The College Student Debt Machine: A National Disgrace

With so much consumer and mortgage debt having been accumulated in the U.S. over the past 10-20 years, it was inevitable that those who have become addicted to credit would create a separate feel-good category that they like to call “good debt.”  Student loans are often touted as being “good debt.”  In this regard, Mr. ToughMoneyLove believes that our colleges and universities have not received enough of the blame for promoting student loans as “good debt’ and for making students and parents alike feel all warm and fuzzy about going off to college riding on a staggering pile of student loans.

The facts are that our colleges and universities are uniquely and perversely playing dual roles in the entire student loan debt fiasco.  They themselves are addicted to student loan credit because they need it to prime the enormous tuition pump and get students in the door.  Second, they also play the role of credit drug dealer, with massive and energetic student financial aid offices instructing students and parents in all of the different ways they can and should borrow money to attend.  Usually, this “aid” is not aid at all, but combinations of federal and private student loans.  Sometimes the college will sweeten the deal with a tuition discount, similar to a “rebate” offered by a new car dealer.  Anything to keep the customer on the car lot or the student on campus.

The actual data on college tuition and student borrowing paints a clear picture of the disgraceful role played by colleges and universities in the student loan industry.  I have reproduced three charts published by the National Center for Public Policy and Higher Education.   The first chart tracks the increase in tuition and fees since 1982 at our colleges as compared to other components of our economy.  (You can click the images to enlarge.)

As you can see, tuition and fees have shown a relentless increase over time at a rate that is four times greater than increases in the consumer price index and three times faster than increases in family incomes.   Colleges have been called to the carpet on this many times.  I have yet to hear or read any plausible explanation or justification for why this should happen and why it should be allowed to happen.  Colleges expect us just to accept this as the way it is.  I don’t. 

The next chart (labeled Figure 6) shows the number of college students using Federal Stafford loans.   The increase is from 4.1 million borrowers in 1997-1998 to 6.1 million borrowers in 2006-2007, a 50% increase in just ten years. 

Finally, the chart labeled Fig. 7 shows that total student borrowing in dollars as grown from $41 billion in 1997-1998 to $85 billion in 2007-2008, a 100% increase!  


To summarize, colleges and universities have inflated their budgets at a pace that makes our federal government appear almost conservative in comparison.  They have fed their massive budget increases by loading up more and more of our young adults with similarly dramatic increases in debt that has to repaid when they leave school. 

By the way, college graduate and professional programs are just as bad if not worse.  I have in the past written about cash-cow MBA programs and law schools that lure students in with unrealistic expectations and unfulfilled promises of riches at graduation.

Do you think it is mere coincidence that students who graduated from colleges over the past ten years have become so comfortable with debt?  This is what they were taught in college.  Because so many were sucked into this college debt addiction as maturing adults, they think that debt and credit is no big deal.  These are the same college grads (MBA’s in particular) who have been running things on Wall Street, designing all kinds of new debt instruments to leverage then crash and burn.

At least our colleges could offer courses such as “Debt and Credit:  Forget What You Learned Here” or “Budgeting for Life:  Don’t Do What We Do.”   Have you seen any course offerings like this?  Heck, I would volunteer to teach them. 

All of this is just plain shameful.  I don’t know why parents, students, and voters tolerate this.  Parents and students could vote with their tuition money by not attending private colleges that overprice and underdeliver.  Parents and voters could demand that their state’s public colleges and universities adopt and adhere to sound financial plans.  How about we ask colleges to at least not lead the nation in hyper-inflationary increases?  Let the health care industry move into first place.  We will go after it next.

Your turn readers.  Does this not bother you?

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67 Responses to “The College Student Debt Machine: A National Disgrace”
  1. Praveen Puri says:

    This is really true. I just read a Forbes article where they questioned the whole idea of encouraging everyone to go to college.

    They also used very strong language and compared what is happening with college and college loans with the subprime housing market.

  2. Angie says:

    I know this all too well… I graduated two years ago from a private engineering college with about 120k in student loan debt (about half in a private loan at 9%). Even worse is I fell in love and plan to get married to someone else from there. Only to create 240k in combined debt.

    Luckily I landed a good paying job, but I don’t know how long it will last as the stress of debt and a high pressure job is killing me. Its all I worry about everyday is how am I going to pay it back? I worry all day long and can’t concentrate at work. Then I can’t sleep at night without some help. I can’t help but be depressed realizing I’d be better off as a high school dropout in some retail management program.

    I’m on a 6 year plan for total repayment, but that is including total payments of $4,200 per month, more then half of our paychecks each month! I won’t even be able to think about having kids or buying a house until that is paid off. Its pretty much like having no control of my life for 10 years.

