Post secondary education is really big business today. Big, really doesn’t even come close to describing the enormity of profits that are being made in the way how higher education is financed.
Our financial institutions are recouping billions of interest on the ever increasing number of student loans that are not only being offered but in so many cases are necessary for the majority of students entering college.
It also propels millions of students into a life filled with tension, anxiety and even depression because paying back all those student loans which have reached epidemic proportions is almost impossible now.
And pay back that debt they must. Students and graduates are turning to increasingly desperate measures to make a buck. Rather than the world-changing research they dreamed of, graduates with PhDs are turning to work for online dissertation writing services, helping other students cheat for money; college freshman are taking up work as exotic dancers in sleazy backroom bars; and some college students find themselves stealing textbooks and basic necessities.
What has lead society to this dystopian state? Well, to answer that question, you have to take a trip back in time and start at the root.
The State of Student Loans
Student loans or educational loans as there called today are all forms of financial aid that must be paid back with interest. Federally guaranteed student loans rate of interest varies between 6.9% and 8.5%. These are the Stanford and Perkins Federally sponsored loan programs for students.
Parent loans and private student loans are other sources of financial aid that students can also look to. The real problem today is confronted with the ever increasing cost of tuition and other rising costs of a college education like books, room and board, and all the other miscellaneous costs involved.
About 95% of college-enrolled students today are using student loans to pay for their education. That is an increase of over 35% from just tens years ago. The amount of debt involved in obtaining a college education has also risen substantially within the past decade.
Every year of those 95% of students their debt has increased by over 7% so that today each student upon graduation are already in debt of over $30,000. When students are enrolled in for profit schools the debt ratio is over 30% higher than those students enrolled in state or non profit institutions.
In no other time in our history has a sector of our society been set back so far financially just so they could obtain an education in order to advance financially in life. It’s like students are taking a step in the right direction by continuing to go to college but are thrown back so many steps just to get that education.
What is making student loans becoming so necessary lies in the overall deterioration of our whole economic structure in our society today. Back in the 1960’s upon high school graduation the majority of students that went on to college were enrolled in state or non profit universities.
Sure many went to places like Harvard or Yale but by in large Universities like Illinois or Michigan were more appealing for most. Financing higher education during those times seemed much less complicated.
Loan programs were offered but not like they are today with the way financial institutions use predatory lending. Scholarships were much more accessible back then as well. All a student had to do to qualify for what we used to call a “free ride” [that’s a four year all expense paid tuition and all other expenses] was maintain a high school grade point average of over 3.5, and excel in either arts, music, or athletics. A far cry from today.
The whole economic demographics of our society has shifted from one where disposable incomes in households all across the United States during the 1950’s thru the mid 1970’s were more abundant and contributed to the financial ability of parents whose child went on to college to now practically every household is so hard pressed financially the only option left is to borrow money.
Banks now realize this and are capitalizing on golden opportunities to reap billions of profits from all those who are now forced to go into debt just to pay for their education.
Another setback is for all those students who are now steered toward private lenders because of government sponsored scholarships have been dried up are now more apt to be in so much debt that their whole life is now consumed with finding ways to pay back those student loans.
Types of Student Loans
The total amount undergraduates can borrow from these two categories, direct loans and federal loans, has been frozen since 1992. Meanwhile, average college costs have reached astronomical heights. More students today have to turn to private lenders to augment their tuition or to outright pay it.
Amounts borrowed from private lenders soared 1,201% between the 1995-96 academic year.In2005-2006, according to the College Board, the amount borrowed rose from $1.3 billion to $17.3 billion. The amount tripled in the past five years alone. And the trend is only accelerating.
Private loans can be a worthwhile investment when they help students pay for educations that will enhance their lifetime earning potential. But because there are few limits, such loans also pile up massive amounts of debt. In so many cases students whose majors are in fields where upon graduation the employment opportunities are no longer available only exasperates this whole crisis.
This is the scenario today the jobs are no longer available to accommodate not only graduates but for millions of other Americans seeking employment. A recent report stating the true very bleak unemployment figures are our young adults under 25 especially for Afro-Americans the unemployment rate hovers at over 40%.
