Higher education in the United States is headed for a rude awakening. Easy access to Federally subsidized and to more predatory private student loans has created an entire class of Americans struggling under massive piles of debt while a lagging economy provides few economically viable employment options for college graduates.
According to a recent Treasury Department statement, the amount of student loan debt owed to the Federal government has increased by 463 percent to $674,580,000,000 in the years since President Barack Obama took office. The major increase is due in part to the Health Care Education Reconciliation Act — one of the laws making up Obamacare — which essentially made it easier for students to borrow money directly from the Treasury Department on the taxpayer dime.
The law took away the power of private lenders to provide Federally guaranteed student loans through the Federal Family Education Loan (FFEL) program providing the Federal Direct Student Loan (DL) program a monopoly over the loans.
“The DL program uses a different administrative structure and draws on a different source of capital than was used in the FFEL program,” said a Congressional Research Service report published in March. “Under the DL program, the federal government essentially serves as the banker — it provides the loans to students and their families using federal capital (i.e., funds from the U.S. Treasury), and it owns the loans.”
Obama explained the law thusly when he signed the bill: “For almost two decades, we’ve been trying to fix a sweetheart deal in federal law that essentially gave billions of dollars to banks to act as unnecessary middlemen in administering student loans. These are billions of dollars that could have been spent helping more of our students attend and complete college, that could have been spent advancing the dreams of our children, that could have been spent easing the burden of tuition on middle-class families. Instead, that money was spent padding student lenders’ profits.”
Obama’s move to eliminate banks from the fold in student lending is evidently working, as JPMorgan Chase & Co. announced in September that, beginning last month, it would no longer offer student loans. The biggest U.S. bank conceded that it simply couldn’t compete with the Federal government’s new lending standards and would no longer be able to realize a profit on student loans.
By steering students away from private lenders, the Federal government is accomplishing two ends under the guise of making education more affordable: 1) The easy Federal loan money encourages students to borrow more than they need and, in many cases, more than they will be able to repay. And 2) It allows colleges to continue to drive up already hyper-inflated prices as government money flows through ivory towers more rapidly and with less consequence.
But forcing private lenders out of the student loan equation is not really about the student. It’s about giving government a more concrete place in American academia than it already holds after more than five decades of providing Pell grants, subsidized student loans and an array of other entitlements targeted at students, which have driven up the cost of tuition at schools whose financial aid offices have become dumping grounds for Federal dollars.
After all, college costs have risen more than 1,100 percent since 1978, far outpacing inflation and coinciding almost directly with some of the most dramatic increases in Federal higher education spending. In just the past decade, college prices have risen by 34 percent.
Meanwhile, college degrees do not necessarily directly correlate to higher earnings or even to the ability to find gainful employment in today’s U.S. economy.
In December 2010, writing for The Chronicle of Higher Education, Richard Vedder, the director of the Center for College Affordability and Productivity, penned an article entitled “The Great College-Degree Scam.” In his work, Vedder essentially concedes that the government push for higher education has saturated the job market and forced more graduate and post graduate degree holders to take jobs for which they are overqualified and/or underpaid.
“[T]he push to increase the number of college graduates seems horribly misguided from a strict economic/vocational perspective. It is precisely that perspective that is emphasized by those, starting with President Obama, who insist that we need to have more college graduates,” Vedder writes.
The massive number of college graduates struggling to find sufficient employment account for a growing number of people defaulting on student loans
A Department of Education report on student loan repayment in September noted: “The national two-year cohort default rate [on Federal student loans] rose from 9.1 percent for FY 2010 to 10 percent for FY 2011. The three-year cohort default rate rose from 13.4 percent for FY 2009 to 14.7 percent for FY 2010.”
“The growing number of students who have defaulted on their Federal student loans is troubling,” U.S. Secretary of Education Arne Duncan said of the report. “The Department will continue to work with institutions and borrowers to ensure that student debt is affordable. We remain committed to building a shared partnership with states, local governments, institutions, and students—as well as the business, labor, and philanthropic leaders—to improve college affordability for millions of students and families.”
Eventually the default rate will rise to such a level that the Federal government will announce the need for heavy-handed intervention—much like the situation that led to the Affordable Care Act’s meddling in the healthcare industry—and offer a full bailout for the more than $1 trillion in outstanding U.S. student loan debt.
The bailout and subsequent college takeover will benefit the Nation’s overeducated and unemployed at a significant cost to the greater taxpaying public. But, as with all collectivist government programs, there will be losers: In this case it will be the people paid for college, attended on merit or went to work.
Meanwhile, according to a study from the consulting company Deloitte last year, about 6 million manufacturing jobs have left the United States since 2002 and about 600,000 manufacturing jobs requiring certification or simple on the job training remain unfilled.