  3. John says:

    The article on student loans s a winner, disgrace is an understatement

  4. Melissa says:

    I am watching my best friend, 37 years old, painfully pursue a degree while “living on” and paying tuition with student loan debt. She was a flight attendant pre-911, and she has no marketable skills. I love her; this isn’t a criticism, these are her own words. When (if?) she graduates, she will be at the bottom of her class (because she HATES school, school has been difficult for her since we were tiny children, and she has no interest in her major), she “hopes” to get a goverment job in the range of $15-$16/hour. Now, I’m ‘uneducated’ and all, but I think that translates to somewhere in the vicinity of $30K per year. She’ll (by her most conservative estimate) have about $90K in student loan debt. This is for a major she has no interest in, where she’ll work at a government job she’ll have no interest in… and discussing this with her in rational terms is not an option. Someone, somewhere, sold her a bill of goods, and there’s no talking to her about it unless I’m willing to tank a nearly 30-year-long friendship. While racking up student debt, she’s also gained a nearly-violent, aggressive hatred for America and anything it stands for. She actually texted me last week and said she was thinking of showing up at Sarah Palin’s upcoming speaking engagement in a town near her university, and trying to assault her, because “Palin has it coming” and then her housing, food, and education would be free while she was in jail. I am speechless at what “higher education” has made of my loving, caring, formerly-normal best friend.
    I have no degrees, and even homeschooled my way through the last part of high school. I make about 60K a year and have no student loan debt. I guess I’m too uneducated to understand the “value” of higher education, but I wonder if the term “disgrace” is even strong enough to describe the state of higher education and student loan debt.

    • JP Merzetti says:

      It’s exactly the contrast between your circumstance and your friend’s – that is entirely the issue here.
      Of course you are better off without the debt (for an education of dubious value) and ironically, write better than a lot of “higher educated” people do…which is a trend I’ve noticed over the past few years.
      The fact is (as your story points out) that higher education has the uncanny ability to blow up people’s lives – if they are incapable of making wise choices.
      And unfortuately, many more people fall into that category these days.
      Which makes me wonder…just as the foolish choices that have created wage slavery to things like payday loans, rent-to-own fiascoes, bankruptcies and ultimately foreclosures…unlike most of those mistakes, educational debt cannot be discharged, and will often follow working people into retirement and beyond, which is a hell of a way to start a working life.

      I’d say you’re well-educated quite enough to understand the true “value” of an education.

  5. I’ve posted on this topic about how I think not everyone really should be going to college, it isn’t for everyone – but we act as if you’re a disgrace if you don’t!

    When people do go to college they’re encouraged to go to colleges that are extremely expensive and they can only afford after receiving thousands in student loans. They leverage themselves up to the eyeballs, and then often graduate with a degree they can’t use. It really is disgraceful.

  6. Sue Ellen Barnard says:

    What an absolute shame.

  7. N Mccarty says:

    College Tuition Gone MAD MANY Over educated idiots who cannot find a Job in their field. Out of touch with the REAL world.

  8. This is exactly the bleak picture of college and lending that I wish people saw. I just graduated from college last month, with $42,000 in loans to my name, and little chance of earning that much money per year in my chosen profession (or my backup profession!). Should I have known better? Probably. But I was 17 when I signed that loan paperwork, and absolutely no one sat down and explained to me what this all meant. I was completely on my own when it came to financing my education. I feel that I made an excellent choice for a 17-year-old, but now I’m a 22-year-old that wishes I could change that choice.

    And the attitudes of students regarding debt are truly scary. When I dropped out of school during my third year (not to return until nine months later), people were astounded, and most of my fellow classmates couldn’t grasp the concepts. “Why don’t you get more loans?” they asked. “Because I’m at the limit for federal student loans,” I answered. “Oh,” they said, “well, that’s what parents are for!” Direct quote, I kid you not. My fellow students thought that all parents can simply magic money for school out of nowhere. Or maybe they thought my parents should take on debt for my education. But my theory is that they really didn’t think at all. Parents = a magic money machine, right?

    It’s a scary, sad world when it comes to college students and money. That’s why I write what I write… I just hope that I can help some people to not make the mistakes I did over the last five years.

  9. David B. says:

    This is a national disgrace. I thought it was bad enough that my undergrad + grad debt was just south of $30,000, and I paid it off some time ago, but the institutions are now so besotted with indebting students for decades that they seem to have lost touch with economic reality.

    Physicians often graduate with $250,000 or more of debt. Think about that the next time you’re tempted to yelp about the high cost of medical care in the US (along with for-profit insurers, Big Pharma, absurd amounts of administrative overhead, etc).

  10. At least physicians can pay off their loans! I totally agree with the analysis in the original post–colleges are playing two roles! As loan officers, they are not the student’s friend.

  11. Charles says:

    Colleges are definitely playing a role in the student loan debt problem. Just like lending institutions in the mortgage fiasco.

