Economy

A Real National Crisis

This past week the President declared a National Emergency in order to find funding for building barriers on the southern border of the United States. I have already written that I think he will lose this battle in court, but I want to emphasize that I agree there is a crisis on the border as thousands and thousands of migrants from Central America begin to pile up at the border. Something must be done, and the problem is that Congress has failed to solve this crisis by failing to pass a comprehensive immigration bill.

But if you want to look around for some other crises that are lurking over the horizon look no further than the issue of student debt. It has become a political hot button with many on the left trying to find ways to absolve the borrowers and most on the left voicing support for some form of free college education. To the first point, absolving the debt, there is a reason why student debt is the one thing you cannot get out from under in a bankruptcy filing. Imagine if that were possible. What do you think most students would do within months of graduating?

Student loans are being taken out at unprecedented rates and there seems to be little or no regard about how to pay it back. Young people graduate from high school and they are told the key to success is to go to college. For the most part, that statement is true but the part that is ignored is what you study in college. In that regard, both universities and students are at fault.

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First, we should take a look at some facts. Right now, there are over $1.5 trillion dollars in student debt. In statistics from 2016, the average debt for a graduating student was just over $36,000. That total is significantly more than the credit card debt for the people of this nation. Over 44 million Americans are now saddled with student debt and a significant number of those people are delinquent in their payments. The average student loan debt monthly payment is close to $400 a month.

So what is the impact of this debt on the economy? When you owe about $400 a month for this debt it means you don’t have money to buy other things. This has a serious impact on the economy as a whole. Take a look at what one expert has today on this subject:

“You have a whole generation of people that have a significant amount of student loans and its crimping demand for other goods and services,” said Ira Jersey, the chief U.S. interest rate strategist for Bloomberg Intelligence. “As people live with their parents, or cohabit with a non-partner, millions of houses and apartments aren’t being purchased. Neither is Wi-Fi or that extra sofa. We think this is having a significant impact on the economy.” 

We see more and more millennials graduating from college with poor job prospects and even those with jobs lacking the financial means to support themselves. Millions of them are moving back in with their parents and that has another side effect on the economy as well.

In an article on the CNBC website, they described a young family that lives in Charlottesville, VA. The couple owns a three-bedroom ranch-style house and they recently made the final payment on their automobile. But here is the elephant in the room. Both the husband and wife borrowed money while getting bachelor’s and master’s degrees and now they have a whopping total of $350,000 in student debt. That elephant consumes $800 a month in payments. They, like millions of others, are struggling to keep up and that debt will keep them from achieving the financial success they dreamed.

So what causes this crisis? I think there are a couple of factors in play that needs to be addressed.

  1. When students enter college they need to sit down with counselors and discuss what degree they want to pursue and what the job opportunities are in that field.
  2. They need to be asked how they are paying for their education and if they are attending a school with high tuition costs and lack the financial means to pay those costs they need to be advised of educational routes that are less costly and provide a similar education. Perhaps a state school in lieu of the private school would be better. Perhaps spending the first two years at a local junior college might be a better alternative.
  3. Congress needs to look at educational institutions and ask why the cost of a college education has been rising at an average of 7% per year which is significantly higher than inflation. In other words, those costs are outpacing family income by significant amounts.
  4. Why are universities and college spending increasing amounts on administration at the expense of instruction? A 2010 Goldwater Institute study found “universities have in recent years vastly expanded their administrative bureaucracies, while in some cases actually shrinking the numbers of professors.”

The cost of tuition keeps accelerating at record numbers. In 1971 the tuition and fees for Harvard University (considered one of the very top schools in the nation) were $2600 and today that same tuition and fees will top $46,000. When you throw in room and board that number is almost $68,000. At that time the average family would have to work 13 weeks to pay the costs and today those costs would consume a year’s worth of work. They are not atypical. When the average member of Congress attended college, the tuition was just under $4000. This includes both public and private schools. Today that tuition number averages out at $24,000. Again, increasing much faster than other segments of the economy.

We have a real crisis in our higher education system and Congress needs to start looking at it very hard. Throwing more money at the problem is not solving the problem. If we increase the amount students can borrow suddenly you see tuition increases. If you increase the amount given in Pell grants you see tuition increases. Colleges basically say that you will have access to more money so we can charge you more money.

Elizabeth Warren, the ultra-liberal Senator from Massachusetts, who is now running for President call the student debt crisis a true national emergency. She is correct but her solution is to just forgive the debt and make college education free. That just moves the crisis from the individual borrowers to the American taxpayers and does nothing to address the root causes of the problem. She doubled down on that suggestion just last night on a late-night TV talk show.

Warren

I would suggest that we take a more radical look at how higher education is funded and operated. Start looking at the type of degrees being offered and how they are going to prepare graduates for the world. Start looking at how many administrators are needed and why they are being paid so much. Stop handing out lifetime job security with tenure. If you are not cutting it in the classroom, they should show you the door. Start forcing professors to carry full class loads and stop the practice of pawning off teaching to Graduate Assistants and Teaching Assistants. One way to address this is to have every professor list the classes they are teaching and then have them attest they will be in the classroom.

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And finally, we need to start admitting that college is not the panacea that we have made it out to be. I am not saying that a college education is not valuable because every statistic tells us that it will lead to an increase in earning power. But those same statistics will tell you that many of those college majors will not get a job offer. Once we start facing those facts we can then realize that there are many skilled professions that are not gained in a college classroom that are both necessary in our society and provide a very good living for families.

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