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Student Loans Back in Mom’s Day vs. Today

Written by Gary North on July 13, 2012

Here is an interesting case study. A woman took out a $5,000 student loan in the late 1960s. That as the equivalent of $35,000 today. She paid it off in three years.

Her son is $85,000 in debt. It will take him far more than three years to pay off this debt.

Here is a woman who took out a $5,000 student loan in the late 1960s to study at the State University of New York. She became a nurse and repaid the debt in less than three years. The degree was useful.

Her son has deferred paying anything for the last three yeas.

He earned a master’s degree in education — a useless degree. He earned at at an expensive private university in New York City.

The poor schnook got a degree that keeps him from getting a job. No one told him that school districts must pay more to anyone with an M.A., compared to someone with only a bachelor’s degree. So, they hire the cheaper employee.

He paid $85,000 to kill his career.

He complains: “The idea of buying a house — it’s completely inconceivable.” Of course it is. Anyone looking at the economics of an $85,000 M.A. in education should have understood this. But fools rush in where angels fear to tread.

The government encouraged all this. It bankrolled the program with loan guarantees to banks.

As college costs have soared faster than the rate of inflation over the past four decades — reaching $60,000 a year at the most expensive private schools — Republicans and Democrats alike postponed a reckoning. They encouraged borrowing and ignored surging tuition, leaving loans to balloon to the size of mortgages, shocking even the system’s own architects.

“No one ever conceived this was a way to create a debtor class of former students, the indentured student,” said Tom Wolanin, who worked on federal higher education policy for 30 years and was a deputy assistant education secretary in the Clinton administration.

Politicians of all stripes ignored repeated warnings that the day would come when debt would become unsustainable.

Of course they ignored the warnings. Only conservatives gave these warnings. The politicians brushed off these warnings.

Congress, during the administrations of Jimmy Carter, Ronald Reagan, George H.W. Bush and George W. Bush dangled more credit to more families. The U.S. raised the total amount that dependent students could borrow during their college careers to $31,000, up from $7,500 when the loan program began, according to an April Congressional Research Service report. Under certain circumstances, the limit for dependent students is even higher.

This was the equivalent of sub-prime loans.

The government began offering loans to all college students regardless of income in 1992. At the same time, it let parents borrow up to the cost of attendance minus any financial aid. Congress endorsed almost unlimited borrowing for graduate students in 2006, the same year it let federal grants and loans be used for online programs, especially at for-profit schools targeting working adults.

As borrowing soared, university presidents began a multibillion-dollar building boom across campuses, featuring private dorm rooms and network TV-ready football fields. Colleges themselves went into debt to pay for these extras. By the end of 2011, more than 500 colleges and universities rated by Moody’s Investors Service had $211 billion of outstanding debt, compared with $91 billion in 2002.

It is a gigantic Ponzi scheme. The debt grows ever larger. No one in Washington has the guts to vote no.

“Some scholars are coming to a conclusion that shakes at the core of a long-held belief: College may not be for everyone.” No kidding!

“Mindlessly drifting into college, believing that anything they study for however many years is going to be worth going into debt for — that’s what is getting far too many young people into deep trouble,” Robert Schwartz, academic dean at Harvard’s education school, said in an interview.

It all started in 1965. Lyndon Johnson created the loan program as part of the Great Society.

The bills are coming due.

By 2005-2006, tuition and fees at a public university were $5,492, while the costs at a private, nonprofit college averaged $21,000, according to the New York-based College Board. A year later, under President George W. Bush, graduate students were able to borrow up to the cost to attend, which can amount to $100,000 or more. Universities began enrolling more students.

No kidding! The government offers loan guarantees to banks, money flows to colleges, and guess what? Prices rise! Will wonders never cease?

Naive parents go into debt, and their naive children make debt slaves of themselves. it still goes on, despite articles like these. It will not stop until these federal programs are killed.

Continue Reading on www.bloomberg.com

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6 thoughts on “Student Loans Back in Mom’s Day vs. Today

  1. I got deep into the Student Loan lobster trap. I was in default for several years. Being in default is like wearing the "scarlet letter" on your face. You get almost daily harassing calls from State Guarantor agencies.

    What REALLY HURTS is that employers who are seeking to fill responsible positions check your credit rating. The "Default" on your credit rating screams "They are irresponsible!!". So you have to work MUCH HARDER to get the kind of work that will pay off the loans without great pain.

    Best answer is to avoid this pitfall. After that, get a decent job, pay it off as fast as you can. Never do it again. Let your employer pay for your education. They get tax breaks for doing so.

  2. Government backed student loans may be the problem. If universities had to provide their own loans, maybe they'd sit down with students and do some counseling, so some dumb kid wouldn't exit with a useless degree and no way to repay the loan._ _Runaway tuition costs might also be better controlled if the tuition being borrowed was tied to the university. I worked my way through college. It can be done. You also have the alternate paths of scholarships, GI bill programs and more. There are lots of ways to do it. Can't afford an ivy league school? Go to a state university. Can't afford 4 years at a state university? Start out at the much less expensive community college and transfer to the state college, after a couple of years.__Problem is, today, many kids take the path of least resistance. They don't choose wise career paths or consider how (or if) they will be able to repay the loan. Then, they end up "occupying" wall street rather than working there, because of the poor choices that they made. How do kids this dumb even get into a college? Are colleges ripping these kids off?_

  3. Colonialgirl says:

    What's REALLY stupid is the number of people that get degrees in useless majors like "education", "Political Science", "philosophy", "journalism" <NOW THAT IS A REAL STUPID ONE>, "Fine Arts"; I'm sure you can add to the list. I knew a guy that worked as a CLERK in an art supply store at maybe $8.00/hr had a masters in "Fine Arts" and owed OVER $100K.
    Do these people EVER stop to think about what kind of salary they will/might be able to earn with that degree? My Mortgage is a $100K and I pay almost a $1000 a month and will for 30 years.
    Some of these poeple aren't BRIGHT enough t be in a college.

  4. Colonialgirl says:

    THey could slao go PART TIME and work either part time OR FULL time; That's how I got my degree; took 5 years, 3 nights a week while working 4 ten hour days per week.

  5. I also worked my way through college (co-op & etc., not funded by those employers). It took years longer that way, but I had a small loan to pay off. Once I received the degree, I was hired by a company that was very impressed and I got a great credit rating too.

    Far too many of the other students were just partying their way through school and not worrying about anything else.

  6. Bob in Idaho says:

    I started college in 1962, before the feds got really involved. Tuition at the state college in town was $100 a quarter and the private college in town was $300 a semester- twice as expensive! Most jobs for a college kid were between a $1 to $1.50 an hour.
    Working during the summer and during the year allowed anyone to get a degree without much of a burden. Once the government got involved with the great idea to make grants and loans to everyone that colleges quickly figured out that it didn't make much difference what they charged, Never forget the "law of unintended consequences".