Wednesday, January 9, 2013

Rising student loan debt becoming a bigger issue

Rising student loan debt and default rates aren't about to damage the national economy, but they should force a reckoning on how the country perceives the value of higher education and its alternatives, Wells Fargo chief economist John Silvia said at the Charlotte Economics Club's meeting Wednesday.

Of course, the issue isn't without national implications. The pile of debt students are taking on is pushing back when they're able to buy homes. Since the majority of loans are federally backed, the country could be heading toward some type of student loan bail-out as well, Silvia said.

But the biggest change will be for individuals figuring out what they should do after high school. This economy isn't like it was 35 years ago, Silvia said, when a four-year degree was a mark of distinction and a pretty clear path to a job.

That's changed, and it's not just because of the latest recession. The fix will involve an "attitudinal change," he said, that makes trade school an attractive option instead of a push toward sending every student to a four-year university.

"We put too many people in houses they couldn't afford. We put too many people in colleges they couldn't afford," Silvia said. "It's not an embarrassment to have a son or daughter who has his own plumbing company, pulling in $2 million a year."

Chart data is from the New York Federal Reserve.


Anonymous said...

The scary part is that the banks are trying to figure out a way to foreclose on your education...

Jeffry Pilcher | The FInancial Brand said...

Mr. Silvia's comment about having "a son or daughter who has his own plumbing company, pulling in $2 million a year" elegantly illustrates the fundamental problem. Mr. Silvia seems to imply that there's some degree of shame having a son earning only $40,000 as a plumber. Even if that isn't what he intended, it doesn't change the fact that most Americans believe their self-worth (and the value of others) is defined primarily by income.

As long as American culture equates "happiness" with "making as much money as possible," there will continue to be issues of shame -- both vocational and educational.

From Wall Street (1987)...

BUD FOX (to Carl, his father): What I see is a jealous old machinist who can't stand that his son's become more successful than himself.

CARL: What you see, son, is a man who never measured success by the size of a man's wallet.

BUD: That's because you never had the guts to go out into the world and stake your claim.

CARL (lamentably): Boy, if that's what you think, I must've really screwed up my job as a father.


Carl shouldn't feel bad. American culture sends a way more powerful message than any father ever could: "Money is power. Money is prestige. Money is respect." Indeed, it's movies like Wall Street that reinforce our cultural belief that money is everything. It's a bit ironic, considering the moral parable the movie tries to impart. But the enduring legacy of Wall Street (and many movies since): "Greed is good."

Anonymous said...

Mr. Silvia never said or implied anything is wrong with earning $40,000 as a plumber but he did make the point that a high-earning plumber can make much more than that, and indeed more than many college graduates. Keep in mind the topic here is the return on investing in a college education.

Moreover the underlying issue is that sometimes it is NOT income that matters, but instead the social perception that a successful person must have a college degree and work in a field not associated with manual labor. For example a lawyer making $100,000 typically gets more respect than a plumber making twice that. Mr. Silvia was arguing that this attitude needs to change.

Jeffry Pilcher | The FInancial Brand said...

Whether Americans tie their esteem to vocation, education or income, it's messed up. That people think they need to go to college and/or land jobs in certain fields simply "to get respect" is most unfortunate.

It's difficult to discuss the ROI of a college education without discussing professions and incomes as well. The reason the lawyer gets more respect than the plumber is the societal perception that college educated people earn more. Our feelings of respect and shame are driven by our relationship to money: We believe lawyers make more than plumbers.

Bottom line is that most people don't get college educations simply to "get respect." They get college educations so they can get the respect associated with making more money.

Respect and money are linked. Mr. Silvia said someone making $2 million deserves respect. He's linking the two.

Anonymous said...

You are distorting someone else's words to make your own point. Mr. Silvia never said someone making $2 million "deserves" respect. He is an economist not a social commentator. Whether you like it or not, comparing incomes of people who went to college against those of people who did not is a relevant factor when assessing the return on investment in a college education.

Anonymous said...

The banks do not want to foreclose on anything. They just want to get paid back. Banks are not in the business of giving away their depositors' money, they are in the business of making loans. When a loan is made the borrower and lender both agree that the money will be paid back.

Jeffry Pilcher | The Financial Brand said...

Not sure why you are going out of your way to defend Mr. Silvia. The subject of this discussion isn't what Mr. Silvia intended or didn't intend (as my original comment pointed out), nor what his field of expertise is or isn't. However, the instant Mr. Silvia tied income and vocation with shame and cultural judgments, he was most certainly turned himself into a commentator on social issues.

I'm sorry this discussion makes you so uncomfortable, or that you feel so defensive. We have both said the same thing: income, vocation and college education are all linked. At least we agree on that much.

Mila Ray said...

With each day student loan debt becomes the bigger problem. I just do not understand how prices for such an essential thing like higher education can be so high? Despite all the alternatives I think that most of students have just 2 ways – saving money (what can be really hard considering these tough economic times) and taking out student loans. The choice is especially hard for low and middle income students. They hope to get a well-paid job after graduation but quite often income is not enough to make payments so they use loans from ameriloan to pay off their debts and repayment process may take years.