Student loans: A smart investment?

Joe Miller
Oct 24, 2011 at 10:11 AM

With public attention newly fixated on the debt burden of American college graduates, the contribution of the federal government to that debt should also be analyzed. Rather than asking Washington to simply forgive their student loans, disgruntled protesters should be questioning the logic of the entire college financing system.

We often hear that without the federal government’s financing, college would just not be affordable to most Americans. But is it affordable now?

The average student loan debt for graduating seniors is $23,186 (excluding PLUS loans to parents). How can we claim that something is affordable if it cannot be obtained without taking on tens of thousands of dollars worth of debt?

When we say that something is affordable, we usually mean that we can acquire it while living within (or temporarily slightly outside) our means. Under what standard can a purchase be justified as affordable, if the price for the average consumer is more than $20,000 of high-interest debt (roughly half of the average annual family income)? Only the government would try to convince us that this is not only a wise investment, but a necessary one.

The argument that a college degree pays for itself with future employment opportunities is clearly no longer sufficient, given the rampant unemployment and underemployment faced by recent graduates. And student loans generally cannot be erased through bankruptcy, meaning that an ill-advised decision coming out of high school can be a source of financial pain for decades.

There was once a time when government did not involve itself in the student loan business, and this did not stop people from becoming educated and finding worthwhile jobs. When colleges know the government will offer loans no matter how high they set tuition, however, they feel free to raise costs wherever they see fit, and students will pile up more and more debt trying to keep up.

Instead of lobbying for still more government intervention – which will only prop up the “education bubble” further – we should be taking a critical look into why college tuition has increased 439 percent since 1982 yet the quality of undergraduate education has declined. We need to consider that government distortion of the market is responsible for much of this trend, just as interference in the housing market contributed to a calamitous boom and bust cycle there.

On a cultural level, it is also worth questioning the assumption that everyone should go to college. Given the diversity of talents, skills, and interests of American adolescents, it is foolish to think that the same approach – particularly the four years on campus after high school model – is appropriate for everyone. Those who seek alternatives, especially by pursuing productive jobs that fill a need in society, should not be stigmatized for doing so.

Perhaps Americans need to be reminded that there is no shame in pursuing a trade or service profession, and that there is honor in earning a steady if unspectacular wage. Indeed, many young people who have resisted the societal pressure to go to college and are doing just that now find themselves in far better financial shape than their degree-holding peers who relied on government money.

We hear over and over that the answer is simply to send more students to college, but more people are going, and it doesn’t seem to be a panacea. Instead, our current strategy seems to be driving endless numbers of young people into years of turmoil. Students should certainly be held responsible for their financial decisions, but so must the government for its role in driving up costs and encouraging irresponsible borrowing.

Excellent (and timely) piece.  This article is being made much more often of late, but this is a really good iteration of it. 

If you're not already familiar with it, check out Mish Shedlock's blog.  He covers this topic fairly often and I think you'd enjoy his perspective.

Bonnie Kristian's picture

Instead of making education affordable, government intervention has made it way too expensive. Despite these difficulties, realities have to be faced and aspiring students are paying a big price for it.

Thomas's picture