In America we believe that everyone should have access to education but we still require most people to pay for education after high school. Although you are required to attend school until you are 16 in most states that education is provided free to students. But “public” education does not exist at higher education levels, and the costs of attending even state-owned colleges and universities grow every year.
The competition for high-performing students among thousands of universities and colleges means that many young people cross state lines to get their higher education, and out-of-state students are charged higher fees by state-owned institutions. Families that were able to invest prudently for 18 years in college funds may be able to pay for their children’s education, but the truth is that most young families cannot invest enough money in long-term funds; and of those who open college fund accounts, more than half dip into the reserves to pay for emergency expenses.
So we send our 18-year-olds off to college with loan applications in hand, hoping that someone else will temporarily foot the bill. Thanks to Federal legislation is relatively easy for college students to apply for and receive loans, but what those laws do not do is protect the students from changing job markets, poor economies, and lack of opportunity.
It’s one thing to tell your children to pursue their dreams but quite another to explain why they should have pay hundreds of thousands of dollars in loan payments because their art and literature degrees don’t match up with sufficient income after graduation. And what about the millions of college students who drop out before graduating?
Student loans sound like a great idea but the reality is that they have become so expensive they are crushing a generation of college graduates and dropouts who cannot find jobs that pay enough to support the loan obligations. And in the wake of the near-collapse of the US banking industry during the Great Recession of 2008-9 it is now much harder to get credit than it has been in this country for many decades. So while you were able to take out high-interest loans while you were in college, guided by outdated Federal laws that open doors you otherwise would not be able to pass through, once you get out into the job market you cannot take advantage of low interest rates to refinance your loans because you don’t qualify.
Some people argue that students should be managing their credit wisely while they are in school so they can borrow needed capital once they graduate. But over 95% of students never come near to borrowing the kind of money in school (beyond their student loans) that would help them build solid credit histories capable of helping them refinance those student loans. And their parents may not be able to help with co-signature loans. Millions of American families have lost income over the past decade and they are struggling to hang on to what they have or rebuild lives that were shattered by economic hardship.
Recent surveys show that over half of all college graduates regret taking out their loans. The absurdity of the student loan debt situation has been compared to having a mortgage with no house to show for it. And while some lenders are trying to innovate refinancing options for people with student loans, these new kinds of debt come with risks.
The solution to this problem is not to invent more ways of lending money to people who may not be able to pay it back; rather, the solution is to find ways to fund public higher education that entail exorbitant tuitions and other fees. What makes this situation even absurd is the fact that most states now authorize lotteries with the goal of reducing education costs for their students; but in reality the way the state governments manage the money, they have simply used lottery revenues to replace general funds that were previously allocated to higher education. Gambling with future generations’ education and financial stability on lottery revenues is just a really foolish way to run a state government.
The Great Recession has been blamed for forcing states to rely on lottery revenues more than was originally intended but the truth is that they were always using lottery revenues to replace previous allocations for education from general funds. The mentality of state-level politicians has always been to borrow from Peter to pay Paul. Making the politically hard choice to raise taxes and reduce expenditures leads to inevitable gridlock because both political parties (Republicans and Democrats) put their own political entrenchment ahead of taxpayers’ needs.
At the very least students and their families should stop looking at government-mandated loan programs as a primary option for paying for college. The decision to send a child to an out-of-state institution should also be tied to a financial responsibility by parents. Make the families share in the pain of paying back those exorbitant loans and suddenly a lot of parents will think twice about how great it is to see their kids cheering a rival state’s football team.
College-bound students would do well to take 1-2 years off to work while living at home with mom and dad; putting half their earnings into a college fund (as an alternative to paying rent) would at least give them a cushion to reduce the amount of money they have to borrow to complete their education.
18-year-olds are notoriously bad decision-makers anyway. The first year at school is often filled with parties and high risk behavior, resulting in high dropout rates. Deferring college until age 20 gives students time to mature and learn some vital money-management skills. They are less likely to be preyed upon by aggressive seniors during their freshman years and more likely to succeed in college.
But families should also urge their children to look at local institutions, even if they are located a few cities away. Most states are large enough that kids can “leave home” and still attend a college or university that offers a valuable education without the premium out-of-state price tag.
Many two-year schools also still offer much lower costs than four-year institutions. Getting the core curriculum classes out of the way at a community campus not only helps students save money but also shelters them from the wild side of college life. Now, there is nothing wrong with the occasional tailgate party, but if attending college is all about getting away from home and having a fun time, parents should really teach their children NOT to borrow money for 2 years of playtime before they enter the job market.
The bottom line here is that before you help your kids fill out those loan applications, help them see the reality of life after college because there is no sweet guarantee road to success. And the opportunities that people enjoyed in the 1980s and 1990s no longer exist for the majority of college graduates. Until our economy changes to bring back those opportunities, piling students up with debt makes no financial sense at all.