Investing in Debt

News item:

Under the debt ceiling deal signed into law on Tuesday, government-subsidized loans for graduate and professional students across the nation will be eliminated in July 2012. Those students will begin paying interest on their loans while still in school, or let it accumulate.

— Associated Press, August 3, 2011.

A Wall Street analyst:

The longer-run outlook for students lending and borrowers remains worrisome. Unlike other segments of the consumer credit economy, student loans have not demonstrated much improvement in performance despite some improvement in the larger economy … (T)here is increasing concern that many students may be getting their loans for the wrong reasons, or that borrowers — and lenders — have unrealistic expectations of borrowers’ future earnings. Unless students limit their debt burdens, choose fields of study that are in demand, and successfully complete their degrees on time, they will find themselves in worse financial positions and unable to earn the projected income that justified taking out their loans in the first place.

— Christian Deritis, "Student Lending’s Failing Grade," Moody’s Analytics, July 2011.  Pp. 54-69.

A think tank reports:

Borrowing is increasingly the norm in American higher education. The long-term consequences of floating colleges on a sea of debt have yet to be fully realized, as a growing number of students leave school with tens of thousands of dollars in loans that can take as long as 30 years to repay and cannot be discharged in bankruptcy.  National graduation rates have been stagnant for decades, and many competitor nations are helping more adults earn valuable college degrees. The sharp increase in the national borrowing to credential ratio suggests that urgent action is needed to arrest these trends.

— Kevin Carey and Erin Dillon, “Debt to Degree:  A New Way of Measuring College Success.”  Education Sector.  August 2011.

And President Obama has warned:

And all the progressives out there, I want you to understand that we can’t just ignore this debt and deficit, we’ve got to do something about it. But economic growth, making ourselves more competitive isn’t just about cutting programs. It’s also about making investments in our people. (Applause.)

It’s also about making sure we’ve got the best education system in the world; that we’ve got the best scientists and engineers and mathematicians in the world; making sure that we prize our diversity; making sure that we’ve got a social safety net for the aged and the infirm and our children. That’s part of what makes us a great nation.

— Speech in Chicago, Wednesday, August 3, 2011

We are a great nation with a great big debt problem and a multitude of smaller debt problems. The larger problem is now compounding the smaller ones. In the case of students pursuing graduate degrees, this will be literally true as of July 2012, when they start paying interest on their loans while still in school. But it is true in a broader sense as well. The efforts to make college affordable to all and accessible to most have resulted in our enticing tens of millions of young people into assuming a destructive level of debt. Those private lenders who remain in the business of issuing student loans after Congress switched last year to Direct Lending for federally-guaranteed loans are recalculating their risks.

Click through for full article text.

THE CHRONICLE OF HIGHER EDUCATION

Leave a Reply

Be the First to Comment!

Notify of
avatar