There’s even worse news just out about student loan debt: The Federal Reserve now says total student loan debt outstanding is $1.57 trillion, not $1.53 trillion. (Click here to read the first part of this three-part series.)
That’s a 27% jump since 2014.
New data reveals that 69% of the class of 2018 took out student loans.
The graduating class of 2018 has an average education debt pile of $29,800. That doesn’t include 14% of the class of 2018’s parents borrowing an average of $35,600 in federal PLUS loans.
What’s wrong with the forever higher cost of higher education is that there’s more loan money available than ever.
Some presidential-hopeful politicians think the answer is to do away with government loan money and just make higher education free.
And, some would-be presidential candidates think outstanding loans should be forgiven too.
Less is More
When there’s less money to spend on things, the price of things goes down. That’s deflation.
When there’s more money available to spend on things, the price of things goes up. That’s inflation.
Higher education costs have been grossly inflated because there’s virtually an unlimited supply of loan money, mostly federal but private money, too, for students and their parents to tap into.
In calendar year 2017, the latest year with complete data comprised by the U.S. Federal Reserve and the Federal Reserve Bank of New York, 85% of student loans were government-backed loans; the other 15% were private loans.
One advantage of government-backed or public loans over private lenders is that government’s cost of borrowing is much lower, so interest and costs on government loans are lower.
Another big difference between federal loans and private loans is that federal loans have fixed rates, while private loans have rates that vary from borrower to borrower based on credit. And public loans, like Stafford loans, don’t start accruing interest until six months after graduation.
Unlike private lenders, the federal government doesn’t check credit records for student loan borrowers. This leads to many borrowers who aren’t worthy of credit qualifying for loans and then being saddled with debt indefinitely, with little hope of paying it back.
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A white paper by the nonprofit National Bureau of Economic Research looks at competing theories for why college costs have gone up so fast. One theory – called “cost disease” – suggests that it’s hard to figure out how to teach a better class. As a result, costs go up because productivity doesn’t increase.
The other theory is that costs go up because the money’s there. This is known as the “Bennett hypothesis,” after Ronald Reagan’s education secretary, William Bennett. He argued that college costs were driven up by increases in federal subsidies: The more aid flowed in, the more expensive college got.
The paper finds overwhelming support for the Bennett hypothesis: Changes to the Federal Student Loan Program are more than enough to explain the rising cost of college.
I could give umpteen metrics, for example about how faculty salaries, not including “other compensation” have risen, like how…
- From 1971 to 2018 the average salary of professors teaching at the baccalaureate level rose from $17,958 to $90,879;
- Associate professor salaries went from $13,563 to $73,387;
- Assistant professors went from $11,176 to $63,616;
- Some public-four-year colleges now have approximately one administrator per student;
- Administrators salaries have skyrocketed;
- And the amount schools spend on marketing, superficial campus improvements, sports, and recreational facilities.
Rising tuition costs that are paid via borrowed money, for the most part, are higher and higher because there’s too much money chasing education services.
The ready availability of loan money is what pushes up the cost of education and draws in huge numbers of students who maybe aren’t ready for college, may never get a degree, who may never make enough to pay off their loans and increase their standard of living, who may have been lured into some kind of higher education “scheme.”
It’s not rocket science; it’s business, the business of lending.
To obviate the spiraling cost of higher education and the servitude that comes with it for overburdened borrowers, some politicians want to make college “free,” and some want to cancel out most of the school loans that weigh down voters and would-be voters.
Bernie Sanders and Elizabeth Warren, two Democrats running for president in 2020, who are making free higher education and student loan debt forgiveness up-front issues and staking out controversial policy positions, for the most part, have it right on how the country and students got into the mess we’re all in.
But they don’t have the answers right, not even close.
Check out the sidebar here (see below) to read, in their own words, what they say the problems are and how they’d have others pay for fixing what’s fundamentally wrong with the excessively high costs of higher education.
Bernie Sanders on Education
Bernie Sanders believes that all students deserve the opportunity to receive an affordable, quality education from the earliest stages of schooling to high-level degrees. He has sponsored bills to make public colleges and universities tuition-free, as well as to drastically reduce interest rates on student loan debt.
Bernie believes that no student who is willing and able to go to college should be denied based on the income of their parents. The S. 1373: College for All Act, which he introduced, would make all public colleges and universities tuition-free. In an editorial for the Huffington Post, he asks: “Why do we accept a situation where hundreds of thousands of qualified people are unable to go to college because their families don’t have enough money?”
According to USSA statistics, students in 1983 generally covered 23 percent of their own tuition costs. In 2012, they covered 47 percent. Part of this is due to a collapse in Pell Grants, which are scholarships for students that they do not need to pay back. When the Pell Grant program began in 1965, they covered 75 percent of tuition costs. In 2012, they only covered 32 percent.
But I know plenty of Baby Boomers who worked themselves through college. Aren’t today’s students just lazy?
In 1978, it was possible for a minimum wage worker to earn the cost of a year’s college tuition over the course of a summer. Today, that same worker would have to work full-time for an entire year – just to cover the cost of tuition.
Inflation is not the only factor that has raised the cost of college. In 1978, a meal that cost $5 would cost about $11.15 today – a little over two times more. But a year’s college tuition in 1978, which would have cost about $800, would today cost a student over $9000. That’s an increase of over eleven-fold. The financial struggle facing students today is real, and it is not due solely to inflation.
