When I decided to go to law school, I knew that it was going to be expensive. But I, like many potential students, believed that my income and job potential would be worth the debt that I would take on. Now that I’m almost 5 years out of law school, I start to wonder whether that’s true.
I see more and more articles about how a college education is no longer “worth” the price. Many private schools (including my law school) now cost over $30,000 a year on tuition alone – forget books, housing, food, and other living expenses, which could bring actual costs to over $50,000 a year. Community colleges, which are substantially more affordable are becoming competitive, not because of quality of education, but because of cost. Shouldn’t education be available to the masses? Not only the super-smart or the super-rich? Well, that was (technically) the idea.
Back in the 1960s President Lyndon Johnson passed the Higher Education Act. The idea was that cost should not be a prohibition to a higher education. It allowed most everyone access to low-interest student loans – regardless of financial status. What it didn’t take into consideration was that the cost of education would rise to the point where people wouldn’t be able to pay their student loans back, even if their education was able to get them a higher-paying job. Like many well-intended laws, there were some unintended repercussions.
I recently watched a CNBC program called “Price of Education: America’s College Debt Crisis” and it discussed a lot of complaints that I have about the current American educational system. First, the program pointed out that more people than ever are defaulting on their student loans because they cannot get jobs that pay enough to be able to pay back the loans. Additionally, the program pointed out one of the biggest pet peeves I have with the student loan system: unlike almost ANY other type of financial obligation a person may take out (such as credit cards, mortgages or auto loans), a student loan is almost NEVER dischargeable.
Let’s look at the defaults first. Why are people defaulting on their student loans? Many people say it’s because of lack of jobs – ultimately because of the poor economy. I think that that’s part of it, but I think that there are also other factors which aren’t necessarily linked to the economy. First, I think that schools have become greedy and money-hungry. For example, when I started law school in 2003, the tuition was just over $30,000 a year. Today, tuition and fees are approximately $46,000 a year! An increase of over 50% in just over 5 years. This is hardly the exception. According to the financial aid website FinAid.org, the average annual increase for tuition is between 6% and 9% per year, with public schools now averaging closer to the 9% increase a year. I have a hard time believing that school’s operating expenses increased by this amount. What will happen in 10 years? 20 years? Will tuition break $100,000 a year? Will banks loan this amount to students? Will salaries match this increase? I cannot believe that this will be the case – and I think eventually many schools will have to shut down when the demand for higher education decreases (because it becomes too expensive) and more and more people will choose not to receive higher education.
Many schools themselves do not inform students of the type of debt they will be facing, or the potential of making a salary that will pay off such debt. Schools also “play” with the numbers to make alumni look even more successful and the school more promising to potential students. Again, the CNBC program pointed out that schools get more public grants and funds when they show on paper that their students are successful after school, and can pay off their loans after their graduate. In fact, there are now businesses that assist schools in providing a position image of themselves. There are many loopholes to the legally required disclosures. For example, a school must disclose how many of it’s students default on their student loans within the two year period after graduation. However, all students have an automatic three-year grace period after graduation where they don’t have to pay back the loans. Therefore, the required reporting will almost always show that a small percentage of alumni fail to pay back their loans.
Second, I think that the government doesn’t make education enough of a high-priority and because of this, society also makes it less of a priority. Let’s look at two examples. Recently, much of England was paralyzed by student protests when the government proposed an increase on the cap of annual fees that a student eventually has to pay back from about £3,300 (approximately $5,100) to £9000 (approximately $14,000) that a student actually has to pay. Mind you, this is a cap – meaning the absolute highest amount a school can charge a student. Many universities can and do charge students substantially less. Also similar to the US, this doesn’t have to be paid back until a student graduates, has a job that pays at least £25000 (approximately $39,000), and is able to pay back the loans. The BBC has made a great summary of the new legislation which can be found here. Additionally, if one cannot pay it back, the loans are forgiven. New legislation passed by the Obama administration has also made similar benefits available in the US – which I’ll talk about later. I also recently visited Mexico City and took a tour of Universidad Nacional Autonoma de Mexico (UNAM) one of the many public universities in Mexico. UNAM charges only a few cents (yes cents!!) per credit hour – in fact there were protests when the university proposed an increased tuition to an equivalent of $150 a year. These amounts are laughably small compared to an American education – yet students don’t shut down the country when they have to pay nearly 4 times as much as a British student or 1000 times as much as a Mexican student.
Why are the amounts so small? Well, it has to do with government subsidies. The UK and Mexican governments both value education, and subsidize a large portion of it – so that cost does not prohibit someone from seeking an education. The United States also provides subsidies to its higher education system, but to a smaller extent. Also, private institutions are free to charge tuition as they see fit. There’s even a growing number of “for-profit” educational institutions (i.e. Devry, University of Phoenix) that are now capitalizing on the fact that the government hands out money to people for school, and does not have to care about whether they can eventually afford to pay it back. The United States is by far the most expensive country in the world to pursue higher education. How can it be worth it? I do have to point out that in Mexico – although education is affordable to the masses, it is not necessarily taken advantage of by the masses due to societal issues. This is however changing and more people are getting educations.
Back to the defaults – what do you do when you have $200K in debt and have a low-paying job or no job at all? Unfortunately, due to the misinformation that is out there, many students do not realize that this is becoming more and more of a common problem. When the choice comes down to paying for food, or paying for an education that did not help you achieve a better-paying or more fulfilling job, those student loans will go unpaid. As tuitions continue to increase, with salaries that do not, this will be a more and more common problem. Unfortunately, the law says that these loans have to be paid – even if you can’t afford it.
