by Michael Ambrose and Evan Cooper
With finals fast approaching and class projects coming due, freshman screenwriting major Jack Beverly was at the last place he wanted to be: the office of financial aid.
Beverly, like millions of other college students, is already struggling to pay for college.
“I am already having trouble paying what I need just to stay in school,” he said. “I can’t even think about my student loans right now. It is so stressful.”
The price of college attendance has been steadily rising over the past decades, and so have the interest rates on student loans, leaving more and more students financially vulnerable. Economists and scholars are beginning to warn that the United States could suffer a student loan “bubble” where millions of students would be unable to pay back their loans, which could greatly disrupt the current educational system as well as the economy.
The calculations to determine whether or not a bubble exists are complicated, but the idea behind it is relatively simple. The theory is that because college tuition costs are rising, while the rate on return of having a college degree is decreasing, the potential for students defaulting on their loans increases. If college graduates are unable to find employment at a level required to pay back their loans, a situation could emerge that resembles the 2008 housing crisis.
Chapman University economics professor Steven Gjerstad was quick to caution that a student loan bubble would not be nearly as catastrophic to the economy as the housing crisis, but agreed that it presents a legitimate concern.
“To a large extent, what got us into the housing bubble was government policy that said home ownership is great,” Gjerstad said. “That’s kind of what they are doing now; saying education is good and bringing in lenders to insure all the debt it takes to send students to college.”
For many students, college is unaffordable without student loans. But as Gjerstad pointed out, the societal expectation is that students and their families will do whatever it takes to make it work.
“I knew I was going to get into debt going to college,” Beverly said. “It was never a question of how much debt though because going to college is such an important part of American society.”
Because of the importance of attending college, many students ignore the potential burden of debt with the attitude that it is a necessary evil.
“If attending Chapman meant being in a bit of debt, I figured it would be worth it given the education I am getting,” said sophomore political science and television/broadcast double major Tansu Philip. “I didn’t really take into consideration how having student loans would affect me later on.”
For students who plan on attending graduate school like Philip, student loans pose an even larger risk.
“I am definitely worried about the amount of debt I could have by the end of graduate school,” Philip said. “I’m not concerned I won’t find a job after I graduate, but I am concerned about finding one that pays well.”
Many students are unaware of how their student loans even work or how they plan on paying them off. This lack of financial education is at the root of the problem, according to Gjerstad.
“Student loans are unique in that even if you go into bankruptcy the debt doesn’t go away. You have a bunch of 20-year-olds taking out loans who don’t know much about financing and debt,” he said.
Some student’s unawareness of the effects of student loans on their future is something that needs to be addressed as early as when perspective college students are in high school, according to junior computer information systems major Neil Bui.
“I think students need to be educated about loans, but it shouldn't be up to Chapman,” Bui said, who takes out roughly $4,000 of student loans a year in order to stay in school.
“This matter needs to be explained as early as high school, and maybe Chapman should hold workshops to reinforce what students need to know.”
There have begun to be calls from some public officials for a restructuring of student debt and the way the government handles student loans. One vocal critic has been Massachusetts Senator Elizabeth Warren, who was a professor before running for public office. She says that the current system is “obscene” because the government makes billions of dollars each year off of student loan payments.
Beverly agreed with Warren’s stance on the issue.
“The government has strange ways of making money,” he said. “Making money off of students is ridiculous and it will screw over students in the long run, it seems completely counterproductive.”
For students like Beverly, it seems unconscionable that the government would be trying to profit from student loans while students and their families do all they can to make their payments.
“My parents are stressed out about the money too,” he said. “My parents would do anything to see me through college. My mom is a teacher and she has to take a loan to put me through school. It makes me feel guilty.”