There’s a debt debacle in this country, and it’s not the one politicians are screaming about.
Last Wednesday, the Consumer Financial Protection Bureau announced that student loan debt passed the one trillion dollar mark. With a tepid economic recovery and ever-rising tuition prices, default rates on the loans are increasing too. Lest anyone think this is an isolated problem, increased student debt is hampering the recovery of the housing market, as recent-graduates saddled with debt make up a significant portion of would-be first-time homebuyers.
And it could soon get worse. In July, a law that keeps interest rates on Stafford Student Loans at 3.4 percent is set to expire, which would send rates up to 6.8 percent unless Congress takes action to extend the law. As it stands, 40 percent of Americans under the age of 30 already have outstanding student loan debt. According to a report released last Monday by the New York Federal Reserve, the average debt is now $23,300. And that’s to say nothing of the parents who have taken out loans to pay for their children’s education and now find their own economic futures imperiled by their son or daughter’s desire to learn Classic Greek.
With these sobering statistics in mind, it’s hardly surprising that amid the cacophony of commentary that has erupted in the wake of the CFPB’s announcement, some are asking whether student loan debt is the next “bubble” to threaten America. In fact, just last month, the National Association of Consumer Bankruptcy Attorneys warned of a “student loan debt bomb.”
The contours of the bubble — or bomb — go something like this: Higher education, like home-ownership, has become part of the “American dream” and is encouraged both directly and indirectly by the federal government. As higher education tuition soars, students take out loans to finance a purchase that they can’t justifiably afford. When the economy sours and they can’t find jobs, defaults ensue, and the government (read: taxpayer) — which has issued or backs almost 80 percent of student loans — is left to foot the bill.
To many, the underlying cause of the student loan saga is clear and familiar: skyrocketing college tuition and fees, which are now 559 percent of what they were in 1985. While many have been quick to point out the problem, viable solutions seem few and far between. Earlier this year, of course, Cornell announced a 4.3 percent increase in tuition, room and board and other mandatory fees for the Fall 2012 school year. And that’s after increases of 4.8 percent and 4.5 percent in 2011 and 2010 respectively.
So with all the mounting debt — and a looming “debt bomb” — is it finally time to expect tuition to fall at schools like Cornell?
For one, generous financial aid packages at schools like Cornell limit the amount of debt that many students have to take out to finance their educations. And because employment coming out of such schools remains relatively strong, students — by and large — aren’t finding themselves saddled with unthinkable amounts of debt and limited ways to repay it. Unless that reality changes there won’t be significant downward pressure on tuition.
With that said, the “student loan debt bomb” will likely have very real ramifications for other universities. This past Sunday, the New York Times Magazine featured a story on the graduates of Drew University, which is ranked 94th out of 178 liberal arts colleges by U.S. News and World Reports. Among the story’s highlights: 17 percent of the sample of Drew University's Class of 2011 is unemployed, and only 39 percent hold full-time jobs. It’s hard to imagine that students will continue to burden themselves with tremendous amounts of debt to finance such an education when the jobs just aren’t there.
The other victim of the student loan crisis may be the liberal arts degree. As the public becomes increasingly aware of the skyrocketing costs of a college degree — and the debt many incur to afford it — there may be a shift away from classic liberal arts majors to more “practical” ones. That is, unless the degree in Classics is going to help students get a job after school, expect those attuned to the challenges of financing an education to hesitate before signing up for Latin.
And so, as student debt hits one trillion dollars and counting, the Ivory Tower becomes increasingly fragmented between the haves and the have-nots. Or perhaps more accurately, between those universities that can provide generous financial aid and jobs post-graduation, and those that find it increasingly difficult to do so.
I guess we should remember to be thankful we are in the former group as tuition goes up, up and away.
Nathaniel Rosen is a junior in the College of Arts and Sciences. He may be reached at firstname.lastname@example.org. Bringing it Home appears alternate Tuesdays this semester.