Saturday, June 08, 2019

Is the U.S. student loan system broken?

See The Long Road to the Student Debt Crisis: A series of well-intentioned government decisions since the 1960s has left us with today’s out-of-control higher education market by Josh Mitchell of The WSJ.

The program was set up in the 1960s and 1970s to get more people into college, with the aim of increasing productivity and incomes. At first, the federal government guaranteed the loans before eventually lending the money.

"four in 10 recent college graduates are in jobs that don’t require a degree"

"At more than a third of them [colleges], less than half of the students who enroll earn a credential within eight years, according to the think tank Third Way."

"College tuition has soared 1,375% since 1978, more than four times the rate of overall inflation"

"The U.S. now spends more on higher education than any other developed country (except Luxembourg)—about $30,000 a student"

"college presidents are being handsomely rewarded for the success of their enterprises: Seventy of them, including a dozen at public colleges, earned over $1 million in 2016-17"

"Sallie Mae borrowed from the Treasury at low rates and used the money to buy student loans from banks, thus freeing up banks to make even more loans to students."

"the system gave colleges an incentive to maximize the tuition they extracted from students and the federal taxpayer by boosting fees and enrollment, which meant relaxing admissions standards.

The federal government didn’t want to put in place any academic criteria to prevent someone from getting aid."

"They didn’t consider the possibility that a large number of students would end up in debt without earning a degree or the higher wages that come with it."

"Colleges could raise money quickly by admitting academically suspect students while suffering little or no consequences if their students dropped out and defaulted on loans.

The market was suddenly flooded with cheap money, which led to a surge in the ranks of college-going students. Colleges responded to higher demand by raising prices, leading Congress to increase loan limits and grants."

"Only last month did the federal government release, for the first time, data showing the average debt burden of students leaving particular programs within a school."

"The Obama administration also heavily promoted income-based repayment programs, which set borrowers’ monthly payments at 10% of their discretionary income and then forgave a portion of their debt after 20 to 25 years of payments."

"The number of full-time workers with bachelor’s degrees has risen from 7.6 million in 1980 to 19.5 million today. The share of Americans age 25 and older with a bachelor’s degree reached 34.2% in 2017, double what it was in 1980"

"About 40% of all student debt goes to finance graduate degrees, including law and medical degrees, which typically lead to high salaries."

"In particular, the financial benefits one can expect from a college degree appear to be lower among people born in the 1980s, and they remain unequal across racial and ethnic groups"

"Companies including Google, Apple and IBM have dropped the requirement that job applicants have college degrees"

"In February, I asked [economist Alice Rivlin] what she thought about the system she helped to create 50 years ago. Her response: “We unleashed a monster.”"
Related posts:

Who Is Most Likely To Default On Their Student Loans?

Student loan delinquency is higher than for other borrowing

The Diminishing Returns of a College Degree: In the mid-1970s, far less than 1% of taxi drivers were graduates. By 2010 more than 15% were

Student-Debt Forgiveness Is a Wonderful Boon, Until the IRS Comes Calling: Education analysts, student advocates warn of impending crisis from one-time tax bills individuals may not be prepared to pay off

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