Quick, what’s the only type of consumer debt that rose during the Great Recession?
If you answered “student loans,” full marks. While auto loans, credit card and mortgage debt all declined, student loan debt soared to over a trillion dollars last year — and continues to rise.
According to the Institute for College Access and Success, 71 percent of U.S. college graduates had student loan debt; the national average was over $29,000. Colorado’s averages are slightly better: only 52 percent of our graduates are indebted, and the average is $24,500. Colorado’s indebtedness is oddly distributed; some public institutions with lower overall costs have higher numbers of indebted students, while expensive private institutions have fewer. Adams State College, which has an annual price tag of $17,000, 57 percent of students carry debt; the average is $27,000 — all of it federally backed. At Colorado College, one of our priciest schools at $52,000 annually, 32 percent of students carry debt which averages $19,000; only 80 percent is federally backed.
Why does this matter to anyone who doesn’t have a college-bound child? Because the numbers are staggering: the Federal Reserve Board of New York calculates there are 37 million indebted current and former students. This creates massive dislocation in the economy as those struggling with thousand-dollar-a-month loan payments lack the resources to engage in the consumer spending on which our national economy is based. Call it a stealth debt crisis. And if ever there is serious default it will be 2007 all over again, with you footing the bill: the federal government guarantees $800 billion of these loans
There are also political potentialities. Watch as the Obama Administration, desperate to rouse their student supporters, rolls this issue into their squealing about “fairness,” claiming student debt as another proof of America’s callous and nearly criminal distribution of wealth. Last August saw the Administration’s opening volley on this front, as it sought to punish colleges who do not keep costs to an “acceptable” level and reward those who allow large numbers of “low-income” students earn degrees. Anyone familiar with higher education can imagine the staff meetings that followed, as administrators grappled with strategies to comply. What was retained and what scrapped is easy to guess; money is involved.
As vexing as this problem is, it offers opportunities to solve longstanding problems. It will take bold initiatives but it seems past time that new models be put in place for financing higher education and for providing the trained professional this country needs.
Briefly, we need a return to a system of indenture. In early America, when money was scarce, an industrious and aspiring person could offer their services for a term of years, in return for the price of passage to the New World. Is there any reason that Dow Chemical or Exxon Mobil could not offer tuition payments to those studying chemistry or flow dynamics, in return for employment at a lower salary for a set time after graduation? If favorable tax treatment for such scholarships is thrown in, there might be a boom in this sort of offering. Those who might object to this as a form of “slavery” should note that the Obama Administration does much the same, offering debt forgiveness to physicians who agree to work in “under-served” areas.
Congress should also narrow federal loans and loan guarantees to “vital” fields in conjunction with efforts to beef up the science, technology, electronics and mathematics sectors of the U.S. economy and higher education. Since these fields are the foundations of an advanced economy, there is a clear national interest in seeing them strengthened; a similar interest doesn’t exist for philosophy, literature or kinesthetics.
Narrowing financial aid would be disappointing to those in the social science and liberal arts, myself included. However, it would have the salutary effect of reminding us all that public monies are best spent on items of the greatest national interest — and that no one has a constitutional right to higher education, let alone the right to demand that someone else pay for it. As available money declines, there might even be a concomitant decline in tuition in fields less able to tap federal largess. As a flood of money raises prices in a free economy, so a trickle pushes them lower. Call it a field test for the theory of markets.
Lowering unsecured student debt would show other benefits: money previously earmarked for loan payments would flow both into spending and — for the prudent, at least — into retirement accounts. Self-sufficiency would rise as former students were unshackled from debt. Economic awareness might be spurred by the need to calculate the potential benefits obtained at the cost of a student loan.
A lesson Washington could use as well.
Morgan Liddick lives in Summit County.