November 24, 2014
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Student loans a debt bomb ready to hit economy
John Hazen White, Jr.

Students today are facing their own foreclosure crisis, a crisis that’s foreclosing on their futures. It’s called student debt. This spring’s college graduate enters a most uncertain job market owing more than $25,000 in student loans, a figure that’s up 5 percent from last year. All together, students – and their parents who often are the borrowers or the co-signers of these loans – owe almost $900 billion. That’s more money than Americans owe on their credit cards. Financial observers, and those in the personal bankruptcy business, are seeing more and more students and parents filing for bankruptcy because of crushing student loan debt. Some are even calling student debt the next “debt bomb for the U.S. economy.”

This problem is growing just as fast as tuition increases. Here in Rhode Island, where state aid to public colleges and universities has been slashed in recent years, our public institutions of higher learning – URI, RIC and CCRI – are struggling to make ends meet. Consider URI’s situation: back in 1970 state funding for the university was around 50 percent. Today it is less than 10 percent. So what – and who - makes up the difference? The answers are tuition and parents and students through increased reliance on borrowing.

Tuition raises of 9.5 percent for URI, 7.5 percent for CCRI and 4 percent for RIC are now on the table for the fall semester. Making these schools even more expensive to attend means more borrowing, or not attending in the first place because of the costs. URI President David Dooley has pulled no punches about the relationship of state aid to higher education and rising tuition costs: students are going into greater debt.

For their parents, the loans can threaten their very livelihood and possessions. That’s because many parents do not meet federal hardship standards in order to dismiss the debt through a bankruptcy proceeding. That leaves them at the mercy of collection agencies representing private lenders – i.e., banks. Parental co-signers are facing loss of savings, cars and even their homes. And students themselves are being driven into bankruptcy over their inability to keep up with the interest-bearing repayments. A $34,000 student loan debt grows to $50,000 with interest over the standard 10-year repayment period, and the payment plan begins soon after graduation, regardless of a job or not.

Why the cost of a public education keeps going up and up is a direct result of the perilous situation many states are now in, which leads them to reduce funding support. But others are claiming that schools spend money lavishly and that’s part of the reason why tuitions are rising – spending on redundant academic and non-academic positions, building projects and sports, without planning for a rainy day period. In URI’s case, supporting things like the wayward Institute for International Sports and having your new basketball coach be the highest paid individual in all of state government, doesn’t make for good PR under the circumstances, even if those items are not, as the university’s president insists, cost drivers for tuition increases. And, as he also insists, it’s critical to have a winning basketball team to assist the university financially because of the prestige and support it delivers.

Private universities, like Brown, are also raising tuition and they pay their top sports coaches and presidents much more money per year – sometimes in the millions – but they also have sizeable endowments and can provide greater amounts of financial aid in the form of scholarships to offset the increases. Students and parents who end up choosing a top tier private school should understand that it will cost them a bundle – and presumably they can pay for it. But public institutions of higher learning support a broader public purpose by serving their state and area in providing a good education at an affordable price. And financing such institutions is one more responsibility of taxpayers.

With the prospects of such debt facing graduates these days, one would think that parents and children would consider less expensive pathways to gain an education. Vocational schools and institutes provide solid training for real jobs, and they don’t charge an arm and a leg, leaving kids in serious debt for the next decade. If we were to poll a dozen seniors and their parents and present them with two outcomes – one being a college diploma, poor job prospects, and sizeable debt, and the other being a technical degree, a much better chance of a job, and little debt, I wonder how they would vote.


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