This entry is part [part not set] of 6 in the series The Student Debt Crisis

There has been much attention recently given to the looming student debt crisis. Stories about coping with debt and the soaring cost of college are all too common. Some are even suggesting that this could be a pivotal issue in the upcoming elections. There are those suggesting that this is the next debt bubble to burst, while others are questioning the severity of the problem. Regardless, this is an issue that is growing in significance simply because of the amount of debt in question. Within the past year student loan debt surpassed credit card debt as the largest source of unsecured debt in the USA. With the average student completing their academic program carrying $30,000 of debt, the total amount is hovering right around $1 trillion, and it didn’t happen overnight.

Most of the discussions recently have focused on how to alleviate this debt. Some are suggesting allowing student loans to be included in the debt relief act, which would allow loans to be absolved through filing bankruptcy (most student loans currently are not absolved through filing bankruptcy). Others are recommending further government subsidizing, while others are proposing a myriad of other remedies. The problem is that each of these is merely addressing the symptom & none of these recommendations is actually getting to the cause of debt.

The Causes of Student Debt
Attention needs to be given to the actual cause of student loan debt. There are multiple causes for this sort of debt. Here are a few:

    1. Students & Families

    It is undeniable that students & families taking out loans is a primary cause for debt. Work needs to be done on actually educating people on the implications of graduating with debt (This will be addressed more fully in a later post).

    2. The Cost of Higher Education

    Academic institutions are being funded on the backs of student loans. More attention needs to be paid to the real cost of education, where the tuition dollars go and how things can be reformed in order to mitigate rising costs of higher education (more to come in a later post).

The average cost for tuition has increased 900% since 1978. Basically, once college became “affordable” for everyone following the Higher Education Act, the cost started to skyrocket.

There is no doubt that the symptoms of the problem are real. But, in order to rectify the situation, time and energy need to be devoted to identifying and delivering a solution that will eliminate the cause of the problem.

So, as we get this series rolling, can you identify any other potential causes for the student debt problem?

Also, if you have a few more minutes to spare, please take this brief survey and we’ll share the collected answers later in the series. Click here to take survey

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  1. Went to college for a while, dropped because of costs. I don’t need an elaborate 4 story study center with ammenities like a bowling alley etc. Which can be found in the city. All these things- if anything- distract me from learning more, and they no doubt cause me to pay more too. Mtv cribs aint got nothin on university campus’

  2. I follow a number of economists (Mark Perry, Bryan Caplan, Arnold Kling, in particular) who attribute the rising costs to the inflated demand enabled by cheap credit. That is basically the definition of a bubble. I hope you also look into trends like the rising share of administrative positions relative to teaching positions.

  3. I’m glad you’re writing on this topic. My wife and I both attended a private Christian liberal arts college, and with two bachelor’s degrees and one master’s between us we graduated with about $67k in debt. Thankfully we’ve been able to pay it down quite a bit in a short amount of time. Nonetheless, I sometimes think about where we’d be financially if the tens of thousands of dollars that have gone to banks could have gone elsewhere. We’d certainly be much farther “ahead” financially if that were the case! But then again, we wouldn’t have our degrees or our earning potential. It’s a tough dilemma for students and families.

    I have to say your talk of causes for the crisis seems overly focused on the issue of personal responsibility. While I certainly don’t want us to lose that aspect of the discussion, I think it tends to miss the point (!) that students are part of a system that doesn’t function rightly. The desirable middle class jobs (the few of them that exist anymore) virtually require a bachelor’s degree. This makes the decision simple–I *have* to go to university, regardless of the cost.

    The personal responsibility angle needs to be augmented by a few other perspectives and questions:

    1. Is a four year degree necessary for every job? It seems that many graduates will tell you that they learned their job in that job, in the space of a few weeks or months, and that they likely could have done so without their degree. Is there a way to get people prepared for and situated in these jobs without making them spend so much money and those valuable earning years in school? Of course, how can we change the system without government regulations or incentives?

    2. But then what is the purpose of a four year degree? Isn’t it to do more than prepare us for a job? Aren’t we supposed to become well-rounded people and informed citizens? That’s what we say, but not how we function with regard to university. This narrative needs to be cleared up.

    3. Are there other ways in which the student loan programs could function, ways which are less crippling for young workers? I think this is something worth thinking about, but again it would require a government presence. I currently live in Australia, where students borrow for university through the government. There is no interest (ever) and students do not start repayment until they begin making over $50,000. If they ever drop below that amount, repayment goes on hold. Before anyone cries foul–Australia’s debt to GDP ratio is four times LOWER than the US’s.

    4. Finally, how about we rethink the four year degree. In the other English-speaking countries, one almost always gets a bachelor’s degree in three years. If one qualifies (not everyone does), than one can do an extra year and get an honors degree. Why not consider this option for American education? Surely we don’t think our universities are better on the whole than those of Britain? Think about the difference even one less year in school would make? Not to mention the fact that students would have an extra year of their lives to work. Further, the differentiation between a regular bachelor’s degree and an honors degree might keep some from doing unnecessary master’s degrees–saving them two years of tuition money.

  4. Matt, thank you so much for your thoughtful reply. You also ask some great questions. Over the past year I have asked a group of local business leaders to identify key characteristics of a successful employee, over 90% of the skills required were learned on the job (undoubtedly this % would go down with other careers, nursing, engineering etc.) the other 10 % were more character based qualities. At which point, one must ask the questions you did in # 1 & 2 of your post.

    I think the Land of Oz has a good thing going in regards to education, I am just not sure it would be reproducible in the USA. Institutions of higher learning need to restructure themselves in order to keep cost down so that students do not need to incur such incredulous debt load.

    keep up the great thoughts, keep working to pay that debt down.