The massive amount of student debt is endangering future prosperity.
By the end of 2014, outstanding student loan balances totaled $1.16 trillion, nearly 10 percent of total household indebtedness of $11.83 trillion, and delinquency rates hover near 17 percent, which includes loans that are qualified as deferred, in grace periods or in forbearance, according to the Federal Reserve.
In 2013, 69 percent of those graduating from public and non-profit colleges had student loan debt, averaging $28,400 per borrower, according to the Institute for College Access and Success, a nonpartisan research organization.
Yet, 35 years ago, the level of student debt was negligible.
Since this debt is prohibited from being discharged during bankruptcy and the federal government implicitly guarantees loan repayment along with direct financial aid, colleges and universities are empowered to raise expenses.
Michael Cooper, president of the Institute for Higher Education Policy, indicates that college costs have risen 538 percent since 1985, while the consumer price index only increased about 115 percent. These skyrocketing prices have been supported by demand, since the youth has been inculcated to believe a college degree is essential in the global economic marketplace to earn a decent living.
This is a very vulnerable population; they have little life experience and most have not had an opportunity to vote.
Even more troublesome is the lack of transparency by the Federal Student Aid unit of the Education Department with respect to the riskiness of these loans. Much needed data are not publicly available for analysis to make an accurate assessment. This is not the case for the $8.17 trillion residential mortgage market, which is nearly eight times the size of all student debt.
This dynamic is unhealthy and unsustainable.
The extraordinary level of debt is acting as a stranglehold on our youth, undermining professional development and healthy household formation — thereby dampening long-term economic growth, employment and income.
The current model of tertiary education is under siege, since the return on investment is too low for too many.
Reducing costs is essential. Online education will be instrumental in achieving this objective. In 2012, the Massachusetts Institute of Technology and Harvard founded edX, a massive online open coursework platform, which has been expanding in recent years to include other prestigious universities, including the California Institute of Technology, Dartmouth and the University of California, Berkeley.
Reducing the amount of time to complete four-year college programs would also be helpful, since more than 60 percent of students exceed the four-year time frame to graduate, according to Complete College America, a non-profit research and advocacy organization.
Colleges and universities are also examining other cost structures, especially administrative and non-education-related expenditures, such as luxurious buildings, facilities and amenities. Since 1978, the number of administrative jobs rose 369 percent, compared with 286 percent for part-time faculty and only 23 percent for full-time tenured or tenured-track academic positions, according to the American Association of University Professors.
Recent legislation now permits borrowers of new loans in 2014 to qualify for repayment schedules of as little as 20 years by paying 10 percent of their discretionary income.
However, this policy places the taxpayers at high risk if the students are unable to earn the income to completely discharge the principle debt and interest payments.
A more propitious model would be for the colleges and universities to take more ownership by acting as a co-guarantor of these loans. This would add incentives for these educational institutions to offer programs and services that would cultivate highly employable skills that manifest in compensation rates that more than cover all the expenses. Any forgiven outstanding debt by the college or university would then be amortized over a specified period of time at a given rate in the form of reduced government subsidies.
This system would relieve student indebtedness, enable greater productivity and increase payroll tax revenue to help shore up the social safety net of Social Security and Medicare.
We are all in this together. By helping the young, we help everyone.
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