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Student loan debt got you down?

The debate about subsidized federal student loans is reaching a fever pitch this week. The issue is becoming an election year center piece as the student loan bubble takes center stage in an election year power struggle. **This is not a political post or blog, but only looking at the college loan interest rate debate and root causes**

Sometime today   there will be a vote in Congress * whether to hold the student loan interest rate at a subsidized 3.4% or have them reset to to their original 6.8%. *Update the Interest Rate Reduction Act passed the House and will be sent to the Senate.

This is a big deal since Americans owe over 1 trillion dollars of student loans (Federal +Private). That is $ 1,000,000,000,000 ! Are you part of that number? I used to be.

How to Fund the Subsidized Loans

One key issue of the debate is how to hold the interest rates artificially low at 3.4%. The money has to come from somewhere.

How much money is needed? I’ve not found any numbers, but if you take 3.4% of $ 1 trillion you get $34,000,000,000. From my rough estimates federal loans are 75% of this large number so the federal government will have to foot the bill for roughly $25, 500,000,000.  Wow! That number continues to grow by semester. *If someone has a better figure please let me know!

The GOP has a plan to subsidize the loans by taking money from healthcare. The Democratic Party plans to get the money from high income earners and oil companies. Both plans seem flawed, focus on the quick fixes, and ignore the real issues.

The Real Issues with Student Loans

The real issues with student loans are multifaceted and complex. Here are a few deeper issues to address:

1) Improper View of College #1– College is not a right, it is a privilege. College is a service that has to be paid for. If it isn’t something you can afford (now or later) then consider not going. Yeah, you read correctly. There are other alternatives to a traditional college experience that can lead to success, and without the high cost of debt.

2) Improper View of College #2- A college degree will not ensure you success or even a job. Countless graduates with a college degree are serving my dinner when I dine out.

3) Reliance on Debt. American students have been lead to believe that the only way a college degree can be had is through loans and debt. This is a lie. Debt-Free U by Zac Bissonnette (affilate link) gives many alternative ways to pay for college without going into debt.

4) Soaring Education Costs – Education costs rise faster than inflation, in some states like California–much higher. It is debated as to why tuition keeps rising. Some possible causes are rising salaries, educational waste, loss of state and federal $. Basic economics can be to blame too–supply and demand. More demand of a product garners a higher price.

Until these real issues and addressed, no government subsidy will fix the deep rooted problems with the higher education system in the United States.

What are your views on the college loan interest debate and the real issues with the higher education system? 

Photo Credit: lumaxart (Creative Commons)

Another Bubble?

Surprise Mr. Economy! There is a another bubble out there ready to pop. The higher education student loan system is a bubble waiting to burst.

This bubble if not addressed could harm the economy along with thousands of households.

Causes for the Student Loan Bubble

This is a complex issue and when it pops and the dust settles, more causes will come to light. Here are a few that we can see now:

  • Rising Education Costs- Education costs rise year over year and student loan debt is inching towards $120 billion according to The Economist.
  • Government Loan Subsidizes Education The U.S. government has been artificially keeping the interest rates lower, but they are soon to return to 6.8% this summer.
  • Young (fiscally) Uneducated Students taking out loans. If someone offers you money when you are 18 you’ll say “yes”, without understanding the future economic implications.
  • Parents taking on college loans or cosigning for their children out of guilt or a sense of responsibility, without means to repay or robbing from their retirement.
  • Bankruptcy Protection- Federally backed student loans are to be paid back systematically until paid in full or until death.
  • Belief that college is a right and not a privilege. There seems to be a growing belief that society should pay for everyone to have a college degree. The Student Loan Forgiveness Act of 2012 (H.R. 4170) seems to go along with this line of thought.
  • Students attending college with no clear plan or future employment in sight. College isn’t for everyone, nor is it needed for every profession. The college major you choose will have major direct implications on your first career.

You can avoid the student loan bubble with a little planning and hard work and perhaps your children will take an alternative to college.

Can a Bubble be Deflated Instead of Popping?

