The Looming Student Loan Storm

A generation ago, I registered for a master's degree program at an Ivy League institution. I paid for every dime of my education. No employer benefits, no Pell Grants, no nothing. I did apply for and receive a student loan. The repayment plan was not onerous, even though it was not tax-deductible at that time. I earned the degree; the loan was repaid in full.

Photo: usnews.nbcnews.com

I was fortunate, in that the master's program did not cost the equivalent of the price of a new home. Those days are long gone. The sticker price for higher education is now insanely expensive. Even upper middle-class households have difficulty meeting the entry fees universities now routinely charge. Higher education, like any other business, has futzed with the "catalog" price via financial aid packages calculated to successfully hit operating margin and other fiscal targets. Part of the aid mix is the inevitable student loan.

A few years ago, as reported on the PBS Newshour and elsewhere, some brand-name institutions were snagged colluding with student loan providers. After some negative publicity was briefly generated, the story was quietly put to sleep. Nothing much changed, which is how many in Higher Ed and connected financial firms wanted it. Meanwhile, universities routinely raised tuition rates anywhere from double to quadruple the annual inflation rate, regardless of up or down economies. Try that in your business some time, and see how far you get.

2011 chart shows relationship between
student loans and disposable incomes
(chart from The Atlantic)

What became evident in this scenario was the sacred cow status of the American university. The tenure system, which has been savagely attacked in the K-12 world as a principal cause of "underperfomance," is never, ever criticized at the college level. (Think about that the next time your daughter's or son's tenured professor deigns to teach a handful of hours.) The rationale for the escalating cost of higher education always seems somehow disconnected from reality. Meanwhile, the university mafia knows damn well that a degree delivers a passport to career opportunities and distinguished achievement. The alternative to a degree is likely lifetime participation in the bleak land of "have nots." That type of realpolitik compel most students and parents to pony up the university's pay to play number. Since relatively few families have hundreds of thousands of dollars in disposable income, signing up for student loans becomes a necessity.

Image: nps.gov

Earlier this year, the financial blog zerohedge.com briefly explored the looming student loan crisis. The amount of debt on the books is staggering, and growing at a stunning pace. What's worse, the number of delinquencies -- money that might never get repaid -- is escalating. Here's the kicker: student loan debt is not covered in personal bankruptcy filings. The U and its financial enablers get 100%, plus interest, on the dollar, while the debtor faces dragging around a financial ball and chain for years, possibly decades. This creation of a university-spawned debtor society does not bode well. It's a looming storm for which there will be no shelter and no answers.