Student Loan Debt: Does It Ever End?

I’ve always loved teaching. After working my way through law school in Detroit, I decided that I would try to secure a teaching job as a full-time occupation. In 1973, I taught my first class to a young group of students trying to get their real estate licenses.

When I moved to Colorado in 1976, I immediately looked for a job in education. I couldn’t find a full-time position immediately, so I taught at a number of community colleges. By the time 1978 rolled around, I had secured a full-time teaching job, and I retired from the University of Colorado (where I was a full-time college professor) after six years of teaching full-time. This was a very enjoyable time of my life. I believe that “knowledge is power” and found myself quite satisfied with life as an educator.

Back in the late ‘70s and early ‘80s, there was much less student loan debt. My mentor at the University of Colorado was amazed by the ever-rising cost of college tuition. The rapid increase of administrators and bureaucratic processes from his start in the 1950s was to him quite shocking. He like to fondly recall the “good old days” when the faculty in essence ran the school, set the budgets, and defined acceptable curriculum.

He cautioned me many a time that we did not need so many administrators, buildings, and miscellaneous programs unrelated to teaching and the process of learning itself. In his mind, a college (or a university of many colleges) was simply the faculty and staff absolutely necessary to keep the buildings open. There wasn’t a need for other “nonessential” personnel. I’m sure he would be quite shocked today, if he were alive, to note the many six-figure incomes found on the average college campus for administrators, deans, coaches, marketers, and others who are not full-time professors. The sports budget would have seemed to him most unusual, and the time spent by college alumni thinking about sports would have seemed to him completely unrelated to the primary purpose of the institution. Of course, his love of learning was intense, and it was simply that love of learning which he considered the “bottom line” or essence of a university.

From that point of view, the cost of college tuition needs to be kept down, and the number of services offered (other than the granting of degrees) needs to be modest. Of course, all would not subscribe to that way of thinking.

Nevertheless, the statistics tell a different story. The cost of a college education has increased significantly in the last 40 years, far outstripping the inflation rate in the nation. Even public institutions, which are funded by the state with the primary mission of educating that state’s citizens, have seen rises in tuition that are astronomical.

Of course, from my mentor’s point of view there’s no reason for this, due to the fact that those schools are funded and supported by state tax dollars. In his mind, those tax dollars should pay the entire cost of institutional attendance, other than a very modest and easily affordable tuition. From this point of view the elaborate sports programs, stadiums, and administrative staff (including marketing staff) are not necessary.

What we find today is that college is very expensive even at a state school, with very significant budgets supported by alumni donations, and various subscriptions and fees far in excess of the tax dollars contributed by the state.

The student who doesn’t have tens of thousands of dollars to spare for each year of college education find himself taking out student loans, hoping that the value of the education will help him pay back this significant loan debt.

Gaining relief from student loan debt is not easy, as it is not dischargeable in bankruptcy. Nevertheless, the federal government is now attempting to use a program called “income-based repayment” or IBR to address for students the significant burden they bear in paying back student loans when just out of college.

Although income-based repayment is an excellent solution in theory, many servicers are slow in processing the request for payment adjustment, and this can cause significant hardship. The cost of college tuition is still quite high, as governments (which once assumed almost all the risk of college by heavily subsidizing the cost), are now withdrawing a large portion of their support. One could easily ask the question: “is it wise for state and federal governments to ask the young and impecunious student to bear larger and larger portions of the cost with student loans to finance increasingly expensive college education?”

At this point in time, 40 million people hold student loans, and that debt has risen to $1.1 trillion, compared to $300 billion just a decade ago, according to research by the Federal Reserve Bank of New York. Student loans are now the third largest form of household debt in America today, and 7 million borrowers are in default, with many more behind on their payments. Young borrowers, fresh out of college, often do not realize that with a damaged credit record they face higher interest rates on all goods (including cars and homes), and could easily be rejected on apartment rental applications, or lose job opportunities where credit is evaluated. Indeed, the cost of college and the financing of it is one of the larger crises in the lives of young people today.

One study by Brent Ambrose, a professor risk management at Pennsylvania State University, indicates that the burden of student loan debt may cause people to take different directions in their life choices. Those who are burdened by too much debt are less likely to start businesses, and have a much harder time shouldering the load of a house payment. As Ambrose puts it simply, “when students use up their debt capacity on student loans, they can’t get committed elsewhere”.

This sort of financial disruption shuts down the ability of the young entrepreneur to create a new business, and also affects career choices, such as working in a low-paying teaching job simply because you love to teach.

I seriously doubt that the cost of college tuition will be coming down dramatically in the near future. But we must find a way to finance college educations so that young people are not overly burdened with debt immediately after coming out of school, debt that frequently cannot be paid. Should the federal or state government take a greater hand in subsidizing college costs, and in restraining unrestricted growth of expenses on college campuses? Only time will tell, but the question is worth asking and considering.