Student Loans Are a Toxic Debt


Though President Barack Obama announced an acceleration of his student loan plan this week at the University of Colorado at Denver, not all the problems have been solved. The youth of today’s world all seem to be struggling with a similar problem; most are under-employed, if employed at all. However, more and more of us are sharing another problem: We are staggering under the load of student debt. In this week’s Time magazine, the article “I Owe U” depicts a haunting and depressing picture of the $1 trillion that America’s graduates must repay in the coming years.

Two years ago, Obama challenged America’s youth to boost the number of college graduates from 40% to 60% by 2020, giving America the highest percentage of graduates in the world. While a push towards investment in education is a great thing for economic efficiency and competitiveness on the world stage, investment in the traditional four-year institution is not. Given the current social, employment, and economic conditions, the U.S. would do better to invest in productive vocational programs, as well as job-placing apprenticeships. This will not only help stem the tide of growing student debt, but also provide employers with prospective employees trained for their direct line of work.  

It is a hard transition to vocational programs, as people will have to rid themselves of generations’ long mentality where getting into a good school (a private, four-year institution) means a high-paying job and a successful career. We need to move away from the idea that you cannot succeed without a bachelor’s degree and create alternatives and affordable programs post-high school. Our economy doesn’t have enough jobs for current graduates, let alone the 5.5 million more if Obama’s goal is realized. Things would be different in a quickly growing economy, but with unemployment expected to not move below 7.5% until at least 2015, we can’t count on quick growth to solve our problems. 

As if a slow-down in economic growth isn’t enough, there are two more distressful problems. First, education is becoming too expensive. While in 1980 the cost of a college education for lowest-income families was 13% of all expenses, today it is 25% for the same economic bracket. Although prices on all commodities have risen significantly since the 1980s, family incomes have not. Likewise, in just five years, (2000-2005) the average price tag for one year of private university education rose $15,000 (from $21,235, or 40%). Income levels in the same period only rose 4%.

Second, the majority of students in the U.S. are choosing majors not worth the debt they will incur. Though the liberal arts degree is a significant part of the U.S. education system, it’s hard to imagine a decent return on investment for a $100,000 religious-studies degree. Beyond that, a study published in March by the Institute for Higher Education Policy found that 41% of borrowers who started payments in 2005 had become delinquent or defaulted within five years.

Vocational programs better suited for students going towards careers in production and services (not science or academia) will not only stem the tide of the increase in student debt, but also give employers more incentives to hire workers skilled in their particular industry, rather than those with broad education in the liberal arts. Germany uses a modernized approach, with different levels of schooling depending on academic performance and career choice. While Germany’s system may have its faults, such as class-consciousness and a debate on whether the programs are started at too early of an age (sometimes around 11-years old), the underlying concept, if managed correctly, is sound.

Instead of pushing millions of students into extreme levels of debt before they even reach their 25th birthday, tailoring education to skills employers need more of now decreases input costs while increasing the same labor and economic competitiveness the president talks about.

Photo Credit: Kasia Broussalian