Student loan debt isn’t just a personal finance issue anymore; some financial experts are saying it’s the next debt bubble. Those experts say it has risen to a level similar to the housing mortgage debt crisis that led us into the Great Recession in 2009. That makes it a nationwide issue that is having an impact far beyond just the pocketbooks of recent graduates.
Much of the economy depends on consumer spending and home purchases, but those who have buried themselves in debt in the pursuit of an education are unable to purchase significant goods or even move out of their parents’ homes, in many cases. The situation is not helped by the fact that many students are unable to find jobs in their degree field.
Student loan debt now tops $1 trillion, according to the Consumer Financial Protection Bureau, and 81 percent of those with more than $40,000 of student debt have private loans with interest rates of 8 percent or more. While federal loans are more manageable, private loans usually have high and variable rates, and are difficult to refinance, leaving scores of people with an all-consuming debt in which they can barely make a dent.
The U.S. Department of Education has reported that student loan defaults have doubled since 2005, and unlike a mortgage, there’s no property to claim ”“ student loans cannot be wiped out via bankruptcy. Those who find themselves unable to pay can have their wages garnished and their tax returns seized, all while hefty interest payments are piled upon their debt load, until it’s paid off.
It’s a crippling situation, not only for the college graduate but for the nation as a whole, and we’re glad to see our state leaders addressing this problem by looking for solutions.
Some Maine legislators are currently mulling a proposal being developed in Oregon, which would allow students to go to school for free if they agree to have 3 percent deducted from their post-graduation paychecks for 24 years. That money would then go toward a state fund to pay for future students to use the program, while startup costs would have to be found elsewhere.
In this program, let’s be optimistic and say that a graduate gets a $30,000 per year job right out of school. At 3 percent, that’s $900 per year they would contribute to the fund. One year of in-state tuition and mandatory fees for a full-time undergraduate student at UMaine is $10,600, so a four-year degree would cost $42,400. In this program, over 24 years, the student would contribute a total of $21,600 if they kept that $30,000 per year job ”“ about half of the actual tuition costs.
The expectation, of course, is that a traditional student, for example, would land a job earning $50,000 or more by the time they are in their mid- to late-40s, but we all know there aren’t a whole lot of those to go around in Maine. With that in mind, if students remain in state, it looks like they’re unlikely to pay back the full tuition amount, especially if they end up unemployed or underemployed at any point during those 24 years. That leaves somebody with the rest of the bill, and we don’t want to see Maine taxpayers picking up the tab.
The state’s budget is already tight, with battles over public services and bond issues every time budget season rolls around. A complete restructuring of the state’s priorities would have to be made to create a fund for college expenses, and we doubt it would receive much public support when K-12 education is still being funded below the legislated 55 percent at the state level.
Fortunately, the Oregon proposal is just one plan that’s under consideration, and we hope Maine legislators can come to a consensus on how to best tackle this issue that is strangling our economy. We feel the best answer to this problem is to legislate market-based tuition limits on public universities and regulate the lending industry at the federal level to make it easier for students to refinance at a lower interest rate and have all their options made clear. Such a proposal would help not only future students but also those who already find themselves shouldering a heavy debt load.
Education isn’t free; knowledgeable, connected instructors who are experts in their field, and the best technology and facilities to train students up to today’s industry standards come at a price. College was once the realm of the elite, rich upper-class for this reason, but now it’s a requirement for most of the highest-paying jobs, other than the trades, so there needs to be a public option that is reasonably affordable for those with aspirations. Private universities will always be more expensive, and it’s up to the consumer to decide whether or not they can afford to attend.
Maine’s public institutions, from its flagship university to York County Community College, have done a good job of keeping costs down, and the push toward math and science education, and tech center education, is also a step in the right direction to ushering students into fields that can actually employ them upon graduation. Students should not feel forced into attending college if they do not have a clear idea of what degree they are going to pursue, how they are going to pay off their loans, and a realistic understanding of what jobs might be available to them in their chosen field upon graduation.
With a cultural shift toward practical degrees that lead to employment and better regulation of public tuition rates and the way student loans are administered, another debt crisis could be averted and help our economy pick up.
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Today’s editorial was written by Managing Editor Kristen Schulze Muszynski on behalf of the Journal Tribune Editorial Board. Questions? Comments? Contact Kristen by calling 282-1535, ext. 322, or via email at kristenm@journaltribune.com.
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