In a previous post I asserted that the quality of a college degree is more a function of talent and work ethic than it is of instructional quality, and that universities are basically selling prestige and a monopolistic imprimatur. The more the prestige, the greater the cost. As to the substance of the product, I could find no evidence of any standard for what constitutes a good college education.
In a second post on student debt I provided a link in which Jack Hough of SmartMoney showed a startling hypothetical example, contrary to myriad articles in the press, of how a student who does not go to college can have lifetime earnings larger than an otherwise equal student who does. How can this be? The trick is simple, while his college counterpart is running up debt, the high school graduate is making regular investments in a low-cost mutual index fund. This holds true for prestigious schools with high tuition, but it is even true for public schools now!
For the chart of Hough’s example, go to this Link – it is the second chart. (I can’t get it to insert into the post.)
So, just how bad is student debt? Student loan debt has now surpassed credit card debt and a year ago was $826 Billion dollars. Wow. Approaching the big “T”! I ask you, isn’t that a lot to pay for a product that has no standards?
The New York Times published a startling column on student debt in 2008. It said,
But much less attention has been paid to what happens to students after they borrow. Lenders who make loans guaranteed by the federal government can more easily take steps against borrowers — like garnishing wages and benefits — than they can with other kinds of unsecured consumer debts. And all student loans, federally guaranteed or not, are extremely hard to get rid of in bankruptcy proceedings, more so than credit card or other debt.
More borrowers may begin to discover the harrowing consequences of reneging on student loans in the current economy. Numbers of borrowers behind on payments and in outright default are rising for some types of loans, and the tight job market makes it harder for graduates to find jobs that let them pay off debts. At the same time, investors are pressuring lenders to raise revenue by minimizing losses. Investors also expect more revenue from those lenders that operate collection agencies.
The anecdotes in the article are shocking. Students and parents are fully invested in the meme that since a college education is vital, and since they see that “everyone does it”, they sign whatever loan documents are put in front of them.
Look, the Great Recession was caused, yes caused, by profligate borrowing for mortgages and enabled by inexcusably lax, almost absent, government oversight. Now, with student loans, we have guess what? Profligate borrowing enabled by inexcusably lax, almost absent, government oversight. And if you’re a medical student the whole thing gets worse. If you have read my previous posts you know that some new docs graduate half a million dollars in debt, and that this is impacting the structure of medicine for the worse, both morally and functionally.
I believe that student loan debt is as big as the housing collapse and has the potential to be just as damaging. It is not the next big thing, it is the hidden present thing. It is even now affecting the economy at this critical time when we are trying to climb out of the Great Recession. The system desperately needs reform. What to do? I can only refer you to the msm.com article and urge you to spread the word that the meme of a college education is terribly flawed. Businesses especially need to understand this when they hire. (Can college dropouts succeed? Try Bill Gates and Steve Jobs for starters, and then read about more HERE.)