    @Angie-In the past I felt like you with my personal Debt Demon stressing me outall the time. Not any more! Fortunately for me I was introduced to a little known program that showed me how to pay off my student loans & all my other debt in 1/2 and the time and save thousands in interest all without increasing my monthly payments, and using my current income. Most of us know about the traditional ways to repay your student loans but there are some non-traditional programs out there that work really good too! If you are open minded, and willing to research and conduct your due diligence you can find them.Over the past few years I have committed myself to helping other people in the same situation that are suffering from student loan, credit card and other consumer debt.

    @Stephanie-Thanks for sharing your story. I believe too many young people borrow money to attend college but have no financial POA (plan of action). The end result, they graduate with a mountain of credit card or student loan debt. There needs to be much more emphasis on the potential consequences of student loan debt and how to manage your finances prior to entering college (perhaps starting in High School) and accepting loans. Then this process needs to continue throughout the college experience.

  12. Above Average Citizen says:

    This article provides facts on the enormity of student debt and the societal consequences of it. It does not provide any reasons why this situation has developed and expanded to such detrimental levels. The only plausible reason is that the US higher education system is dominated by the far left political philosophy, which believes that debt is a desirable attribute for the government, its organizations, and its citizens. We refuse to examine the far left’s reason for being, which is ultimately to replace our system with another entitlement system far larger and more dominant than the one we have now, a system influenced by socialism and communism, one that does not believe in capitalism. The only way to accomplish this new system is to totally destroy the old one, and that is exactly what is happening to higher education in the US right now. It will take another 50 years, but the far left types have lots of time and patience. US higher education is controlled complelely by the far left, and no one can look withing except those from the far left. The American public and our government simply trusts and follows these wolves who are eating more and more of the sheep each day, leaving their bones to rot in the sun, while they prey on more and more of our posterity. Truly, the US debt machine of higher education is a national disgrace.

  13. Rishona says:

    This article is right in that student loans and college costs are a problem. I am also not a fan of private student loans. But I do have $100K in federal loans. I make under $30K annually. I do NOT lose sleep over my situation. I spent 5 years in college (changed my major) so that’s $20K per year BEFORE taking out money for tuition and rent…which were about $12K per year for me. The remaining $8K per year took care of everything else (+ the funds I earned from part-time work). The price of college, not my own misguided view of debt, is what made my debt load the level that it is. Also, student loans are capped…and federal ones are determined by income. The goal is not to lend out money recklessly; the goal is to enable people to earn a college degree.
    And that $100K? Not a big deal at all; not when you consider that I am 30 years old, I have NEVER purchased a new car (just buy them cash…and they’ve all ben less than $10K), I don’t have credit card debt, I don’t own real estate (which is something that has consumed $100K and a lot more from people across the country). I live within my means…renting a modest apartment for $400/month and shopping at the thrift store. I am single, but if I do get married, I most definitely won’t be dumping $30K into a wedding. So there…that’s the $100K right there!
    The fact of the matter is that no debt is ‘good debt’, but student loan debt is one of the better debts you can take on. You can defer it…you can have the payments decreased to a percentage of your income….it can be forgiven if you work in certain industries. Student loans are not the enemy; rapidly rising college costs with little accountibility is (and I say this, and I work at a college)!

    • paula says:

      this is a little late, and you may not get this reply, but i LAUD you!
      i’m a grad student, and when i finish, i will have upwards of 100k in student loans, for a social science degree. i do have a child. i am unmarried. but education is important, if anything, because it has made me smarter about the world.
      not to mention new programs like income based repayment, which in my view, has been getting bad feedback from people who believe no one should take on a debt that they cannot handle.

  14. Patricia says:

    ck Camwell — 4/26/11 10:13am

    College tuition is rising at the institutional level because a lot of colleges are starting to focus on more, shall we say, non-academic stuff. They’re trying to boost their enrollment numbers, so they spend an inordinate amount of money on “student services,” which often times is just a euphamism for crap they don’t really need.

    This is especially prevalent at smaller universities. Where I graduated not too long ago, the administration paid a stand-up commedian $3,500 to do a one night show on campus for the kids. Just take a guess at the History department’s library budget for that same year . . . $800.

    I wish I were kidding, but it was true. The history department was given $800 for that entire academic year to buy new books for the library’s history collection. And who feels the pain of all this spending? The student body. They rose tuition by $1,500 that same year, and the faculty didn’t see a dime of it.

    The problem with college is that we have this weird notion that everyone has to go. We get a bunch of kids in there who have no business being in higher education, so colleges have to dumb down their curriculums just to keep the tuition money flowing. So now, we have a bunch of universities selling cut-rate degrees (that laregely mean nothing unless they’re in math or science) for exorbitant prices.

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