The Success and Waste of Student Loans and Grants

During an interview, David Farr, CEO of Emerson Electric commented, “We’ve got a whole thrust in this country of “Everyone goes to college. Wrong – not everyone should go to college. We need people in a facility who can weld, who can repair things.” Yet, the government seems to think that equal opportunity means that every high school graduate, regardless of proficiency, should be entitled to a government sanctioned college education. The gifts to college students are loans and Pell grants to help earn bachelor’s degrees.

Some students are not up to the rigors of college discipline, dropping out leaving unpaid debt. Others graduate but lack the ability or the will to repay their student loans. The number of people over 25 with some college credit but no degree has grown by 700,000 over the past three years. The default rate for those with debt but no degree stood at 16.8% in 2009 while those with degrees was just 3.7%. Rates of employment and average earnings are considerably lower for dropouts also.

Surveys show that average student debt for individuals is just over $19,000 up to more than $100,000 on graduation day. For each $10,000 of debt, the student debtor should pay $98.50 monthly over 10 years at 3.4% interest and $115 at 6.8%. (The interest rate is being debated in Congress now.)

The U.S. government holds about 80% of student debt and the CBO recently estimated that losses would be about $95 billion over the next decade. Originating about $100 billion annually, the current student loan debt amounts to almost a trillion dollars, greater than all credit card obligations. Pell grant spending has roughly doubled to $34 billion since 2009. A 2011 report produced by ‘The Chronicle of Higher Education’ suggests that no more than 40% of Pell Grant recipients receive a bachelor’s degree within six years.

The moral of the story of student loans and grants is clear. There is no evaluation system for determining who has the potential to persevere through college, earn a degree and repay a loan that may be from $20,000 to $100,000 or more. Yes, we need an educated workforce. And yes, taxpayers have an obligation to help students who meet predetermined standards of fitness and need attend college. Current rules allow such generous terms that taxpayers will be losing almost $10 billion annually on defaulted student loans over the next decade. As far as we know, there is no systematic reporting the success or failure of student recipients.

This is a stellar example of the twisted thinking and cover-up by the President and other government and academic officials. Consider the path the money takes; the government loans and grants taxpayer funds to virtually all students that apply. Colleges and universities increase tuition and eagerly accept the largesse that has been signed over to them by student recipients. Losses disintegrate into thin air as taxpayers cough up more funding.

When students enter college the government treats them like children who should accept the handouts of a benevolent government offering limited responsibility, low interest and postponed payments. As adults, shouldn’t these student debtors bear the responsibility of repaying their loans with interest? It is worthwhile to remember that when graduating high school at 18, students are considered adults; they are old enough to vote (Constitutional Amendment XXVI, July 1, 1971), they stand trial and receive punishment in the justice system and they serve in the military, betting their lives against all odds. Are college graduates prepared to enter the real world of careers, family life, mortgage debt, auto loans and other challenges?

The answer is that we are evolving into a willing culture of individual mediocrity, group exemption from accountability and burgeoning dependence on government handouts.

 – Dick Baynton