“Nothing in American Life has risen in price so quickly as the cost of college, up 500 percent from 1975,” CNNMoney correspondent Christine Romans said.
Remembering the housing crisis of 2007-2008 and subsequent recession makes me wonder how the same thing could be happening again right in front of our eyes. Except instead of houses, it’s something much more abstract but all too lucrative: the college education.
It only takes some quick comparisons of student debt loan and sub-prime mortgages to see how we are headed into another financial bust. The symptoms are all here with us: student loans given out to a growing number of students who obviously can’t afford them. They’re easy to get, much like the sub-prime mortgages were in years past. What is worse, though, is there is no guarantee of ability to repay! Students do not know if they will be employed after college, or, even if they are, if they will be able to afford $300-400 in repayment each month.
Now, more than ever, the American public is college crazy. More students are attending college now than ever before––and for good reason. They know it is essential in landing a job in the future. The problem, though, is that there is ever-increasing demand for a college education, while there is an almost stagnant supply. According to the Education Statistics database, only a little over 1,000 new colleges have been built since 1980, bringing the number to 4,500. Almost 22 million students enrolled in colleges in 2013, a higher demand than ever before. This means more and more students will be filling up over-crowded campuses and be taking out more and more loans that they may or may not be able to repay.
It’s a bubble waiting to pop. In the next 10 years, I would not be surprised if a record number of students defaulted on their loans, a sum total that passed $1 trillion last year. This could mean another financial crises and recession, ironically caused by the higher education system we have touted as the only hope for a strong future economy.
If all of this sounds bleak and pessimistic, it is because it’s the future if we do not change the course. If things continue to go the way they are now, the current cycle of more and more students taking on more and more debt will result in catastrophe. So what can be done to fix it?
First, extensive reform needs to happen with student loans as well as tuition costs in America. Steps are already in place to reduce costs for students. The Federal Pell Grant helped 9.7 million students last year lower the cost of college with non-repayable grants ranging from $564 to $5,645. Even if you don’t think you qualify, it is still critical to apply anyways. You might be surprised since Pell Grants are based on a number of algorithms other than simply your family’s household income.
Further, grants and programs such as Georgia’s HOPE scholarship offer direct cash incentives to students with good grades. This program is a life saver for thousands of students at Georgia State. But grants and scholarships only account for 30% of funding for the average college student.
But the state is running out of money. States can not simply throw tax money at programs like HOPE forever, especially with the rise in tuition costs. We must take a second look at the proposed system President Obama discussed last year in New York––before it is too late.
It is time to evaluate colleges and rate them based on quality and value them based on cost and employment prospects. This would not simply be a more public “Forbes Top Schools” list. It would be a comprehensive evaluation of every college, complete with minimum requirements and statistics that can either be met or accreditation will be removed. Until there is drastic negative incentives to increase the quality of college, the system will continue to bubble and no progress will be made.
Once in place, this rating system would weed out some colleges. Mostly those colleges set out to relish in the goldmine of cash that prospective students give them, whether it is through state/federal grants or government loans. Maybe then a truly competitive market will emerge in the world of higher education. A world where public universities would fight tooth and nail for your attendance much like cell phone companies fight to be your carrier. Until then, it looks like I’ve got another Sallie Mae payment to make…wish me luck.
