This is probably the biggest week of the year for American students: the start of “March Madness”, the annual student basketball tournament; a week of partying to celebrate “Spring break”; and millions of high school seniors nervously opening letters confirming acceptance or rejection from universities.
All of which ignores the elephant in the room: the out-of-control cost of American higher education and ballooning student loan debt.
That debt is now worth $1.3trn (£880bn). That’s almost $500bn more than credit card debt in the US and $750bn more than Americans owe for car loans. It’s a staggering amount, more than $4,000 for every man, woman and child in the country.
Years of rising tuition costs, almost always outstripping inflation, and cuts in state funding for education – added to the notion that almost any amount of debt is worth getting into in exchange for a degree – have led some people to believe that the end is nigh. But is it?
The economist Robert Reich of the University of California, Berkeley, a former Secretary of Labor under Bill Clinton, is concerned. “Student debt is indeed a ticking time bomb,” he told The Independent. “Most of the $1.3trn will be repaid but it is a drag on the economy and a huge burden on young people … the cost of a college degree has risen much faster than the economic return on such an investment.”
Mark Cuban, the billionaire tech investor, believes the problem is so serious that it will end with a crash similar to the mortgage crash that preceded the 2008 recession. He believes that unfettered access to cheap (but far from free) guaranteed loans has encouraged reckless spending by students and colleges with little concern for costs.
Mr Cuban said in December that student debt is “a bubble that’s going to burst. I think it’s inevitable that at some point there will be a cap on student loan guarantees – and when that happens, you’re going to see a repeat of what we saw in the housing market.”
Just last week he spoke out against forgiving student debt, arguing that to do so would be to bail out colleges more than students.
Some colleges already need a bailout. Just this month, Sweet Briar College in Virginia announced it would close its doors after 114 years. Meanwhile, for-profit university corporations come and go with alarming regularity.
Isaac Bowers, of the non-profit group Equal Justice Works, focuses on encouraging law school graduates to work in the public sector and sees debt reform as a key objective. “It’s not as gloomy as all that,” he said, “even if there is some lack of consensus over how debt should be tackled. Where there is clear consensus is that the growth in the cost of a college edu-cation is out of whack with inflation.”
In the US, student loans are backed by a corporation commonly known as Sallie Mae. It is similar to the mortgage agencies Freddie Mac and Fannie Mae, which were taken into government ownership following the 2008 sub-prime mortgage crisis. Sallie Mae guarantees loans to students – the loans the Mr Cuban believes will be capped, thus causing a crash in student numbers.
There is some truth in the belief that a university degree is required for attaining a middle-class income and lifestyle in the US, with research appearing to back that up. However, student debt also has a negative impact on financial well-being: according to the Pew Research Center, people aged under 40 without student debt have a median net worth seven times higher than those with student debt.
The Obama administration has proposed a number of schemes that, over time, will reduce the amount of student debt – or at least make repayment easier. Some of those plans include a degree of debt forgiveness.
Critics of such a plan claim that there are good reasons to oppose forgiveness of student debt, and not just because the prime beneficiaries could end up being the colleges, giving them no incentive to adjust the cost structure that created the bubble in the first place.
First, they argue, most people with student debt are in a good position to pay it off. Second, according to Pew, the number of students with crippling debts in excess of $100,000 are a small minority, mainly restricted to those who attend medical or law school and therefore have annual earning potential that exceeds their debt.
Finally, most economists agree that there are far better ways to stimulate the economy than writing off debt that, for many of its holders, is of little overall significance. The burden of debt forgiveness would be shouldered by all taxpayers, including those who could not or would not go to college.
The image of an American teenager washing cars or packing groceries in order to save for college is a familiar one, but it’s also an image that is a thing of the past.
There is almost no amount of paid work a teenager can do that will make much of an impact on the cost of getting an undergraduate degree, never mind a graduate one.
There appears to be con-sensus that student debt is a problem – but no consensus on what can be done about it. Maybe there’s a class for that.
Degrees of debt in the US: Ivy League’s $60,000 bill
The cost of getting a degree is hard to calculate. List prices do not include costs such as books, accommodation and food, and students can reduce costs by staying in their home state.
Very few students actually pay the list price; scholarships and grants are widely available. According to the newspaper USA Today, the average total cost for a four-year undergraduate degree at a public, in-state university in 2013 was $23,410 per year. A private, non-profit university (where in-state charging does not apply) cost an average of $42,272, and Ivy League schools are closer to $60,000 per year.
Postgraduate degrees are more expensive still: a two-year MBA at Stanford University won’t leave much change out of $200,000.Reuse content