Sunday, August 1, 2010

The college debt dilemma

Having a kid in college has made the college loan issue a major topic of discussion in our home this summer.  The big question being: will a college diploma increase one’s income enough to justify borrowing the money required to get through four years of college?  Loans for college are not like other types of debt because in most cases the students can’t get rid of the it through bankruptcy.

We have been researching the outcome for young people that entered college in 2004, when the economy was growing, credit was easy, and the expectation of a high paying  job after graduation seemed assured.  Of the 2008 college graduates, 67% had student loans which was up from 27% in 2004. And 10% of those with loans owed more than $40,000, some with monthly payments the size of a mortgage payment. College costs have gone up tremendously since 2004  (over 25% for most colleges) and many State Universities are projecting even larger increases in tuition and student fees over the next two years.  The University of Hawaii’s in-state tuition for an Asian Studies degree will have increased by 64% from 2007 ($5136) to its projected cost in 2011 ($8400). That doesn’t include escalating student fees, special fees for other majors, books, and room and board.

Web sites, blogs and newspaper articles are filled with postings by young people recently graduated with monthly college loan payments from $700 to $2000.  Even the students that manage to get a high paying job after graduation are finding it nearly impossible to make their payments. Those with entry level jobs or without jobs are struggling with depression and anxiety and many regret going to college and often contemplate suicide.

As the stress and suffering of these students grows, many people are starting to question the legality of college counselors “advising” students to take on huge debt in an uncertain economy. Their advice to students to take on loans and load up credit cards has financially benefited the colleges without regard for the health and welfare of the students. Meanwhile, colleges are cutting back on staff, degrees, and classes making it more challenging for students to graduate.

Our conclusion is that taking on debt to go to college no longer makes sense. US colleges are providing less at a higher cost and most degrees are no longer a guarantee of higher wages.


Dawn H. said...

I really felt compelled to comment on this one. I racked up a TON of debt in college when I was young and did not yet understand the repercussions of living on credit (over $180,000 just in student loans).

I maxed every student loan to pay for my housing, food, transportation, books and supplies. I do have a bachelors degree, two masters degrees and a doctorate, but I am now in complete regret that I earned most of these degrees, especially in this economy.

I do have a decent job, but my pay is no where near what someone with this much schooling should earn and I really feel that at 38 I am about at my cap of earning potential (aside from those small 3% annual increases in a good economy and 2% increases in a sub-par economy).

I am currently the only earner in a household of five (husband can't find work and dad moved in with us since he is also unable to find employment and couldn't afford to rent on the unemployment compensation while looking for a new job). I often teach additional classes at other colleges just to make ends meet and get the monthly income a little higher. Sure, those advanced degrees are probably why I am still employed and find adjunct teaching work, but $48,0000 doesn't go far for a family of 5 and at this point I have no idea when I will ever be able to pay off my student loans, or own a house again. Think long and hard before you go into debt for an education. And this is coming from a college educator.

Keola Donaghy said...

We're in a similar situations with our daughter who is in her second year at UH-Mānoa. She got some grants and work-study money, but we ended up having to contribute fairly significantly each month toward her rent and some other expenses. This year he took out a student loan and we took out a parent loan and it would be difficult for us to continue to fork out what we did last year, and she also did not get the same grants as last year. My plan is to pay off the interest on the parent loan as time goes on so that when she's done we'll have (worst case scenario) just the principal of what we borrowed to pay back. Hopefully we'll be able to pay down some of that.

I'm also finishing up my own Ph.D. and financed most of that ourselves. Financially I don't think it was worth it, but still would probably do it over again.

Anonymous said...

Most writing on this subject has been anecdotal. The question is whether college is still a good investment.

Using public data sources, I was able to show mathematically that private college has become a bad financial investment for most attendees.

There are still good non financial reasons to go. Public colleges may still be a good deal -- not enough data to say for sure.

Anonymous said...

Send your kid to community college for 2 years, to get the mandatory classes out of the way. Then transfer to a 4 year, state run college. Do NOT send your kid to a private college. People are successful NOT because they went to Harvard, Stanford,etc. They are successful because they are driven for success.
They would still be successful if they went to a small state school.
By the way, what is wrong with kids WORKING their way through??

Anonymous said...

Come teach in CA. Average teacher salary in CA. is $70,430,per NEA.
Some districts have teacher pay that tops out at $105,000.

frankrev said...

Borrowing for college is a horrible idea, even for something like medicine. People change and things go wrong. A student might make it half-way through residency and then have a debilitating illness so they can't continue, or a nervous breakdown, or get fired from their residency because the chief of residents has a personal vendetta against them. And then what? The poor student is turned into a debt peon for life.

What I tell young people is to save up a few thousand working odd jobs, then take off to Guatemala or Ecuador (to get away from their parents for a while) and live there cheap for a year while self-educating. That's right. Old-fashioned teach-yourself by reading books and internet sites. If a person isn't motivated enough to read a book on their own, they are certainly not ready for college. And if they can read on their own, then what is the point of college, other than a silly diploma, which you can buy on the internet for $35? Fake diplomas are suitable for all but government jobs. Lying to the government is a big no-no, whereas all a private sector employer can do is fire you. Very few employers never check whether the diploma is real or not, unless they are looking for a good excuse to fire you, and if they want to fire you, they'll always find a reason. Best policy is to be a valuable worker so they don't want to fire you, in which case they will never check if the diploma is real or not.

After working for 11 years for a big company, I started my own business, which I ran for another 6 years before retiring very young. No one ever asked me when I was running my own company if had a college or even a high-school diploma. As part of running this business, I taught myself basic accounting and business law and all sorts of computer stuff. Running your own business really teaches you the value of money, and once you know the value of money, you're very unlikely to pay someone else to lecture you when you could just as easily teach yourself.

College is greatly overrated.

Blogger said...

Quantum Binary Signals

Professional trading signals delivered to your mobile phone every day.

Start following our signals today & profit up to 270% per day.