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Friday, November 18, 2011

The Next Big Threat to the U.S. Economy

In case you haven’t heard the news: student loans are now at a trillion dollars. Approximately 40 percent of these loans are past due.

Two thirds of new college graduates last year had student loan debt to repay. The average student leaves college with $25,000 in debt. You’re supposed to start repaying these loans 6 months after graduation. Now, if you can’t get a job, you’re likely going to need something like forbearance or a deferment. Getting forbearance is likely but the catch is that your loan interest rate will get increased. Ouch!

Consider the ramifications: students come out of school and they can’t get jobs. Let’s say the economy picks up in 3-4 years and folks can get jobs. There may be a certain group who are always a little older and behind the recent grads not to mention four years deeper in debt.

Universities and Administrators have gone on unprecedented spending sprees. Room and board has doubled in real dollars over the last 25 years.  Athletic centers, stadiums, gourmet chefs in the cafeteria. As a result, the price of education is rapidly escalating out of reach for most Americans.

You get out of college, and can’t get a job. How do you pay the loan back?  Many students owe $50,000, $100,000, $250,000 or more. Even if you have a good job, how do you pay back such an onerous amount of debt?

Student loans are the hardest thing to get out of. These debts cannot be discharged through bankruptcy. Another amazing fact is that even your social security income can be docked.

These are people who will not be able to afford to buy a first home, or maybe not even a car. Their credit will likely be destroyed for life. This is the last thing our struggling economy needs.

Back when I was in college kids were preyed upon by the credit card vendors who introduced us to Visas and Mastercards on campuses throughout the country.  Students have become “cash cows” to colleges and universities through these loan “programs”.

The cost of tuition has been rising faster than healthcare! Has the quality of that education risen along with the price tag? I doubt that it is even possible.

The one thing that these institutions count on is the fact that parents WILL pay to send their kids to college.  And all too often it has to be a ‘status’ school to satisfy the parents’ ego.

We’re still dealing with the ramifications of the mortgage meltdown and could very well be staring at an “education loan” meltdown. I hope this is not the case.

Think about it. Is this the way we want higher education to play out for future generations? How will this country compete if getting a degree becomes a giant ‘pay day loan’ scam?

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