Tags: college | loan | payments

Pollack on Ballooning College Loans: Reconsider Your Options

Friday, 28 Jun 2013 08:17 PM

By Bill Hoffmann

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With interest rates on government-backed student loans doubling on Monday, some college-bound teens may want to reconsider whether it's the right choice, says Alex Pollock, a resident fellow at the American Enterprise Institute.

"You need to get clear that if you're borrowing for college, that better be an investment in your skills and your development — not borrowing for consumption," Pollock told guest-host David Nelson on Newsmax TV's "The Steve Malzberg Show."

Story continues below.

"Let's not go out for four years and have a good time. It’s one thing if you can afford to pay for the partying, it's another thing if you're running into debt from partying."

Student-loan rates are set to skyrocket from 3.4 percent to 6.8 percent after lawmakers were unable to agree on a bipartisan deal to keep subsidized borrowing costs down, although a last-minute deal is possible.

Related: Reid Shoots Down Plan to Stop Student Loan Rates Doubling

"Congress probably shouldn’t be in the business of setting interest rates and a 3-and-something percent rate for a student loan — which have extremely high rates of default on them — is a really cheap rate," Pollock said.

"So you've got 100 percent increase from a really cheap rate given the very high riskiness of these loans."

He added that times have changed when it comes to accessing the value of college and the job marketplace.

"People have said, 'Well, if you go to college you're going to make over the average income,''' Pollock explained.

"That was true when say one-quarter of the people went to college. But if two-thirds … go on to some kind of education after high school, two-thirds can't all be that rich."

Pollock pointed to former U.S. Secretary of Education Bill Bennett, who has blamed the system for jacking up tuition because loans rates are so low.

"It’s very similar to what happened in the housing bubble in 2000 to 2006. Because the credit is so easy and … you just borrow this money to buy something, [and] it tends to push the price of that thing up," he said.

"Just like the seller … or the builder of the house or the mortgage broker or the real estate broker [who] walks away with the cash and doesn't worry about what's going to happen to the loan.

"In the student loan, the college just gets the cash and keeps it no matter what happens — if a student doesn't make it and drops out."

Pollock believes some high-school graduates might do better to enter apprentice programs to learn specialized skills than pursue a pricy college education in a major won't pay off.

"If you spend four years studying sociology you can't do these jobs that you could do if you came out of the good apprenticeship program and in terms of balancing what it means to be well trained and trained and prepared for the world," he said.

"That's a good reemphasis that we have to figure out how to do."

Pollock's group is an American think-tank that focuses on "respect and support for the power of free enterprise."

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