Federal Student Loan Debt

Parents tell their children, work hard in school, go to college and you can have a good career; however is that still true in today’s economy?

The idea behind higher education is that it promotes equal economic opportunity, thereby stimulating positive effects on the country. Research completed by Ohio University Professor of Economics, Richard Vedder, discusses in a recent Imprimis published by Hillsdale College that “over the last four decades, a period in which the proportion of adults with four-year college degrees tripled, however income equality has declined.” Thereby suggesting that higher education today does not necessarily promote income equality. Considering current increases in federal student loan debt, constantly rising costs of higher education, and an uncertain job market the disparity may continue to grow.

Should the federal government continue its risky behavior in issuing student loans to individuals, who may not be able to repay the debt? It is a question worth debating. According to Vedder, the Pell Grant program has more than doubled in size between 2007 and 2010. This program was designed to help the economically marginalized; however the programs dependency has now grown to assist the middle class due to tuition and educational costs sky rocketing.

Many Americans depend on student loans to continue their education and have good intentions of repaying the debt; however do those students repay the debt when strapped with other financial responsibilities. The Pell Grant program would work if all students that utilized the program repaid their financial obligations, but even with low interest loans, students still find themselves defaulting.

Adding a burden to the Pell Grant financial aid program is that colleges themselves face no financial penalties if a student defaults on payment. The college is paid by the Pell Grant and students often take out extra money for other expenses. Professor Vedder states, “Colleges are responsible for allowing loan commitments to occur, but they face no penalties or negative consequences when defaults are extremely high, imposing costs on taxpayers.” To add to the problem, many students do not graduate or fail to graduate on time. Professor Vedder’s research indicates, “Only 40 percent or less of Pell Grant recipients get degrees within six years—there is an extremely high dropout or failure rate.”

The last big issue that compounds the problem further, as Vedder highlights, is that over half of graduates are underemployed or unemployed. This lack of expected income adds to graduates inability to meet their loan obligations. A graduate can receive all the knowledge and skills it takes to succeed in the working world; however, with the job market in its current state, the financial struggle continues.

College students should proceed with extreme caution and try to minimize the amount of debt they take on.

Source: “Federal Student Aid and the Law of Unintended Consequences.” Richard Vedder, Imprimis,
June 2012.