Chasing Dreams with a Student Debt

Debt is like a crocodile which does not give the privilege of setting oneself free without suffering one's due share

Education in the US seems to be an expensive affair with student debts piling up and trapping them in a whirlwind of recursive loans. Student debt in the US is in excess of $1.2 Trillion today. The price of education has led to student loans going up by nearly 350% since 2005. The cost of tuition fee per year at the University of Chicago was $870/year in 1958 (under $7000 in 2013 dollars) while today it is around just under $45,000 for tuition and fees. 

In the 1950s, while paying tuition fees, US students had the advantage of taking up summer/part time jobs and work towards paying off their debts

The high price of education today almost literally prevents students from being able to pay back the debt in the short term whether they have part time jobs or even if they shared dorms. The only students who are lucky enough to stay away from such an entrapment are the broods of the rich and high.

The High Price of Education

Data shows enrollment and degrees awarded in liberal arts increased from 113,587 to 338,688 and between 2010 and 2012, the average annual growth was around 8.5% showing a steady rise in number of enrollments to liberal arts courses. According to a Cost/Value Analysis in a Huffington post article, the average annual student cost in a private liberal art college after receipt of grants and scholarships, is $25,400, making the average four-year cost $107,800.

Without a doubt, Liberal art courses offer a doorway to honing our creative skills to lead a profession and contribute to society and as always truly said, "Education never goes to waste"

But charging a fantastically high tuition fees can be a curse especially when these avenues cannot help students generate extraordinary remuneration to pay off their debts. This begs the question as to what motivates private universities to charge the moon.

The benefit of easily available Government guaranteed student loans entices students to take a loan and since loans are so freely available it does not seem to hurt private universities to charge a high tuition fee

However, the debt pay back music goes full note after students graduate, and students of liberal arts and studies are the worst hit compared to technical courses because these courses on most occasions are unlikely to pay the 90 to 100 Grand a year kind of salaries.

Universities also need to do homework to gauge if their courses are overpriced or not and whether they can generate jobs with remunerations that help students not only repay their debts but also pursue a career

Financial Illiteracy and the Dreaded Clause called “Forbearance”

Although students are struggling to pay their debts, the government and universities cannot be entirely blamed. This is because, it is a triangular play involving Students, Universities and Government; Students also have a role to play.

High School Students need to understand basic finance and the repercussions of defaulting on a loan. When students don’t do their homework to understand the intricacies of borrowing and jumping into the student debt bandwagon, then it’s just a case of financial illiteracy.

Teaching Basic Finance in High School with an emphasis on Student Debt is a much needed step to prevent students from becoming financially illiterate

The motivating factors to get a university degree can be many, such as better life, doing what you love or just peer pressure. But incurring a student debt that puts stress on chasing ones dreams is a heavy price to pay.

"Hope” is a great thing that someday the debt can be paid back, but even greater is the necessity of being Realistic to understand that this “someday” can be a long way off when loan repayments are defaulted

According to WSJ Sources, nearly 43% of students are either behind or received permission to postpone payments due to exigency. Around 3.6 Million students have already defaulted on debt. 

This means, it is imperative for students to become financially literate and understand the consequences of the forbearance clause, because, halting a debt premium payment does not stop the debt taxi meter from ticking further.

Defaulting on a loan, affects the credit score acutely. Even if students were to graduate with a job, there is no telling when a loan is required again to buy a house, a car, etc and any sane minded bank would not be happy to sanction a loan on a repetitive basis. Eventually, due to bad credit scores, graduates enter into a vicious circle wherein they would have to work their backs off during the prime of their lives when otherwise they should be chasing their dreams.

Financial illiteracy among students, Governments guaranteed loans, overpriced fees charged by private universities are the errors that need to be addressed

What’s the Way out of the Mess?

The workable solution out of the mess without having to sacrifice a generation of 21st century students, is by adopting a long term solution called Free Markets Philosophy.

Governments need to take a practical stand and encourage a free market situation instead of saddling students with more student loans to please the Keynesian Economics theory

This would cause universities to compete amongst themselves and ensures tuition fees are lowered but also competitive enough to tackle student debt burden. Private universities would also be forced to be attentive to their spending binge and focus on real matters such as research and scholarships instead of splurging them on facilities like tennis courts and swimming pools.

Sure, All universities would like to convey that they offer the best courses and this is a matter not for students but a fair matter only for universities to decide since the university sets the curriculum

But in today's economic scenario, where national debt of most countries have hit high numbers, universities can at least give it a thought to be compassionate enough to pass the financial benefit of lowering tuition fees to students.

It might not sound great for private universities to lower tuition fees but it benefits the students

There is a greater obligation to be compassionate in the current economic scenario for universities and understand today's students are the next generation of the leaders and businessmen and hence the financial benefits have to be passed on to students

Most world economies run today on the Keynesian Philosophy where Public Spending is increased after a recession hit, but, in matters of student debt, the scenario is a classic example of how John Maynard Keyenes got it so wrong in the long term.