Student Loans: America's Next Financial Crisis

Student Loans: America's Next Financial Crisis
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As high-school juniors and seniors start their search for the college where they will spend the next four years of their lives, they need to take a long, hard look at how to pay for it.

Education is the one of the most important pillars on which our American democracy stands, and many of our higher-education institutions are world-renowned. However, the pursuit of a good education has been corrupted in recent years by greed in the form of glossy advertisements pitching students the chance at a wonderful future while hiding from them the true cost.

During the last 30 years, the cost of obtaining a college degree has risen an inconceivable 1,120 percent. In comparison, housing costs have risen 175 percent, and the cost of medical care has risen 454 percent, according to the U.S. Bureau of Labor Statistics. In May, the New York Federal Reserve posted its quarterly report on U.S. household debt, and to no one's surprise, college loans topped the list at a whopping $1.1 trillion -- the largest ever recorded. With these mounting educational costs comes an increase in student-loan defaults. So many people have high student-loan debts, and there can be no doubt that another financial crisis is on the horizon.

Why has the cost of obtaining a college education risen beyond the stratosphere? The answer is twofold: overly generous lending similar to what led to the 2008 mortgage crisis, and slick marketing that takes advantage of it.

Our country has instilled in our youth the importance of receiving a college education, and a college degree used to be unquestionably worth the investment. However, with the postgraduate job market looking more like a mirage than a secure reality, students are running out of options for paying for their degrees. No one seems to know the answer, or at least is unwilling to step out and say it.

Speak with any credit counselor and they will tell you that if you do not have the money, do not buy it. Unfortunately, this mantra has not filtered its way to the subject of higher education, and it is probably because the higher-education-industrial complex does not want that question to be asked. In our country, academia has become another industry, and one in which billions are at stake.

The secret to any successful business marketing strategy is to convince the consumer that they must have your product regardless of cost -- just look at the recent success of Apple's iPhone 6 rollout. Colleges push their marketing materials in mailers, emails and visits to our high schools and talk about the college life and academic curriculum -- all of which are important to the development of a young adult. Nevertheless, in the post-recession era, there is no talk of job-placement metrics or how that $200,000 undergraduate loan debt will enable them to land a well-paying job to pay it back.

The deep recession that the United States is currently in recovery from prompted many people to look critically at our financial institutions. Politicians, eager to win another term, were quick to point the finger at Wall Street and big banks, accusing them of getting greedy when it comes to handling other people's money. Congress imposed harder regulations on the financial industry by passing the Dodd-Frank Act, and most politicians got the memo to talk about the "1 percent" as taking money from the rest of us.

Yet with all of this public outcry, very few of our elected official took the time to look at our higher-education system and think critically about how it is funded. Tuitions are exorbitant and show no sign of decreasing. The job market is stagnant, and even shrinking in some industries, while students are still expected to make $1,000-a-month loan payment when they graduate. Without a job, that is next to impossible!

Students need to understand the risks associated with purchasing an expensive diploma before they sign on the dotted line. For many, it will be their first adult investment. No one would expect a 17-year-old to take out a mortgage just because all his or her friends are doing the same, yet when it comes to the choice of a college, little attention is paid to the true cost. When a buyer decides to purchase a home, he or she expects his or her investment on the property to yield a return higher than what was put into it. Investment in education should be no different, but for some reason the higher-ed system and their student-loan cohorts have convinced the consumer that the question is irrelevant.

There are some great schools closer to home that will cost much less than the non-Ivy League school with the $55,000-a-year tuition. Many states are blessed with an array of public colleges that are well-respected and affordable. Not everyone can shop on Fifth Avenue, but proactive parents and students can still find a great buy in their price range; it just may not have that shiny gold zipper.

It is time for Congress to take action and reform the higher-education system before it topples our economy and sends us into another recession.

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