College Grads Jobless and in Debt from Student Loans

Many college students are graduating this year without any job prospects and with tens of thousands of dollars of student loan debt. According to an article in the Washington Post, about 40% of this year's graduating class has no job lined up or plans in place for graduate school. For most graduate school would just mean more mounting student loan debt without necessarily any greater job prospects after finishing. What this boils down to is that students have been sold a bill of goods about the value of a college diploma, how it represents the American dream and why they should go into debt to obtain it.

There are a number of important lessons to be learned from this fiasco. #1 Don't get a college education and a degree that doesn't confer an actual credential to perform a professional function which can't be done while self-employed. If your degree is in a field in which you must be employed by someone else, it isn't worth it. Why? There may be no jobs, you can be laid off or downsized at any time and your financial life is out of your own control. If your degree is in a field which doesn't confer a credential that actually allows you to work in self-employment, it's worthless. For example, a degree in psychology does not allow you to hang out your shingle as a Marriage, Child and Family Counsellor. For that credential you need several years more graduate school, internship and testing to obtain the credential that will actually allow you to be in business for yourself and earn money.

Employee requirements and credentials have been creeping upwards. It used to be that a high school diploma would qualify you for many jobs. Then a diploma from a four year college was the ticket to a prosperous life. Then you needed a one year Master's Degree. Then it took two or more years to get a MS degree. Then you needed a PhD. Then you needed a post doc. Up, up and up with no guarantee of a job at the finale. But today there is a guarantee that you will be in debt to the tune of $100,000., a debt that can't be discharged in bankruptcy if there are no jobs available in your chosen field or if you get sick and can't work or if, God forbid, you should become disabled.

And for that matter those who graduate with no job are still expected to pay back on their student loans. If they can't pay their loans will go into default, fees and penalties will be added and they will be hounded by collections agencies. Not exactly what students pursuing the American dream, those who worked hard and played by the rules, had counted upon.

This is from an article in the LA Times:

Natalie Hickey left her small hometown in Ohio six years ago and aimed her beat-up Dodge Intrepid for the West Coast. Four years later, she realized a long-held dream and graduated with a bachelor's degree in photography from Brooks Institute in Santa Barbara. She also picked up $140,000 in student debt, some of it at interest rates as high as 18%. Her monthly payments are roughly $1,700, more than her rent and car payment combined. "I don't have all this debt because I was buying stuff," said Hickey, who now lives in Texas. "I was just trying to pay tuition, living on ramen noodles and doing everything as cheaply as I could." Hickey got caught in an increasingly common trap in the nation's $85-billion student loan market. She borrowed heavily, presuming that all her debt was part of the federal student loan program. But most of the money she borrowed was actually in private loans, the fastest-growing segment of the student loan market. Private loans have no relation to the federal loan program, with one exception: In many cases, they are offered by the same for-profit companies that provide federally funded student loans. As a result, some students who think they are getting a federal loan find out later that they hold a private loan. The difference can be costly. Whereas federally guaranteed loans have fixed interest rates, currently either 6% or 6.8%, private loans are more like credit card debt. Interest rates aren't fixed and often run 15% or more, not counting fees. Most students have little experience in taking out loans, yet the federal government doesn't require lenders to disclose the total cost of a student loan and other terms upfront -- before signing -- as it does for car loans and mortgages. "Students are in the cross hairs, being bombarded by very sophisticated and, to some extent, ethically marginal lenders," said Rep. George Miller (D-Martinez), who sponsored legislation passed this year that will require lenders to provide more disclosures on fees. "My fear is that we are developing a predatory market, just like we have had in mortgages."

Unlike credit card debt, student loan debt can't be discharged in bankruptcy. Thus if you can't work for health reasons or because you can't find a job, they will still come after you for the debt, and exhorbitant fees and penalties will be added in many cases tripling or quadrupling the amount of the loan. They will garnish your social security, your disability check or use any other method of getting their money. In fact they encourage default because most of their profits are made after the loan goes into default and not from students actually paying off their loans on schedule.

From Publishers Weekly:

Think credit-card debt is a problem? Take a look at the lives ruined through the corporate thug tactics, usurious fees and vicious harassment employed by some of the nation's largest student-loan providers in this shocking exposé from Collinge, founder of StudentLoanJustice.org. The author had a manageable $38,000 in loans—until he missed a single payment. Fees and charges quickly piled up, and his debt mushroomed to more than $100,000. The author reveals that since lenders make far more money from defaulted loans than they do from borrowers in good standing, they go to extraordinary—and illegal—lengths to force borrowers into default. There are currently more than five million defaulted loans on record, and incredibly, student loans are the only type of loan in U.S. history to be nondischargable in bankruptcy. The author exposes the engineers (and profiteers) of this predatory system and urges Congress to restore standard consumer protections to student loans, concluding with a call to arms for progressive changes, refinancing rights and a plethora of practical advice for borrowers. Comprehensive and stirring, this extraordinary book is whistle-blowing at its finest.

