As we’ve pointed out before, Oregon is one of the states no longer waiting for the Federal government to take the lead and resolve the underlying problems of the Student Loan Programs. Their “Pay It Forward, Pay It Back” Program may wind up being a template or at least a springboard for them and other states to attack the increasing amount of college tuition and fees as well as the predatory lending practices of some federal and private lenders. As the final numbers for 2013 come in, Oregon politicians may not be moving fast enough. Students attending Oregon state universities took out more in student loans in 2013 with graduates defaulting on higher levels of debt than was expected. Lenders wrote off almost $14 billion as uncollectable in the first eight months of 2013 alone. This is a 46%increase from the same period in 2012 according to the American Banker industry publication.
Keeping Up The Jones … and Mom and Dad
The Millennial generation has borrowed more than it can afford to pay back for their education in order to try and meet the expectations of their parents, according to the University of Oregon-based League of Educators and Students Slashing Tuition. Per Judith Lechner, a co-founder of LESS-T and a University of Oregon graduate, this is because “They’re told that without a college degree they won’t be able to make a good wage later in their life. It’s a vicious cycle, this promise of a really good job later makes students very vulnerable to take out more and more money.”
In this still very soft job market, graduating students find their accumulated loans are a serious problem that affects their credit rating which in turn affects their opportunities at finding a job that will allow them to repay their student loans and avoid default. “I would say it’s a major problem,” said Tatiana Skomski, a UO sophomore studying public relations. Tatiana and her parents, San Diego natives, have taken out loans in order to support her academic future. She isn’t sure how much she’ll owe upon graduation, but she’s worried about it. As we’ve pointed out here at Student Debt Relief, knowing your loans and how to calculate them is important before you even take one out. Ms. Skomski continues, hoping that “One day it will be worth it — and I’ll be able to pay it off, but you’ll never know when it comes to debt, and that’s a scary thought.”
Double Digit Unemployment
Unfortunately for her and her fellow millennials, they face a 12.5 percent unemployment rate for ages 20 to 24. This is nearly double the current overall jobless rate in the U.S. of 6.7 percent. According to Mack Reynolds, a financial officer with the Pacific Continental Bank, “The fact is that most of these new graduates are not going to find jobs that will pay them an amount that will allow them to comfortably pay (loans) back. Unless we start to see more significant economic activity where these folks coming out of college will be able to get the better-paying jobs — those defaults and charge-offs are going to continue to go up, and, yes, you could see it reach a crisis level.”
Many students blame the state universities for their spending. In Oregon, college tuition has risen 40 percent in just five years. A decade ago, college and state officials were attempting to attract more Oregon residents and out-of-state students to the University of Oregon and other state colleges. They increased the number of buildings, improved athletic facilities and hired more teachers. Unfortunately, this drove up the cost of tuition so much, that while more students are enrolling, they find themselves graduating with a crushing amount of debt in an economy that seems to place far less value on their degree than it did as little as five to ten years ago. The very things that colleges have done to increase enrollment in the short term may cause serious issues in just a few years.
Short Term Gain – Long Term Fallout
As more families find it difficult to send their children to college, many of them are looking to local community colleges and technical schools as alternatives to the high cost of tuition, fees and other expenses. Some of these students and families are holding off going to college in order to buildup at least one year of tuition before starting their academic life. While this is excellent financial policy for families, it reduces the student population, forcing colleges and universities to either increase tuition or find ways to reduce costs by closing areas of study, firing non-tenured teachers or shutting down athletic programs.