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Financial Insider: The Value of Higher Ed

Vince Bellino, ’15 and Rafael Cabral ’13,  Staff Writers

 

A college diploma — once a sign of some financial privilege and a means of distinguishing oneself in the job market — has become, in many fields, a requirement, without which job applicants stand at serious disadvantage.

With more and more colleges and universities opening their doors to more and more young people, most middle-class American children now grow up expecting that someday they will attend college.

But, as is true for most any good or service, as the demand for college education has gone up, so has the price.

Over the past several decades the cost of tuition in the United States has significantly outpaced the national rate of inflation, while wages have failed to keep pace. As a result, a large gap has been created between the cost of a post-secondary education and a family’s ability to pay for it.

Student loans were meant to fill that gap. And while these loans have given many students opportunities they would not have otherwise had, they are saddling others with debt they do not understand and do not have the means to pay off. Recent statistics show just how serious the issue is.

According to data published by Fair Isaac Corp. (FICO), delinquency rates on student loans made in the past two years stand at a record high of 15 percent, compared with 12.4 percent for loans made from 2005 to 2007. In addition, managers of major banks report they expect delinquencies to worsen in six months, and do not expect that threat to bottom out any time soon. Compare those numbers to subprime mortgage delinquencies, a major catalyst for the credit crunch that sent the global economy spiraling.

These reached 15 percent in 2007, right as the financial crisis started gaining ground. Soon-to-be college grads must also grapple with a weak job market, calling into question whether the debt they took on for professional gain will ever pay off. Unlike mortgage debt, student loans cannot be absolved through bankruptcy.

Furthermore, where homeowners can sell their houses to pay down their debt, students can never sell back their education. Recent legislation passed by the Obama administration will ease the burden on recent and soon-to-be graduates who otherwise would have been crippled by hefty monthly payments.

Members of Congress are now trying to pass a bill that would mandate colleges to provide data showing the average income graduates can expect to earn based on their institution and their major.

The idea behind this is to provide more transparency and make sure students set realistic goals, which hopefully will help them make sound decisions about which college to attend, what major to pursue, and how to finance their education. For the time being, though, students will continue to take on debt they simply will not be able to pay back.

And until this issue is properly dealt with, graduates will increasingly question whether their degree was worth the risk – and the money.

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