2014 Symposium: Should we re-negotiate student debt? If so, why? Does this create a moral hazard?

Raleigh: It is well-known that getting college education in the U.S.A. is an expensive endeavor. While most people strive to get college education because it opens many more doors for them in the future and potentially allows to earn more money compared to counterparts without college education, the very cost of college education is becoming prohibitive. According to the College Board, college cost for an in-state public college for the 2013–2014 academic year was about $22,826, while average yearly cost for a private college was about $44,750. Add to that the cost of living, and the sum can truly be too high to carry for vast majority of American families.

As such, many young people have no choice but take out student loans to pay for their education. According to http://www.projectonstudentdebt.org, seven out of 10 seniors (69 percent) who graduated from public and nonprofit colleges in 2013 had an average debt of $28,400 per person. Many new college graduates have troubles finding a good job in current economy, so in addition of having to pay for everyday necessities they are straddled with student loans and their burgeoning interest rates. Does the government have the responsibility of helping the recent graduates with their student loans?

Any country’s most valued capital is its human capital. After all, machines and computers are only good when operated and controlled by people. As such, the best investment any country, including the U.S.A., can make is the one made in their human capital. It is becoming even more urgent now when American students fall so much behind their international counterparts in terms of education they receive in schools. Consequently, the government needs to financially help those who were smart and determined enough to get college education. It is necessary that the government does the following: increases access to need-based student aids; simplifies and improves federal student loan programs and their repayment; guarantees that colleges do not overcharge for their services; guarantees borrowers’ protection; makes it easier for students to obtain, understand, and apply for financial aid. These are just several steps that can be taken to increase peoples’ chances of obtaining college education, but the rewards will be much greater.

Asheville: Student debt is out of control. The average student in the class of 2014 carries about $30,000 worth of debt. These are students who did exactly as they were told. They got good grades, they studied hard, they went to school, and they graduated. Now they face a unique demographic problem. Their parents’ generation had their retirement savings decimated in the 2008 financial crisis. They don’t have the ability to exit the workforce. Employers have no reason to go to the trouble of hiring a new, untested worker when they have an experienced one. Unemployment rates among 18-24 year olds is 16.1%, well above the national average. As college graduates face down more than a year’s starting salary worth of debt without job prospects, two problems emerge.

First, this generation of college students is putting off important life milestones. Many young people are postponing getting married, buying homes, or having kids. These are typical items of significant economic reinvestment. Home buying creates demands in construction and real estate. Marriages create economic stability. Raising children requires hiring teachers, babysitters, and other service providers. This generation’s inability to engage in these activities contributes to a slower economic recovery.

Second, the default rate for student loans remains very high. For the 3rd year in a row, the default rate at three years after graduation remained above 10%. This represents another potential bubble bursting. Immediately, the consequences of default put lenders in jeopardy. More far-reaching consequences could come from the shriveling of student credit. Many small towns exist because of liberal arts colleges, which will struggle to attract students without free-flowing student loan money. These colleges will close their doors, leading to deeper cycles of unemployment and poverty in the surrounding communities. The system of higher education has been propped up for the past ten years on cheap credit. Its disappearance will send ripples through the economy.

Cartwright: Absolutely not. These people entered into a legal agreement. They were given money for college, and they used it to get an education. And you know, they’re able to get loans for an amount that far exceeds the actual cost of tuition and books? So, they get the maximum loan and then use the excess to party or to live on or to buy a new flat screen TV or a new car. Just because they can’t get a high paying job once they graduate doesn’t absolve them of the liability. If you go to the bank and get a mortgage for a house but then can’t afford the house, the bank keeps what money you paid and they take the house.

These kids weren’t worried about the student loans when they took them out, and they didn’t really consider whether they should take the money or not and apparently no one bothered to counsel them on this. If you’re a student majoring in marine biology, for example, and there are a couple hundred other students at your college majoring in the same thing and thousands of others majoring in the same thing throughout the nation, do you really think you’re all going to get a job? And did you ever consider what the average earnings are for the field relative to the amount of student debt? Did anyone ever think of that? Probably not.

The sad thing is that young people have been sold a bill of goods that you need to go to college and get an education and then you’ll have a great job and make a fortune. The job market can only support so many marine biologists and history majors and English majors. I know plenty of college graduates who are waiting tables and tending bar and struggling to pay off the student loans for a degree that they’re not using and that is going to waste. People really need to consider this when they’re going to college. I’ve long advocated that we need to better counsel kids in high school about college and their options. Some of them probably need to go to vocational or technical schools. The world is always going to need mechanics and plumbers and electricians and professional servers. These are good professions, and those in the trades can make a good living. Getting a four year college education isn’t for everyone and can sometimes be a vast waste of money.

Counseling alone isn’t going to stop this, and the colleges certainly don’t want to tell kids this. Each kid that walks through their door is a dollar sign. If you’re an unemployed college graduate who spent tens of thousands of dollars on your education but can’t find a job in your field, ever ask what your college did for you? Think they care about you now that they have your money? Something to think about.

But you’re not going to convince idealist young people that their college education is going to make them a millionaire. Some will become millionaires. Some will make very good livings and do well. Some will spend a lot of money on their education and spend half their life paying off the debt. So, we’re always going to have more kids go to college for disciplines where the demand is low but the supply of graduates with that degree is high. If you’re an employer looking at resumes from ten college graduates and your looking to fill one position who are you most likely to consider? The applicant with the 2.5 GPA or the applicant with the 3.8 GPA? Even with a degree, those who didn’t excel academically would seem less likely to get the job over those who showed that they did academically excel at college. Maybe less partying and more studying would have helped that GPA, and don’t give me the excuse that ‘I’m not a good test taker.’ That’s a cop out. Everyone in the class took the same test. Maybe you were just too hungover or too high to focus.

So here’s an idea. Maybe it’s time colleges and universities reconsider the awarding of degrees. To me, the students who barely squeaked by are cheapening the degrees of those who dedicated themselves to their educations. Maybe each department at a university should only be allowed to award degrees to those with a GPA above 3.0 (or some other hurdle grade point average) or the top 75% of the class. That seems like it would weed out a lot of marginal or underachieving students and help those who worked harder. After all, shouldn’t there be incentives and rewards for hard work and disincentives for laziness and lack of applying oneself?

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