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.
