Friday, February 6, 2009

The College Loan Hoax

As you read this, high school seniors across the land are busy figuring out how they'll pay for their college education. Many of them have heard how college graduates earn over the course of their careers $1 million more than their friends who opt not to go to college, and they're anxious to spend the next four years preparing to partake of that pie.

Unfortunately, paying for their education is not easy for many students and therein lies a real hazard according to Kathy Kristoff at Forbes:

Offsetting that million-dollar income discrepancy is the $46,700 four-year cost of tuition, fees, books, room and board at a public school and $99,900 at a private one--even after financial aid, scholarships and grants. Add all this to the equation and college grads don't pull even with high school grads in lifetime income until age 33 on average, the College Board says. Even that doesn't include the $125,000 in pay students forgo over four years.

The risks are hefty. Half of students entering college never earn a degree. Six in ten African-Americans depart without one. "Hundreds of thousands of young people leave our higher education system unsuccessfully, burdened with large student loans that must be repaid, but without the benefit of the wages a college degree provides," warned a 2004 Education Trust study.

One in four college grads takes home considerably less than the top quartile of high school grads, according to a College Board study. Even some people with doctorates earn less than people without so much as an associate degree, it shows.

In other words, students often take on enormous debt to pay for their education in anticipation of securing a job upon graduation that'll enable them to pay off their loans, but that often doesn't happen. The situation, Kristoff says, is roughly parallel to the home mortgage crisis and she tells stories of students who expect to be saddled with their debt burden for the rest of their lives.

Anyone considering borrowing to pay for college should read her essay. The take home message is that college loans can have lots of hidden costs and can take decades to repay.

On the other hand, if the college loan business is indeed structured like the home mortgage business, as Kristoff asserts, maybe students should borrow all they can, even if they don't have to. If enough of them default on their loans the government will come in and pay off their debt, and they'll have gotten an education essentially for free, paid for by the taxpayers, while the chumps who worked and saved so they could pay their way without borrowing will be out $100,000, or so. Is this a great country or what?

RLC