America's student loan debt has hit the $1 trillion mark, and for the first time it has exceeded the country's total credit card debt, writes Glenn Reynolds at the New York Post.
Unemployed graduates with huge loan debts are protesting in "Occupy" camps across the world. And at home, in an attempt to quell the unrest, President Obama has unveiled a new proposal that promises to help graduates who are drowning in their debt.
However, although the proposal was unveiled with much fanfare, not everyone is convinced it will have the impact it intends.
"Unfortunately, "promises" is the correct word," writes Reynolds.
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."And Daniel Indiviglio of The Atlantic Monthly calculated that the plan will only save the average grad less than $10 a month.
At best, Reynolds writes, it's a band-aid solution.
"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" says Reynolds.
And while common thought is that if you go to college and get a college education then you will come out and have considerably higher job prospects, that doesn't take into account the many people who don't graduate.
As John Podhoretz writes at the New York Post, according to a summary in USA Today in 2000, 21 percent of Americans had taken some college courses but had no degree. Only 15.5 percent got a BA; only 9 percent had earned graduate degrees. That means a great many people who do not have the benefit of the BA credential are shouldering debts they will find especially hard to defray.
One federal study of the staggering inflation in the cost of higher education found that between 1982 and 2007, tuition costs rose 432 percent while family income rose only 147 percent, writes Podhoretz. And since 1999, student loan debt has increased by 511%, while disposable income has increased by only 73%.
And while federal subsidies have continued to grow, they have simply been gobbled up by universities. That's because when the government subsidizes something, producers respond by raising prices to soak up as much of the subsidy as they can, writes Reynolds.
"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."
"But while companies can't hire enough mechanical engineers, but there's no bidding war for majors in Fine Arts or Women's Studies, degrees that cost just as much, but deliver a lot less in terms of employment."
Reynolds points out that in an economically rational market it would be more difficult to borrow money to finance fields of study that were unlikely to produce enough income to pay back the loans.
"But since the federal government subsidizes everything — and makes student loans un-dischargeable in bankruptcy — there's no incentive for lenders to care, and even less incentive for colleges and universities to care. They get their money up front, after all — just like the people who wrote the subprime loans that fueled the housing crisis."
One way or another, the higher education bubble is going to deflate, writes Reynolds.
"Better that it should do so without crushing the students it was supposed to benefit — or the taxpayer."