What has caused these skyrocketing tuition bills?
One theory is that the liberal granting of student loans by the government and private lenders gives colleges and universities room to greatly increase tuition without having a negative impact on their enrollment numbers.
Other theories revolve around the need for more of students’ money to feed the increased spending that universities have been indulging in. People in high-prestige positions within the institution receive pay rates similar to CEOs of large companies, extraneous “administrators” are taken on and overpaid for doing office work that does not directly relate to education, and a priority on spending for sport and recreation over education diverts student tuition into unrelated projects and materials.
Bernie introduced the College for All Act, which would “eliminate the $70 billion dollar tuition costs at all 4-year public colleges and universities.” To qualify, states would have to foot 33 percent of the bill (the federal government would sponsor the rest) and take various steps to maintain or increase expenditure on improving opportunities for students and faculty.
There are various measures that have been proposed to cover these changes. In the College for All Act, which Bernie sponsored, a “Robin Hood” tax on Wall Street would be implemented – a 0.5 percent speculation fee on investment houses, hedge funds, and other stock trades, as well as a 0.1 percent fee on bonds and a 0.005 percent fee charged on derivatives. These very small taxes on the financial sector would completely cover the cost of providing free higher education to all students who are willing and able to attend college or university.
Elizabeth Warren Says…
I’m calling for something truly transformational: Universal free public college and cancellation of student loan debt
Today, it’s virtually impossible for a young person to find that kind of opportunity. As states have invested less per-student at community colleges and public four-year colleges, the schools themselves have raised tuition and fees to make up the gap. And rather than stepping in to hold states accountable, or to pick up more of the tab and keep costs reasonable, the federal government went with a third option: pushing families that can’t afford to pay the outrageous costs of higher education towards taking out loans.
The result is a huge student loan debt burden that’s crushing millions of families and acting as an anchor on our economy. It’s reducing home ownership rates. It’s leading fewer people to start businesses. It’s forcing students to drop out of schoolbefore getting a degree. It’s a problem for all of us.
We got into this crisis because state governments and the federal government decided that instead of treating higher education like our public school system - free and accessible to all Americans - they’d rather cut taxes for billionaires and giant corporations and offload the cost of higher education onto students and their families. The student debt crisis is the direct result of this failed experiment.
The first step in addressing this crisis is to deal head-on with the outstanding debt that is weighing down millions of families and should never have been required in the first place. That’s why I’m calling for something truly transformational - the cancellation of up to $50,000 in student loan debt for 42 million Americans.
My plan for broad student debt cancellation will:
- Cancel debt for more than 95% of the nearly 45 million Americans with student loan debt;
- Wipe out student loan debt entirely for more than 75% of the Americans with that debt;
- Substantially increase wealth for Black and Latinx families and reduce both the Black-White and Latinx-White wealth gaps; and
- Provide an enormous middle-class stimulus that will boost economic growth, increase home purchases, and fuel a new wave of small business formation.
Once we’ve cleared out the debt that’s holding down an entire generation of Americans, we must ensure that we never have another student debt crisis again. We can do that by recognizing that a public college education is like a public K-12 education - a basic public good that should be available to everyone with free tuition and zero debt at graduation. My plan for universal free college will:
- Give every American the opportunity to attend a two-year or four-year public college without paying a dime in tuition or fees;
- Make free college truly universal - not just in theory, but in practice - by making higher education of all kinds more inclusive and available to every single American, especially lower-income, Black, and Latinx students, without the need to take on debt to cover costs.
- Some people will say we can’t afford this plan. That’s nonsense. The entire cost of my broad debt cancellation plan and universal free college is more than covered by my Ultra-Millionaire Tax - a 2% annual tax on the 75,000 families with $50 million or more in wealth. For decades, we’ve allowed the wealthy to pay less while burying tens of millions of working Americans in education debt. It’s time to make different choices.
- A Real Solution to the Student Debt Crisis: Broad Debt Cancellation
- The enormous student debt burden weighing down our economy isn’t the result of laziness or irresponsibility. It’s the result of a government that has consistently put the interests of the wealthy and well-connected over the interests of working families.
- Policymakers stood by as state after state pulled back on investments in public higher education and sent tuition soaring. They stood by as for-profit colleges exploded, luring in students with false promises and loading them up with debt as their executives and investors raked in billions in taxpayer dollars. They stood by as employers demanded higher credentials while offloading the cost of getting those credentials onto workers. And they stood by as corporations made huge profits off of the new skills graduates gained through higher education while giving workers almost nothing in the way of wage increases - increases policymakers falsely promised would make graduates’ debt worth it.
The answer to the real problems we’re facing with rising higher education costs and financially imprisoned student loan borrowers isn’t free college any more than it was about freely given out loans.
Free college must be paid for. Any which way it’s paid for ultimately comes down to someone, make that a lot of people, being taxed to pay for free college or free anything.
The real problem lies elsewhere, the same place where the problem with free college lies.
That’s what I’ll tell you about here next, and I’ll be back with you on Tuesday for the final piece to this story.
Until then, I encourage you to read this report. Because according to Bloomberg‘s latest report, America could be heading for an economic disaster that would rival the Great Recession. In the wake of all that’s going on in the world, I’m not surprised.
But you don’t have to be one of the victims; because if you prepare yourself early, you could be one of the few who make it out victorious.