College and Debt

When writing my previous post, I got to thinking about some things I've read in This Fine Place So Far from Home about how people from different socioeconomic classes viewed student loans differently.  This book is a collection of essays from working-class graduate students, professors, and other PhDs about their experiences in higher ed.  A common theme that struck me was the opposition on the part of the authors' families to student loans.  The reasoning was sound.  The belief was that once one borrows money from the wealthy, it becomes nearly impossible to break free from debt.  It's easy to see why a family barely scraping by would discourage the children from taking out tens of thousands of dollars for college, even though the loan would be an investment.  The problem, however, is that it is impossible for many students to receive a college education without the help of loans.

With all the recent news about student loans exceeding credit card debt in America, coupled with high unemployment, many students today may opt to forgo a college education to save money.  Now I don't want to advocate the idea that all students should go to a traditional college, but surely there are many young people out there who want to attend a university and have the dedication to succeed, but are held back by financial worries.

What we as a society need to do is educate these people on the risks and rewards of a (hopefully only partially) loan-funded college education.  Colleges should send loan literature to high school students that is heavy on the information and light on the legalese.  College orientations should have mandatory sessions on managing student loan debt.  Additionally, students should be presented with data regarding job placement for their major so they know the risks of taking out large loans for majors that generally result in low paying careers.  I place the burden on the university because I don't trust that Sallie Mae or the federal government would always have the students' best interest in mind.  We already know that many for-profit colleges aren't looking out for students, but I'm going to give the rest of higher ed the benefit of the doubt.  With the proper education, students should know that they shouldn't take out excessive loans to attend an expensive private school if they can receive an great education somewhere cheaper.  This type of academic frugality will ultimately help both the students and the economy.

I also favor legislation to make student loans dischargeable.  I'm not sure how to accomplish this and I won't pretend to be an arm-chair economist.  But it seems to make the most sense to not punish people for trying to better their lives by attending college.  College is an investment which may or may not pay off financially in the long run.  But a college education is something that should be an option for all who wish to obtain it.

On For-Profit Colleges

After reading this article, I figured I'd give my opinions on the matter.  Keep in mind that the extent of my "research" on the topic of for-profit colleges is limited to what I hear and read in the news.  That disclaimer aside, I do believe that many of the largest for-profit colleges like Kaplan and DeVry do participate in misleading advertising and prey upon consumers, generally of the poor and minority variety.  Whistleblowers in admissions for these large corporations have already gone public with stories of bonuses based on numbers of admitted students.  Considering that fact - and the article mentioned earlier, which states how for-profits educate only 12% of the population, yet account for almost half of all defaulted student loans - it is clear that something is rotten in the state of for-profit higher ed.

I worked at a major national bank for a few years and am quite aware at the extent to which employees, whose bonuses depend on quantity of sales, will lie and cheat customers.  Hell, some would open loans or credit accounts without the customer ever being notified.  Obviously the goal of these colleges is to maximize their profits, not to carry out some noble goal of educating those rejected by traditional, non-profit universities.  And for this very reason it should be apparent that for-profit schools have a conflict of interest unless regulation is changed that encourages them to see their students through to jobs.  Until the government places some regulation to shift the interests of for-profit schools, higher education should remain a non-profit industry.  It seems that the most common defense provided by the worst offenders in the for-profit sector is that they are taking in the students that non-profits deem "unworthy."  But don't community colleges exist for this reason (in addition to others)?

The way I see it, some of these for-profit admissions strategies have much in common with the predatory lending that damaged this nation's economy.  The government added regulations on lenders to make the fine print a little bigger and more understandable.  If they get their act together quick enough, maybe they can enact similar legislation on for-profit colleges' admissions information.  If they refuse to acknowledge this problem and continue to let the student loan default rate climb, I somehow doubt they will bail out the students of America.

FAFSA - Faulty Application for Federal Student Aid

The cost of a college education is one of the most hotly debated topics in higher education today.  It is a complicated issue with no clear-cut solution to provide high quality, affordable college to everyone in America.  Recently, Texas Governor Rick Perry called for Texas universities to come up with a plan to offer a  $10,000 bachelor's degree.  As you can see by reading the comments below that article, faculty have mixed opinions about the feasibility of offering a high quality education at a budget price.

College tuition in America has increased faster than inflation and shows no signs of slowing down any time soon.  This means that more and more students will require more and more financial aid to attend college.  Last year, student loan debt surpassed credit card debt in America.  Think about that for a minute.  The average American has 3.5 credit cards, but only 29.5% of Americans over the age of 25 have a bachelor's degree or higher.  Based on census data, the number of Americans with some college education but no degree and the number whose highest education is an associate's degree is just a little less than the number of Americans with a bachelor's degree or higher.  Undoubtedly, the cost of college must have had an impact on those who attended college, but never completed a bachelor's program.

For myself and several friends of mine, the cost of college threatened our ability to afford to complete our undergraduate degrees.  For many of us, the problem stems from the faults of the FAFSA.  In my case, the biggest flaw of the FAFSA is its lack of attention to whether or not family will help with the cost of attendance.  The application assumes that parents will provide a certain amount of financial assistance to their child based on their current financial state as determined by their tax information.  But what about the parents who do not support their child going to college or, even worse, do not want anything to do with the child at all?  It is far too difficult to gain independent status for the purpose of the FAFSA.  Basically, the student must be 24 years of age, married, a ward of the state, or have no living parents in order to be considered independent.

My parents, while financially capable, decided not to help me with college because "it's my degree and I should pay for it myself."  I understand where this mentality comes from and do not hold any grudges against them.  But even the maximum amount of undergraduate Stafford loans per year ($7500) doesn't come close to the cost of tuition alone at most public universities.  I was willing to take out private student loans, but when my parents refused to cosign, my options to pay for college dwindled.  Luckily I qualified for a high-interest loan with my wife (fiancee at the time) as a cosigner.  I didn't qualify for a loan myself, despite having a high enough income, because the unstable nature of internships make banks a bit uncomfortable about my ability to repay.  What scares me the most about the whole situation, however, is that if I had to stay just one more semester and my university continued to increase tuition by ~10%, I would've had to drop out.

My suggestion to fix the financial aid problem that causes so many of us to fall in the cracks is to offer some special assistance to students who have uncooperative parents.  Even if this just means more loans, something needs to be made available.  The FAFSA assumes every family is fully supportive of the child's college education.  I would like to know where this utopia exists.