Society and Economy
Making profit funded with debt

$1 Trillion+ in the Red: What Can Debt-drowned College Students Teach MFIs?

COMMENTARY
I was not particularly surprised to see this essay ... it is quite widely known that student debt is a problem, especially if you are a parent of college age children, or have children who are older and still facing the college debt challenge.

I did not like the way the writer talked about the cost of college education stating: 'College education in the US is growing more costly, ...'. It is very common for writers to mix up the cost and the price, and not to be clear about the type of cost that they are talking about. The amount that students pay for their education is the price of education ... and the price of education has gone up, no question about that.

The cost of education probably has gone up ... or has it. The comfort level in the living quarters of students may have resulted in higher costs, but is that really a cost of education. The money flows around the college institution are complex and not much is known about them, but what is research and what is education is blurred. College professors may not be well paid, but how much do they work on education and how much on other things. How much of the money flow from students subsidises life style of the campus community.

Not mentioned in the essay is the way 'debt' is sold to students by both the college and by major banks. Credit cards are a low cost convenience for a student often with a zero interest rate and no annual fee ... but the moment the student is no longer a student the interest rate may jump into the 20% range because now the regular bank rules apply. Do the students get told about this by the banks as they sign up for the cards ... and of course you know the answer.

Similarly the financing of education is 'sold' in a somewhat similar way ... with this and that and the other program of financing and the college gets its money ... and eventually the student is left holding the bag. Most students are young and not particularly well prepared for the complexities of college finance, and that goes for the parents as well. The colleges on the other hand have well experienced people who know how to do the financing. At the other end of college, handling the transition from college to a well paying job, the colleges seem to have dropped the ball. In the short run it does not matter ... this person is only a past customer, and not yet ready for the alum endowment fund raising circus.

My opinion about the educational establishment is quite low ... not much behind my opinion of banks. The difference is that a good education establishment is vital to the future of society, while it is fairly clear to me that most of what banks do has little or no value to society.

Peter Burgess

$1 Trillion+ in the Red: What Can Debt-drowned College Students Teach MFIs?

In the midst of the greatest economic downturn since the 1930s, the national student debt in the United States now exceeds US$1 trillion. Reportedly, it is now surpasses the national credit card debt! This is a matter of concern, not only because students are borrowing at an unsustainable rate, but because of the consequences that this might have for the economy and society itself. Young people are sometimes going to great lengths to make ends meet and pay their debts, as one Huffington Post article notes. Working on the Smart Campaign, this really rings the over-indebtedness bell. Does anyone else agree?

College education in the US is growing more costly, sometimes reaching $42,000 per year as is the case for Sarah Lawrence College, which is pointed to as the most expensive of the 25 most expensive private universities. As the article explains, the average 2011 college graduate leaves the university $27,000 in debt! That is significant if you take into account that these students have not yet begun earning income and the unemployment rate for persons under 25 is a whopping 54%.

A few key facts found on Dino Grandoni‘s post “Americans Now Owe More Than $1 Trillion in Student Loans” on The Atlantic Wire:

• “Last year marks the first year American students took out more than $100 billion in loans to pay for school, averaging $4,963 per student in 2010.”
• “Students are borrowing twice as much as they were a decade ago, adjusted for inflation, so that that $1 trillion student loan bill is double what it was five years ago.”
• “The default rate on student loans — which, unlike almost every other type of loan, survive even after bankruptcy — jumped from 6.7 percent in 2007 to 8.8 percent in 2009. Default rates were highest at for-profit schools.”