Congress steps in to stop the increase from going forward. The issue has become a political talking point. President Obama, who called for congressional action in his State of the Union speech in January, is using the issue to stump for votes.”
Let’s get past the politics and examine the issue more closely.
Keeping student loan interest rates low makes sense, if a number of premises are true. We certainly all seem to assume they’re true; and perhaps they have been, for most of our lifetimes.
Since most members of Congress have been to college, they should know that difference, and realize that no matter how they vote on President Barack Obama’s request to keep student loan interest rates low, they’re not doing a thing to solve the problem of high college costs.
“On July 1, the interest rates on student loans subsidized by Uncle Sam will double to 6.8 percent,” CNN reports. “The upshot? Students taking out loans for the next school year will have to dig deeper in their pockets to pay them off. Unless Congress steps in to stop the increase from going forward. The issue has become a political talking point. President Obama, who called for congressional action in his State of the Union speech in January, is using the issue to stump for votes.”
Let’s get past the politics and examine the issue more closely.
Keeping student loan interest rates low makes sense, if a number of premises are true. We certainly all seem to assume they’re true; and perhaps they have been, for most of our lifetimes.
The first premise is that college degrees pay big dividends. Even CNN is continuing to report this as fact.
“How would you like to earn an additional $650,000?” a March story said. “Then go to college. Typical college grads earn about $650,000 more than their peers who just have a high school diploma over the course of a 40-year career, according to a Pew Research Center analysis of census and college expense data.”
But a harder reality is setting in. We now know that more than half of all college graduates entering the job market are either unemployed or underemployed (working in fields unrelated to their skill sets and career goals). Those with degrees in the humanities and the liberal arts have it even tougher.
So if graduates can’t get good jobs when they finish school, it doesn’t matter how low their loan interest rates are. They can’t pay them back.
And that brings up another premise we assume to be true: that student loans will get repaid once graduates do land good jobs. But do they?
“How would you like to earn an additional $650,000?” a March story said. “Then go to college. Typical college grads earn about $650,000 more than their peers who just have a high school diploma over the course of a 40-year career, according to a Pew Research Center analysis of census and college expense data.”
But a harder reality is setting in. We now know that more than half of all college graduates entering the job market are either unemployed or underemployed (working in fields unrelated to their skill sets and career goals). Those with degrees in the humanities and the liberal arts have it even tougher.
So if graduates can’t get good jobs when they finish school, it doesn’t matter how low their loan interest rates are. They can’t pay them back.
And that brings up another premise we assume to be true: that student loans will get repaid once graduates do land good jobs. But do they?
“Surging above $1 trillion, U.S. student-loan debt has surpassed credit-card and auto-loan debt,” the Associated Press reports. “This debt explosion jeopardizes the fragile recovery, increases the burden on taxpayers and possibly sets the stage for a new economic crisis. With a still-wobbly jobs market, these loans are increasingly hard to pay off. Unable to find work, many students have returned to school, further driving up their indebtedness.”
The average graduate emerges from college with more than $25,000 in debt. Nearly all of those loans are backed by the government.
Now, the simple economics of lending are clear: loans with higher risks require higher interest rates. And with the government takeover of the student loan industry, taxpayers are more on the hook than ever. Bumping up the interest rate makes fiscal sense — eventually.
But the most important drawback of Obama’s solution is that it’s no cure; it merely masks the reality that college tuition has risen faster than parents can keep up. Until the costs are more closely examined, we’ll simply continue to pile debt onto our graduates that they won’t be able to pay.
Republicans will make a mistake if they allow this issue to become politicized. They should agree to hold the interest rates steady for now — and demand a real solution soon.
The average graduate emerges from college with more than $25,000 in debt. Nearly all of those loans are backed by the government.
Now, the simple economics of lending are clear: loans with higher risks require higher interest rates. And with the government takeover of the student loan industry, taxpayers are more on the hook than ever. Bumping up the interest rate makes fiscal sense — eventually.
But the most important drawback of Obama’s solution is that it’s no cure; it merely masks the reality that college tuition has risen faster than parents can keep up. Until the costs are more closely examined, we’ll simply continue to pile debt onto our graduates that they won’t be able to pay.
Republicans will make a mistake if they allow this issue to become politicized. They should agree to hold the interest rates steady for now — and demand a real solution soon.
