The impact of rising student loans on the new home buyer market has grown to be a huge
issue, particularly with the rising rate of default. Student loans which are federal government loans do not fall off a credit report. The debt cannot be settles in bankruptcy, and will follow you until you pay or die. Because of this, the education system in the U.S. today has grown to become a prosperous venture for colleges. Students can receive government loans, the school gets paid, and they do not have to deal with collections. The students then are burdened with paying back the loan, regardless if the education they gained launched them into a career that enabled them to pay back the debt or not.
I am somewhat critical of this system, as I have seen too many young people walk into the trap. The old adage of ‘Go to school, earn a degree, get a better job because of that degree, etc.’ was what used to be true for our parents. Today, so many of the college and university students obtain a degree or diploma at huge expense, and the education is meaningless to employers and offers the student no long term benefit, much less a career in the field they hoped to go into.
The sales pitch to ‘go to college’ and ‘get a degree’ starts in elementary school and high school. Even recently the schools have been pitching people in the workforce to return to college to ‘earn a degree’ leading these prospective students to believe that the degree is going to enable them to achieve higher earnings in the outcome. It becomes a fool’s game if you have no real direction.
According to a recent article written by a USA Today writer, the total sum of annual student loans taken out last year was $100 Billion dollars. Outstanding student loans will cross the $1 Trillion mark later this year for the first time in history. The amount of students in default of over 9 months on their student loans rose from 6.7% in 2007 to 8.8% in 2009 according to the most recent federal data.
Over 300,000 students across the country are in default according to this article, and that number is rising. What does this say about the education system? Are they really getting the product of an educated student that has value to the society? Is the education they are selling these students of any value? These are all important questions to ask, considering the government loans are provided with tax payer dollars, and there is little or no accountability for the colleges required in this program. Nor does there appear to be any limit to what a college can charge for their programs.
Universities and Community colleges across the country seem to have no shortage of funds to expand their buildings, and their campuses. Not that this is a bad thing for a community, but if the student is not getting that promised career based on the education provided, it has a greater impact on the future of our country.
If I were to offer advice to a student considering going to college, here are a few common sense ideas I would suggest:
1) Do not go to college to ‘find out what you want to do’. That is like going to a clothing store with an open-ended credit card and buying everything in the store to see if you like it, regardless of size, color or usefulness. You will run up a huge tab quickly with no return. Go to college with a plan for a specific career as the outcome, or do not go until you have this plan.
2) Choose a degree program that offers a career in a proven profession that is always in high demand in society, regardless of economic condition. Examples of this might be a medical doctor, attorney, an engineer or an accountant. These professions are just some examples of ones that seem to endure, as well as offer remuneration and employment which will enable you to pay back the money you borrowed for the education in the first five to seven years working in the field.
3) If the cost of the education is going to be more than 1/3rd of the annual income expected from the median annual salary of that profession over a 5 year period, then you will be underwater with choosing that degree program and it will not be sustainable. I would recommend choosing another field or method to obtain the education you will need to work in that profession.
4) Be practical in your approach. Is the training or degree in high demand? Are people who have completed the training or degree finding immediate employment? Do not ask the college who is selling you this program. Ask people actually practicing in the profession. You might even consider approaching a company that hires people with that training and talk to their personnel department. Even see if you can make contacts within, giving you a place to go to once you have finished your training.
5) Do not buy into new things untried or unproven as of yet, especially if the training required takes four years to complete. Example: A caller once called a radio talk show I was listening to that embarked on a four year degree program in ‘Green Energy Conservation’ because he listened to a politician that said this was the ‘wave of the future’ in 2006. When he completed his degree, he could find no employment and is now bagging groceries trying to pay for a $50,000+ student loan. A sad tale resulting from a poor choice of a yet unproven, untested career.
I am writing this article because often as a Realtor I sit down with some young person who
wants to buy a house, and when they meet with a lender they are denied because of a default on a student loan, or their income ratios are out of whack because of huge student loan debt. Or I meet with someone who is not in default, but is struggling to make ends meet in a job that is radically different from the degree they paid for, and career they hoped to have now. So an ambitious person seeking higher education in the modern day needs to consider a more practical approach before signing or committing to a long term student loan that will follow them for years to come.
Colleges and universities are businesses, and they will sell you a program if you reach for it. The government backed student loan programs make it easy for them to do this. An approach to obtaining an education with a proven plan is the best way to avoid being an economic slave to a government loan program.