We all recognize that the higher education system (along with the primary and secondary systems) in the U.S. aren’t perfect and need improving.

Can an economic bubble like the student loan bubble be deflated instead of popping? Possibly, but it seems the answer is for the individual to take on more responsibility.

With the housing crisis of 2008, a major result was an increase in dollar amount of down payments. Putting 20% down is now the new normal with the individual taking on more risk and the banks taking less.

The student loan bubble could turn into the student loan crisis if both individual families and educational institutions don’t start acting fast.

True, the government can ease some pressure, but ultimately it is the individual who decides to take on the responsibility of debt in the form of a student loan.

What are your thoughts about the Student Loan “Bubble”? How does it affect you? 

Photo Credit Juha Riissanen (Creative Commons)

Will the next generations throw their hats?

My son just turned 1 this week and I’m not sending him to college, unless he insists on going (but he better have a good reason).

Why should I? Why should I pay for a degree that he’ll never use anyway? This info on college grads extracted from the Bureau of Labor Statistics might shock you:

“Over 317,000 waiters and waitresses have college degrees (over 8,000 of them have doctoral or professional degrees), along with over 80,000 bartenders, and over 18,000 parking lot attendants. All told, some 17,000,000 Americans with college degrees are doing jobs that the BLS says require less than the skill levels associated with a bachelor’s degree.”

Unless you “know” that you want to be in a very specific profession at an early age, there is an argument against even attending college. There is so much college debt associated with a degree that it will be a burden on him (Relax grandparents, I am saving for his college, should it be a necessity). I figured out how to saving using these college savings calculators.

There are so many free and inexpensive ways that he’ll be able to learn besides attending college. In 18 years who knows what kind of technologies will exists to gain information?

Here are some current ways you can learn and ideas that I have for teaching. This could be the expansion of the homeschooling movement. Why not play a part in their learning when they leave the nest? [Yes, I realize that much maturing can and needs to occur through the college years, but why pay $10,000 a year for maturity]

Try a combo of the following instead of that Bachelors of Arts in Sociology (which will get you nowhere).

  1. Ted Talks- You think the professors at STATE U are the best in the world? Probably not, try Ted Talks instead from the leading thinkers of the day.
  2. Free talks from Leading universities. Again, free courses from leading universities.
  3. Travel the U.S. working part time and learning new languages. Live in L.A. to learn Spanish, San Francisco to learn Cantonese and NY or L.A. to learn Mandarin.
  4. Personal Coaching- Want to learn to cook or start a business? Get a coach!
  5. Start a business- Here is my favorite idea. Use some of that college money that is saved up to start a business and pay for professional consulting and coaching. Just think about all the leadership and life lessons he’ll learn by starting a business around his passions and getting support in doing that? Isn’t that what most of us end up doing anyway at some point in life? 600,000 small businesses are started each year according to the S.B.A. Here is some of what you’ll learn:
  • Marketing- Blogging ,emails, tweeting 101, Google holograms (its in the future right?) Adsense 101, and newsletters.
  • Graphic Design: Website design, printing design, logo design.
  • Accounting-Quickbooks, Budgeting, Paypal, Square, cash-flow, meeting payroll every week.
  • Sales- Every job in the future will involve sales and negotiating. Start now.
  • Managing & HR: Recruiting, hiring, firing, writing job descriptions.
  • Leadership: Motiving, visioning, inspiring, training, writing business plans.
  • Operations: Shipping, logistics, and basic business functions.

Starting a businesswill basically teach our little sapling about life and following his dreams. Why wait till you’re 33 to  do something that you love when you could start when you’re younger? If you still aren’t doing what you love, try No More Mondays by Dan Miller (Amazon Affiliate Link).

This plan of course might change in the next 18 years and of course has to get approval from my wife, but it seems that the ivory towers of education are becoming less useful as time goes on, especially if you go without a purpose in mind.

Still want to send your kid to college so they can be a barista at the local coffee shop? Why?

(Photo by Kurichan+)