In what jobs there are is another very bleak one concerns the vast underemployment of our young adults in America Today. This all translates to more debt in our society only to be capitalized by financial institutions who continue to profit on the misfortunes of our youth and our college students but do nothing to improve the total economic picture.
All of this makes graduates very limited in their ability to payback their loan obligations. Many times we have all heard of students upon graduation have amassed six-figure debts only to find work at jobs paying $10 per hour. There is no possible way these individuals will ever pay off that debt.
When You Can’t Pay… Collectors Start Breaking Some Kneecaps
Out of every type of debt, student loan debt sticks worse than any other. It is notoriously difficult to get student loans to be forgiven, discharged, or cancelled.
When borrowers can’t pay, lenders can get aggressive. Sallie Mae, the largest student lender, has transformed itself into the country’s largest collection agency as well. If private lenders can’t get borrowers to pay, federal student loans can be turned over to the U.S. Department of Education, which has extraordinary powers to seize tax refunds, garnishee wages and pursue other collection paths typically closed to private lenders.
What is so frightening is that private and even non profit universities are using less ethical tactics in luring students and parents alike in granting student loans through private lenders.
Many times credit scores are altered or overlooked in favor of qualifying for a student loan only to be denied credit anywhere else. So common is this practice today that any tuition reduction would be negated and the more money needed would be included in those student loans.
Just another predatory lending practice for financial institutions much like the way these same institutions manipulated prudent lending practices that led to the subprime mortgage crisis that continues to undermine our whole economy,
This crisis is facilitated by major financial oversights, illogical government policy, and shady backroom deals. As elaborated on by Dr. Williams from The Swamp:
The way student loans are now structured today has far reaching economic implications that only continue to undermine our whole economy. Today the default rate on student loans is almost triple that of the subprime mortgage default rate. This is a major factor in why this country is having an almost impossible task of improving our economy while increasing the profits of major financial institutions. It works like this: When banks like Bank of America, Citibank and JPMorgan Chase make federal student loans the United States Government guarantees to repay them 98 cents on the dollar if the borrower defaults. When these banks make private loans they charge interest rates of over 20% compared to federal interest rates of only 6.9%. In either case the only ones winning are the financial institutions. Students and our own government continue to lose out.
Without education reform, this situation will only continue to worsen.
When the federal government continues to ignore the plight of so many today in refusing to raise the amount equal to the costs of higher education those students have no choice but to seek the private sector financial institutions to procure the extra needed funds.
In doing so they have while the cost continues to escalate only encourages the financial industry to capitalize and vigorously pursue students with promises of guaranteed acceptance in acquiring the loans needed to secure the financial obligations in their college education.
With so many defaulting on their student loans obligations today much like when banks foreclose on a home these same financial institutions are finding it more profitable for students to default and homeowners to undergo foreclosure rather than work out payment plans.
A double edge sword is now a focal point in that if persons wanting to apply for a loan re modification to reduce their mortgages are now being denied because banks have purposely set the credit criteria higher now just to deny that loan modification. The same scenario is taking place with students who are now forced to default on their student loans.
Debt and the Nation
This is a national crisis. One that has been overshadowed by the mainstream media and our elected officials. The economic impact of this crisis is so huge that if not addressed and rectified now will only reduce our competitiveness in today’s economic markets and the foreseeable future.
It boils down to jobs. Living wage jobs, and the federal government to equate federal student loans to the true cost of higher education today. The rhetoric of today’s politicians and our illustrious legislatures proves that they really still don’t understand the big picture of how those many jobs were lost and the way our financial institutions continue to manipulate rules and procedures just increase their profit margins.
Until the implementation of total National Economic Reform is implemented our students will continue to wallow in massive debt probably for the rest of their lives and our whole economy will continue to also, wallow in economic deprivation.
Louis Stone is a former professor with over nineteen years of experience in academia. He’s seen every twist, turn, and challenge that has faced higher education over many decades and is happy to contribute to The Trent.
The opinions expressed in this article are solely those of the author.