The College Debt Bubble on CNBC

Jason Fertig

Last week, I was looking forward to some time away from all things work-related in order to can catch up on my sixth Vince Flynn/Mitch Rapp book. Of course, that idea was easier said than done. During my first night of leisure, I was channel surfing when I came across a CNBC documentary titled “Price of Admission: America’s College Debt Crisis,” and I was floored that such a program made television airwaves. In keeping with my promise to decompress a little, I DVRed the program, but I couldn’t stay away for long. Was this documentary going to shatter the edifice of higher education?

Inevitably, the program contained information that readers could find on this site and its peers (e.g. The Pope Center, Minding the Campus, Phi Beta Cons, Center for College Affordability and Productivity); yet in seeing this information conveyed outside of thinktankia, one is left to wonder if the bubble is getting closer to bursting.

CNBC has a site dedicated to the material covered in the program, but allow me to also provide some CliffsNotes.

The program begins with a series of stories about indebted students and families – the family encouraging their financially naïve kids to seek a college education regardless of price; the couple with a masters degree, bachelors degree, $250,000 of student loan debt, three young children, and minimal job prospects in the down economy; the sobbing twenty-something with $70,000 of debt, no way to pay back the loans, and creditors calling frequently; and the family who lost their son in a car accident, but was still liable for his $80,000 student loans because they cosigned for him.

The next segment presents a behind-the-scenes look at how for-profit colleges apparently “sell degrees.” The notion of telling prospective students that no one has been denied admission for financial means (i.e. you can have tons of loans at your disposal, good luck paying them back) was repeated a few times. An interview with a former admissions counselor at one such school is also shown.

Next came a look at Higher One, a company whose business is based upon “student loan refund management.” Among their products, Higher One administers a debit card for student loan refund money. Because students tend to borrow more than tuition costs (i.e. the max allowed), school administrators are buying into the Higher One model, thus giving students easier access to spending their loan money on non-school purchases.

The documentary concludes by returning to the plights of the initial four parties and it looks forward to their indebted futures.

This program provides something for every side of the debate on the value of modern higher education. The bubble poppers will surely latch on to the large debt loads of the parties mentioned to make the case for the damaging effects of overselling the worth of college degrees. The education-for-all side will connect with the portrayal of for-profit schools as preying on the less well-off students who simply want to better themselves and deserve access to higher education.

Ultimately, the documentary’s conclusions are not as hard-hitting as either side would like; it has more of a feel of raising red flags than making bold predictions. Yet, there is one question the program never answered: why are families accepting so much student loan debt in the first place?  Of course I feel sympathy for the plights of the people hurt by the debt , especially for parents who lost a child. But what were they thinking when they made their original decision?

Seeing young adults shrug their shoulders when they are told that they will have close to $100,000 of debt to repay after college is painful for anyone who takes his finances seriously. 

While I hear college students say that they mature during college, the urgency of making the proper decision about student loans really requires them to think like an adult much sooner. This means students and their parents NEED TO run the numbers involved with repaying the loans. Student loan repayments can vary in equivalency from a small car payment to a large mortgage (without the car or house to show for it). To aid students and parents, there is no shortage of resources available on the web to estimate the dollars and cents involved with student loans (e.g. here is a paycheck calculator and a loan payment estimator). 

I would note that the college loan crisis illustrates the consequences of subsidizing a good while masking its true cost, but others have done that; I’m more interested in the micro in this essay, especially because I have made similar mistakes in past financial decisions.

Throughout my years in graduate school (two for masters, 4.5 for doctorate), I repeated the same procedure of walking to the financial aid office and submitting the paperwork to borrow “the max” each year. Because I was getting paid peanuts to teach a few courses each semester and my loan money exceeded tuition, I was able to use some of that money for living expenses. Thankfully, I was at least smart enough not to buy a car with the refund money like one student in the documentary. Of course, I knew I had to pay the money back, but the reality of making those payments was akin to a second-grader thinking about married life. All I knew was that I was working towards my goal of a career in academia.

Today, I look back on that decision with much dissonance in that I am happy in my career choice, but unhappy that I naively committed myself to paying back the equivalent of a fully loaded BMW X5 for the next 20+ years unless I speed up the process. If instead, I committed myself to similar debt to open up a few Subway franchises, I venture to say that I would have been forced to have a better handle on the books. Incidentally, this is why I both talk to students about personal finance and – the whole system condones practices that would instantly fail in real industry. It doesn’t help that many college-bound young people and their parents do not perceive any other viable higher education options; hence, many feel compelled to “choose between college and college” (see the series of comments on my recent “Undoing College” essay and Jane Shaw’s recent piece, “Build Your Own College” at the Pope Center).

I heard Peter Wood mention on radio this summer that making the right choices in college requires wisdom beyond the years of most who attend. When it comes to the finances involved, I urge everyone to channel their inner Buffett. For learning purposes, I wish college students did not see themselves as customers who are buying a piece of paper, but when it comes to future student-loan payments, I do wish more borrowers would run the numbers beforehand. This is the real mortgaging of their future. 

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