The Joplin Globe, Joplin, MO

Lifestyles

August 15, 2013

Aisha Sultan: An epic college loan crisis in the making

ST. LOUIS, Mo. — However imperfect, Congress found a bandage last month for the student loan crisis in the making. Interest rates on certain subsidized student loans were set to double until a last-minute bipartisan compromise tied them to the financial markets, keeping rates lower in the short-term.

But the real bloodshed awaits.

Those rates could rise as high as 9.5 percent for students and 10.5 percent for parents, depending on how the economy recovers. Looking ahead to future generations of college students is a bleaker picture. If we allow past trends to continue unchecked, we will be pricing out a large swath of middle-class children from what used to be considered a ticket to the American Dream.

There's a two-fold reason why the thought of college makes most parents break into a cold sweat, even if their child is years away from heading off into those four (or six) years of higher education. In fact, the panic may be especially acute in that case, because the impending crisis looks scarier than the one averted.

Many parents hope to be able to send their child to the best college to which he or she earns acceptance. But college costs have escalated beyond the rate of inflation for much more than a decade, and there is no end in sight to controlling that rise in tuition and fees. Meanwhile, real wages for middle-class families have flatlined or declined during the past decade.

"The pain factor for families is higher," said Justin Pope, who had covered higher education for the Associated Press for the past decade and will soon become the chief-of-staff for the president of Longwood University in Virginia.

Simultaneously, a college degree has become even more important to a child's future. Over a lifetime, a young adult with a college degree can earn nearly twice as much as someone with a high school diploma. (How much the investment pays off varies by major and the amount of student debt accrued.)

So, what is a reasonable amount of debt for students and their families to incur for a chance at greater economic stability? As of last fall, the average amount of student loan debt for the class of 2011, for those who took student loans, was $26,600 -- a 5 percent increase from 2010, according to The Project on Student Debt. About two-thirds of college seniors who graduated in 2011 had student loan debt. This reflects the total amount borrowed over the entire four to six years to earn a degree. At this level, it is still a worthwhile investment.

As someone who worked and borrowed her way through college and graduate school, I think it can be helpful for students to have some skin in the game when it comes to funding their college dreams. The post-graduation payment on that level of debt, assuming one can eventually find a job, would not ruin a person's life. And funds borrowed from the federal government offer the protection of the Income-Based Repayment program, which caps monthly payments so they do not exceed 15 percent of discretionary income.

But that debt level does not seem sustainable for future generations. An inherent problem in the economics of education is that we haven't figured out a way, on a mass scale, to teach a classroom of students any cheaper from year to year. The labor costs keep rising. It's also why the price of a haircut or dental work keeps rising: The technological innovations do not increase productivity to make the product cheaper. This may change as more colleges and universities figure out how to incorporate massive online open courses as part of a well-rounded education, but that's still a matter of debate.

There's additional financial pressure on the system because state support for state universities hasn't kept pace with enrollment. States still spend about what they did a decade ago to support higher education, but there are a third more students in the system.

"The only way to preserve whatever affordability still barely exists is for people to hold their public officials -- especially state legislatures -- accountable for providing the funding for higher education," Pope said. "Today, the recognition that higher education is essential is widespread, but the states haven't caught up with that. Until people start demanding more, it's hard to see that changing."

A number of families and students breathed a sigh of relief when Congress finally acted on interest rates.

But many are still holding their breath.

 

Aisha Sultan is a St. Louis-based journalist who studies parenting in the digital age while trying to keep up with her tech-savvy children. Find her on Twitter: @AishaS.

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