The cost of an education

With students streaming back to college campuses, flooding their favorite bars and restaurants, and shelling out for books, there have been several timely pieces on the cost of college. Several have even questioned whether the returns are worth the investment.

The cost of a college education is rising 3 percent to 4 percent that of inflation since the 1980s, according to a Newsweek article by Megan McArdle. She goes on to examine if the economics of a college degree are actually worth the cost and the verdict is mixed. She writes:

Promotional literature for colleges and student loans often speaks of debt as an “investment in yourself.” But an investment is supposed to generate income to pay off the loans. More than half of all recent graduates are unemployed or in jobs that do not require a degree, and the amount of student-loan debt carried by households has more than quintupled since 1999. These graduates were told that a diploma was all they needed to succeed, but it won’t even get them out of the spare bedroom at Mom and Dad’s. For many, the most tangible result of their four years is the loan payments, which now average hundreds of dollars a month on loan balances in the tens of thousands.

Much has been written about the trillions of dollars in education dollars owed to the government and private lenders. Notably, the New York Times has done an outstanding series called “Degrees of Debt” analyzing the cost of college and the effect that debt loads are having on Americans. The most recent piece reviewed the booming debt collection industry and how these firms are getting rich from defaulting borrowers.

In his recent installment, Andrew Martin writes:

As the number of people taking out government-backed student loans has exploded, so has the number who have fallen at least 12 months behind in making payments — about 5.9 million people nationwide, up about a third in the last five years.

In all, nearly one in every six borrowers with a loan balance is in default. The amount of defaulted loans — $76 billion — is greater than the yearly tuition bill for all students at public two- and four-year colleges and universities, according to a survey of state education officials.

In an attempt to recover money on the defaulted loans, the Education Department paid more than $1.4 billion last fiscal year to collection agencies and other groups to hunt down defaulters.

So not only are we now creating a class of indebted people, we’re also creating a boom industry to hunt them down to make sure they pay. Since changes to the structure in 2010, most loans are actually issued by the federal government, giving them more power to garnish wages and take tax refunds.

So, what can be done? A college degree does ensure better job prospects, higher pay and more opportunity. With the number of people attending college rising, it’s nearly impossible to get ahead without that important piece of paper.

But on the other hand, borrowers who don’t complete school or major in harder-to-employee subjects are often burdened with more debt than they can pay back. As Peter Coy writes in Bloomberg Businessweek:

“The question isn’t the debt per se. It’s what the students are getting in return,” says Richard Arum, a New York University sociologist who specializes in education. Many students are incurring heavy debts for an education (ethnomusicology, theater arts) that just isn’t worth it from a strictly financial viewpoint. (Money isn’t everything, but try telling that to the collection agency.) Education benefits society by creating a workforce that creates wealth, pays taxes, and stays off welfare. But state governments—whose schools educate 7 in 10 students—have raised tuition abruptly because of their own financial problems.

He also points out that the heavy debt load hurts all aspects of the economy with 40 percent of young borrowers saying they’ve delayed major purchases, 27 percent moving in with their parents, and 24 percent saying their loans have affected their career choices.

That’s a heavy load for taking on debt that has long been called “good” and beneficial. It’s true that an education can’t be taken away, but the debt can’t either – even in bankruptcy. Coy’s article is full of students whose monthly payments are more than their take-home pay.

And that’s something that needs to be addressed.