College Graduates Drowning in a Challenging Market

The payoff for going to college used to be enormous.  But with more students graduating deeply in debt, a higher education's higher earning potential is becoming negated.  With tuition increasing faster than inflation, and job prospects shrinking, college debt has become a real problem.

Part of the American Dream includes sending your kids off to college.  Part of the American Nightmare includes watching your kids graduate from college mired in six-figure debt.  That scenario is taking place all over the country, as students are finding fewer lending choices and increasing debt payments.

Debt for diplomas

Despite the efforts of financial advisors to encourage parents to save for college, more than two-thirds of all students need to borrow money to pay for their education.  Just 15 years ago, that number was less than half.  Students are entering the work force strapped with twice the debt they once had.  These staggering figures are made even worse by the shift from public to private loans.

In the late 1990s, private loans made up only about 5 percent of all student loans.  Currently, they're running at a clip of approximately 22 percent.  Because these private companies need profit to stay alive, they routinely charge high interest rates and penalties for borrowers who can't make their payments.  If borrowers rack up huge debt, their problems can easily snowball.

College costs on the rise

Costs for college tuition continue to skyrocket.  Some estimates indicate that tuition today costs five times what it did as recently as the 1980s.  And there are no indications that fees are likely to decrease, either, as public financing for colleges continues to dwindle.  Add to the problem the costs of rising faculty salaries and the maintenance of college campuses, and you have a huge budgetary problem.  

To compound the issue, students are graduating into a stagnant economy.  While tuition has far outpaced the pace of inflation, wages have remained the same.  Saddled with debt, many college students bypass typical graduation expenditures like a new car or a new home and are forced to scrimp and save to pay off their new debt.

Relief in sight?

It's very difficult to determine if the outlook for student loans will improve in the years to come.  The entire lending industry is in upheaval as a result of the subprime mortgage crisis and the liquidity crunch, and it's causing many lenders to flee the college lending scene altogether.  Community colleges and technical schools are feeling the impact, as well, because many lenders have fled the market entirely.

To compensate, students are adopting new loan techniques, relying on credit cards or home equity loans from their parents.  No matter which route they choose, finding new ways to finance a college education is becoming increasingly difficult.  It's unfortunate, because higher education and a skilled workforce are being described as two surefire components for the revitalizing of America.  If the lending scene continues to implode, neither will be able to have much impact.