Tuesday, January 31, 2012
Student Loan Crisis in 5 steps
1. Manufacturing jobs disappear in the United States, leaving only very low-wage service jobs or more technical and skilled careers. But instead of investing in manufacturing in the US, the country makes a tacit decision that everyone should go to college and get one of these higher-skill, higher-paying jobs. It's the free market solution.
2. Everybody, as a result of Free Market decision #1, needs a college education. But instead of making college education more plentiful and more affordable (investing more in community colleges, lowering fees and tuition, or even making it free, like Norway), the country adopts another 'Free Market" solution. We decide to finance higher education by student debt.
3. As an unintended consequence, college costs soar, for-profit colleges multiply and prestigious universities acquire endowments the size of small countries. Banks make fortunes handling student debt. Why shouldn't they? It's a free market solution.
4. However, the underlying problem remains: the economy still does not produce the jobs needed to pay off the student debts that have been incurred. Young adults face the beginning of their careers with debts that are crushing them. This is will affect their ability to take on mortgages, make consumer purchases and save for retirement. Student debt becomes a drag on the whole economy.
5. If these young adults were airlines, chain stores, or automakers, our system would allow them to shed their unpayable debts through some sort of bankruptcy proceeding. However, since they are young adults of the middle or working classes who have aspired beyond their station, they need to be taught the hard lesson of proper debt management. No relief is possible. After all, it's a free market.
One solution proposed has been to allow student loans to be discharged through bankruptcy proceedings.