Lifetime Supporting Member
- Aug 12, 2007
- Reaction score
- somewhere near Lake Michigan
Here is a look at the upcoming student loan crisis, as brought to you by federally backed student loans, which have jacked up the price of college tuition and, much like the housing crisis, is going to implode.
The real problem is that we’ve been running a higher education bubble, one that — like the real-estate bubble — has been pumped up by cheap government money. Since 1999, student loan debt has increased by 511%, while disposable income has increased by only 73%.
That’s because when the government subsidizes something, producers respond by raising prices to soak up as much of the subsidy as they can. College is no exception. Tuition has been increasing much faster than disposable income, and families — believing that a college education is a can’t-lose investment, much as they used to think houses were — have been making up the difference with debt. After all, we’re told, student loan debt is “good debt,” because a college degree guarantees more earnings.
t’s officially a crisis. Student loan debt has hit the $1 trillion mark, exceeding Americans’ total credit card indebtedness. Unemployed graduates with huge loan balances are camping out in “Occupy” camps — the Hoovervilles of our age — around the nation. And President Obama, perhaps afraid those camps will be dubbed “Obamavilles,” as indeed they have already been by some, has unveiled a new proposal that promises to help graduates who are drowning in debt.
Unfortunately, “promises” is the correct word. Though unveiled with much fanfare, the Obama proposal doesn’t really do much. First, as the Chronicle of Higher Education pointed out in an article characterizing it as mostly political, “The benefit is available only to current students. Those jobless college graduates who are protesting on Wall Street and at similar events elsewhere won’t qualify.”
Second, even for those who do qualify, the benefit doesn’t amount to much. Daniel Indiviglio of The Atlantic Monthly calculated that the president’s plan will save the average grad less than $10 a month. (Even those with $100K in debt will save only $28.50 a month). You can make that sound like more — and the White House tried — by touting total savings over the life of the loan, but this isn’t going to rescue anyone who’s financially underwater. It’s a beer and a slice a month, more or less.