For all the talk of de-leveraging in the economic and financial media these days, it looks like at least one group of borrowers is bucking the trend–students. According to the New York Fed’s latest Quarterly Report, released late in the week, while all other forms of debt in the US have fallen by $1.53 trillion since the outbreak of the financial crisis, student loan debt has gone up by $293 billion.The report contains much more. It notes, for example, that outstanding student debt increased by another $30 billion last quarter to reach a dizzying total of $904 billion. Add to that the fact that delinquency rates have been rising steadily and are now higher than those of auto loans and even mortgages, and this makes for pretty depressing reading.These figures point to the spiraling costs of higher education that such loans are being used to meet, as well as the dubious contribution our colleges and universities are making to their students’ ability to pay off their obligations. Like the pre-2008 housing market, this is a broken system. How much longer can it go on?A report in the [paywall protected but excellent] Financial Times adds more details to the picture of growing problems in the educational system. Studies of recent grads find that many students did not get much useful counseling in college about what they should study.
A survey from Rutgers University found two-thirds of graduates who finished college between 2006 and 2011 would have made different choices, such as majoring in another field, taking on more internships or part-time jobs, started looking for work sooner, choosing a different institution or even skipped higher education altogether. […]About a quarter of the employed graduates said their position was below their level of education, a quarter said they were earning less than they expected, and a quarter said they had to accept a job outside their field in order to find work.The median starting salary for those who finished school between 2009 and 2011 fell to $27,000 from $30,000 in 2006 and 2007.
Falling wages, bad guidance and rising debt: these are the signs of a system that is failing students on a massive and unsustainable scale.But students share responsibility for the debacle. Students — and their parents — have had plenty of warning these days that college is something to be approached with caution and care. Nobody makes students sign up for worthless courses; nobody makes students pick majors that do not lead to good jobs.Colleges and universities need to learn how to cut costs — generally by figuring out new and cheaper ways of doing things, by getting rid of bloated administrative layers and by focusing on the activities that support their core mission. Students, with help from their parents, need to stop thinking of college as a four year entitlement program and start thinking more seriously about how to use this time to prepare themselves for challenges ahead. And we professors need to understand and honor the financial sacrifices that many students are taking to be in our classes — and do our level best to teach them what they really need to know.