I read the other day that one of the bigger issues that the loosely knit group of protesters or demonstrators or whatever they are to be called, that have been identified as the Occupy Wall Street crowd, is their obligation to pay back student loans. While it is difficult to attain much clarity from the group as a whole, there does appear to be a fairly common message; they don't have a very positive view of the future.
Many, if not most, don't have jobs and while some of them don't work because they choose to suckle off those who do work, many simply can't find employment. A fair share of these people appears to be complaining about their current financial obligation that may have looked like a good idea when they applied for and accepted student loans a few years ago.
So how big a problem is the outstanding student loan obligation? In 2010 over $100,000,000 (that's in the billions) in government backed student loans were executed. This year the total debt for outstanding student loans will exceed $1,000,000,000,000 (one trillion for those who lost track of the zeros). According to The World Bank data from 2010, one trillion dollars, if compared to Gross Domestic Product of a nation, would make the US student loan program the 15th largest financial nation in the world; exceeding the total GDP of Australia. And the issuance of loans has doubled in the past ten years, as has the cost of a college education.
So where does all the money go? According to the US Department of Education statistics, the cost of tuition, fees and room/board has risen by around 50 percent in the past decade; 53 percent at private four year schools and 41 percent in public institutions. Private universities now average an annual cost of $32,500 to attend; public $14,900. So do the math. It will cost a student at least $60 grand to get through four years and $75,000 if you extend to the more usual five years, and that is at a public school. It's a whopping $162,000 in a private school. You want to go to Harvard University? Their cost calculator says you best be prepared to shell out $61,000 per annum.
Tuition only covers about one third of the costs to educate a full-time college student at a public school and about one half at a private university. Endowments, grants and government funding must cover the rest. While the burden tuition has carried of the total annual costs to run a school has increased slightly over the past decade, it is has remained fairly constant. What this means is that, right or wrong, the costs to run a university are doubling every twenty years or so.
Let's go back to the Occupy gang, or at least the ones complaining about having to pay back their financial commitments. These loans are today very easy to get and backed by the federal government. Students, even their parents, can apply on-line through dozens of websites that will arrange a low cost loan. The temptation to dip into such a well of easy money can be overwhelming.
But in the end these kids are winding up with tens of thousands of dollars of debt that will be very difficult to repay. For example, let's suppose a student borrows $50,000 to $60,000, which is a pretty usual amount, and graduates as a school teacher, and, somehow in this age of cut-backs, finds a job. If this job is in a fairly wealthy school district this new teacher will likely get paid an amount equal to the loan balance, how long will it take for her to pay it off? This is roughly the equivalent of this same kid coming out of school and running out to buy a brand new 500 series BMW. It's going to take awhile.
Those how cannot find work are obviously in worse shape but have no less an obligation to pay back this money that was so easy to attain. Now that reality hits they don't want to be obligated to face the responsibilities of adulthood. I don't blame them, but much like the US housing collapse which was due in large part to people being granted loan amounts they should not have been given, the obligation to pay back the debt still exists.
When you look at the enormity of the situation and the risk of default on $1,000,000,000,000.00 in total loan balance, somebody has to ask "what the hell are we doing?" At the heart of the housing crisis was the desire to provide home-ownership to anyone who wanted it, the result of which was 15 million homes financially upside-down and in threat of foreclosure. Are we doing the same thing with the Student Loan Programs
Will we drive a bunch of kids into bankruptcy before they even have a chance to get started? When will we wise up to the fact that "too good to be true" is exactly that?
Jim Sherbert, chief executive officer, joined Bush Industries in August 2005 to lead a company that recently emerged from Chapter 11 reorganization. After leading a successful financial turnaround, he is now leading the company through the current recession as Bush Industries reinvents itself globally to leverage adjacent channels and drive international sales in addition to growing its business with its traditional U.S. retail base.
Sherbert began his career at Container Corporation of America, rising through the sales ranks to general manager. After 12 successful years at CCA, Jim has led organizations such as Advance Packaging, Southcorp Packaging USA, and Castle Rock Industries in positions as Chief Operating Officer, President and Chief Executive Officer. He is active in the City of Hope organization and serves on the spirit of Life Gala Dinner Committee. Sherbert holds Bachelor of Science and Master's degrees from Oregon State University, where he also served as associate professor. During his college years, he was also a second-team All American linebacker for Oregon State University and believes today's business environment is much more challenging than he remembers Pac-10 football to be.