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    Posted June 8, 2014 by
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    College Costs, Student Loan Debt and the Labor Participation Rate


    No one can dispute that the price of a college education is through the roof. I was listening to some financial guru on the radio the other day and he was speaking about a lawyer that just graduated law school with almost $300,000 dollars of student loan debt. Lawyers pay ranges from $50,000 to $220,000 per year. Can you imagine trying to dig out of that kind of debt on a 50K income?


    Why are costs so high? More people than ever are going to college so it seems to me that costs should go down; but they are not going down. In fact a full year of college at a public 4-year school has jumped 83% in the past 12 years. From what I have read on the topic, it seems that our lackluster economy is driving costs up. In the past, states were more generous in funding the state colleges; but now that state budgets are being stretched to their limit to make ends meet they have cut funding to the state universities. Private donors are also finding themselves more stretched financially and their support has also declined. The article I read also attributed some increased cost to the salaries of university presidents.


    * Average college professor makes $80K or more per year.  Average college president made $479,000 in 2012-2013,  At least 9 college presidents make more than a million dollars per year during that time frame.


    Unfortunately these days, for most people to attend college, student loans are a necessity. The number of students borrowing federal loans increased from 5.9 million to 10 million in the past 10 years. The problem there is that getting a college degree does not guarantee you a job that will allow you to pay off your student loan debt. I read an interesting article about the underemployed; they are the individuals with 4 year and even advanced degrees that are still working as waiters, bartenders and janitors. While there is nothing wrong with those jobs, they don’t really require higher education to perform them. (see picture)


    Because so many people are drowning under the burden of student loan debt the senate and the president are trying to find ways to help make student loan payments more reasonable for the borrower. Senator Elizabeth Warren co-sponsored a bill that would allow students to refinance their loan at lower interest rates. The CBO estimates that the bill could cost $51 billion in federal revenues over the next decade while helping to refinance about half of the $460 billion in outstanding federal student loan volume. Warren plans to offset costs by implementing the “Buffet Rule” which basically works to remove tax loopholes for millionaires.


    The president is expected to announce a “Pay As You Earn” program that lets borrowers pay no more than 10% of their monthly income in loan payments. He is planning to expand the current program to allow borrowers before 2007 also take advantage of the plan. Currently 7 million borrowers are in default on their student loans. While this helps put more money into individual’s pockets, it does increase the amount of interest on the loan since it will be spread over a longer period of time.


    So with more people earning college degrees why are there fewer people working? From 2004-2007 the labor participation rate stayed over 66%, since then there has been a steady decline; as of May 2014 the labor participation rate is 62.8. (see picture 2) How can our economy get better if fewer people are working? College costs are going up because of the economy. People are less able to pay their student loans because of the economy, and we never seem to really focus on the economy.


    Increasing our nation’s access to college degrees has not helped our economy and when you look at the federal student loan debt issues, it appears to have hurt more than helped. So what should we do? I feel for people who are unable to breathe under the weight of student loan debt, but I am not sure that focusing our attention there is really going to solve our nation’s problems. We are 17 trillion in the hole; our nation has to pay off 17 trillion just to be broke. The solutions offered come with a price, can our nation take on more debt to pay it?

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