STUDENT LOANS – ARE THEY THE SICKNESS OR THE CURE?
There was a time, not all that long ago, when the world looked to the United States as the standard for education. Now, the recent Programme for International Student Assessment (PISA) report, which compares the knowledge and skills of 15-year-olds in 70 countries around the world, ranked the United States 14th out of 34 OECD countries for reading skills, 17th for science and a below-average 25th for mathematics. There are many problems is our system that account for this, and, surprisingly, few of them are related to teachers and teaching.
As in any profession, there are those who do not perform as well as others. We do need ways to remove those who won’t make it even with additional support. But as the strike in Chicago clearly demonstrates, teachers can’t feed and house their families on “You didn’t become a teacher to get rich.” They might, and actually do I many cases, put up with awful working conditions. They need health care whose cost doesn’t eat into an already less than professional salary. However, for the most part, our teachers are professionals who love children and work very hard to see them get a good education. They are also highly underpaid, given the amount of education required to enter and stay in the profession. Many states have laws that outlaw strikes by public employees. Many teachers have had it with the lack of appreciation demonstrated toward them.
Part of the problem that exists for teachers and others who have been through our educational system is that they are saddled with loans (34% of them have undergraduate loans and 37% also have graduate school loans), often guaranteed by a quasi government agency known as Sallie Mae. The terms of these loans as presented are misleading, and even law students are under the mistaken impression that they are not paying interest on these loans during the time that they are in school and shortly thereafter.
During the time that students are attending school, the interest on their loans is capitalized and becomes part of the principal. The result is that the loans end up being far greater than the students ever anticipated. A student who borrowed $50,000 during a 4 year term could actually owe $100,000 or more. And then as the new graduates enter the labor market, they are offered forbearances during which more interest is capitalized, making those debts grow even larger. We used to call this usury.
There is another Sallie Mae government program that allegedly helps. In effect, it allows the students to pay what the government determines is 15% of their disposable income for 25 years toward keeping the loan current. At the end of the 25 years, any balance left is forgiven. Of course, during the 25 years, the interest continues to capitalize, and as the debtor’s income rises, the amount of that 15% continues to rise. In the end, the graduates have paid far more than they ever borrowed.
Some college graduates who are in these loan programs cannot afford even the simplest amenities of life, rent, cars, going to an occasional movie. This discourages them from working hard at a profession in which they are undercompensated and underappreciated. This is the reason that many young people who intended to make education their careers choose to leave after a very few years. They need to earn more to pay the stifling debts that they have accumulated as a result of college loans.
There has been some talk about changing the rules for these loans, or possibly forgiving them in return for some sort of government service. However, the current political and economic climate has put these important decisions on the back burner. They need to be brought front and center. This not only affects teachers, but also doctors, lawyers and other professionals.
Of course, I understand that many potentially good educators, doctors and lawyers could never have attended college without these loans, but the reality of compounded interest and payments stretching out for decades has turned what should be a good program into a nightmare. For some it has become so basic as to make them question whether they can afford to have a family.
We are burying our recent graduates in a lifetime of debt, and the problem must be addressed and fixed. This problem not only affects individuals, but it affects our economy. It eats up money that could be used for a down payment on a house, rent , furnishings, etc. . The CEO of Sallie Mae doesn’t have any problems. He made 5.4 million dollars in 2010 (the last year for which data is available), including salary and bonuses. Sallie Mae is a publicly traded corporation (NASDAQ symbol SLM). It makes money on interest payments by the students. But around 70% of its earnings come from fees banks and other private financial companies are charged for Sallie Mae servicing their loans. All loans are guaranteed by the federal government. If a student doesn’t pay the loan, the government will. If that happens, tax refunds are seized and an individual’s wages can be garnished. The individual can’t win and the investors can’t lose.
We can’t afford to burden the prospective teaching pool with outrageous debt, pay them less than their education and skill would earn in another professional field and expect to attract the best and the brightest . It’s time to step up and address this issue as was done with the housing crisis, now.
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Entry filed under: Education. Tags: Bachelors' Degrees, CEO Compensation, Chicago, College Degress, Compound Interest, Deferred Loan Payments, Down Payments, Failing Teachers, Forbearance, Government Loan Guarantees, Health Benefits, Loan Payments, Masters' Degrees, Rent, Sallie Mae, Student Loan Defaults, Student Loans, Teachers' Compensation, Teachers' Contracts, Teachers' Strike, The Economy.