Student Loans: Spending or Investment

The burden of student loan debt on people, particularly unemployed youth, is certainly starting to get a lot more attention in the media. College costs have experienced higher inflation rates than in most areas of consumption. The American CPA Institute, for example, reports that for the 2010-2011 academic year alone, 4-year in-state colleges for in-state students increased by 7.9%, while for out-of-state students the increase was 6%. The inflation rate for private 4-year colleges was 4.5%. This compares with a general consumption rate of 3.9% over the past twelve months according to the Bureau of Labor Statistics Consumer Price Index, a measure of US inflation.

Among the economic complaints raised by recent Occupy Wall Street protests is that student loan payments are creating too high a debt position for young people trying to enter the workforce. In fact, this issue could be said to be one of the significant catalysts of the movement. Beginning adult life facing ten or twenty years to pay off tens of thousands of dollars of debt in this no-work economy is enough to make anyone scream.

In my own personal life I feel the anxiety. My daughter recently graduated with a 4 year degree and between my Parent PLUS loans and her Stafford loan we are looking at substantial debt. For my part alone, the federal government is giving me up to thirty years to pay this off and from where I am right now, it will take that long. If it takes me thirty years to repay this loan, I’ll be 88 years old! I have real doubts that I will live that long.

But my situation is indicative of a situation that generations are facing right now. I am a Baby Boomer who has always believed that education is an investment. I have accepted the idea that there is a direct correlation between the level and quality of education and the number of career options and earning potential one has over a lifetime. Even recent statistics have supported this view, such as the fact that of the 9.1% unemployed in September 2011, 78% only have a high school diploma. My daughter, on the other hand, is looking at the amount of her student loan debt more of an expense right now and is really wondering if the degree was worth it. Time will tell. I still think a college education gives her a higher launching pad for her career, and I hope the debt doesn’t diminish that advantage.

I was chatting with a businessman from Belgium a few years ago over lunch. We were in Boston receiving training to administer and interpret the Myers Briggs type indicator. I asked him about the level of income tax with which he lives in his country and he told me that it was quite high, if I remember correctly close to 50%. But he didn’t seem so upset after seeing my open mouth. When I asked him why he wasn’t outraged, he cited two reasons. First, he does not pay any medical expenses and feels that he and his family received good medical care. And the other was that one of his children, who was enrolled in a university at the time, could attend at no additional cost. He seemed content with the concept of receiving quality service for the high taxes he paid.

I don’t know which system is better, the European or the American. But I know this. The system that promotes the greatest amount of education for the most people will be in a better position to compete in the global economy of the 21st century. If more and more Americans don’t pursue higher education because it’s considered too overwhelming an expense, it will diminish our talent pool and our competitiveness. This is a situation that should be avoided.