For a good and exhaustive explanation of the predatory student loan industry go to studentloanjustice.org or read the book, "The Student Loan Scam" by Alan Collinge.

Comments

[Art A Layman]

John:

Couldn't get this to post of RR's blog but didn't want you to be deprived.

John:

One only hopes that soap box is made of stern stuff. I did consider a more vehement response but that's so unlike me. ;)

Education is extremely important, no disagreement with that, but the debate is dependent on the issue at hand. To make your way, to open the doors, to a successful career has little to do with the knowledge gained, assuming enough to get a degree, it has everything to do with the degree.

I have worked with BS, MS and PhD degreed folks who couldn't manage their way out of a paper bag. The degree afforded them an opportunity. From there, what they made of the opportunity was up to them.

In theory I have no disagreement with your self-taught idea. My brother self-taught himself everything he knew. With only a HS diploma he apprenticed as a Tool & Die maker and from there taught himself plastic mold designing and went into business for himself. For whatever reason it wasn't highly successful but provided a decent living. Due to his expertise he landed a job as a Plastics Engineer with a large company. He left after a couple of years, frustrated with the politics and with competing with degreed fellow workers, who always had a leg up because of their degrees.

Presuming that most of us will end up employees, we can go to the library or spend hours on the internet acquiring unlimited knowledge. And that buys us what? If seeking a job, nothing! To employers it's all about credentials, not knowledge or self-education, not even smarts. For most to succeed they have to play by the rules the system lays out. Fight those and you might eke out a living running your own business. With some luck and a few contacts you might even become wealthy. On the other hand, you might subject your family to years of wanting and wishing, all because you wanted to prove the world wrong, that the system was unfair.

I had a moderately successful career. I was working for people in 2006 who were making no more money than I was making in 1992. I graduated 237 out of 273 in my HS class. College didn't find me graduating anywhere near the top of my class. How I got a degree I'm not even sure, to this day. I'll guarantee you I cut more classes than you attended. I still have most of my college textbooks because I thought it might be nice to read them one day.

The success, whatever that was, that I attained in the working world came from my force of personality and my sales ability. Without a college degree I likely never would have had the chance to exhibit those. Always admired those, like my brother, who had the will, discipline and determination to learn on their own, but many of them, learned in my field, would not even get an interview to attempt to sell themselves.

You often get yourself all wrapped up in "what should be" but survival depends on "what is" and "what is" is that without a degree you often end up on the outside looking in.

Also, not everyone should go to college because not everyone has the IQ or mental wherewithal to go to college.

Ah! The constant harangue of the haughty. Attaining an undergraduate degree is 80% organization and 20% learning. No doubt there are some lacking in even those skills that would not make it but perpetuating that idea discourages many, even providing them an easy rationalization for bypassing college, that will leave them working on a factory assembly line, if those even still exist. At that, as you go through life, you will find in many things beyond love, it is better to have tried and failed than never to have tried at all.

Is amazing that you, likely the biggest populist in the room, would counsel others to follow a path that only the most determined can meander successfully. From what little I know of your background you have reached a few pinnacles and then decided on the path not often taken. Fine for you and maybe, eventually, many others, but don't advise them to reject or ignore that which will give them the opportunity to see both sides and come to their own conclusions through experience.

[Robin Smith]

Bad credit report means no new car, no new home, and virtually no hope of ever borrowing money from creditors again which is a pretty serious matter. Hence if you have taken the debt situation lightly until now, it’s high time to take it seriously.

http://studentsblog2.blogspot.com/2009/10/student-debt-issue-to-be-considered.html

[David hogard]

Is amazing that you, likely the biggest populist in the room, would counsel others to follow a path that only the most determined can meander successfully. From what little I know of your background you have reached a few pinnacles and then decided on the path not often taken. Fine for you and maybe, eventually, many others, but don't advise them to reject or ignore that which will give them the opportunity to see both sides and come to their own conclusions through experience.

http://studentsblog2.blogspot.com/2009/10/great-ways-to-student-debt-recovery.html

[Buckinghamshire campervan hire]

Student loans really helps you to get your higher education. One of the best benefit of it is the fact that multiple loans can be melted down into one master loan. This saves frustration, reduces the risk of missing a payment and actually improves your credit score. And it reduces your monthly payment.