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The Economics of Student Loans

by Jean Fan

The Harsh Reality of Paying for School

I’m worried. As I apply for college, my biggest fear is not “Where will I get in?” but rather, “How will I afford all of this?”

Already the costs are accruing. We have to pay to request transcripts, and then pay more to send our SAT scores. Don’t forget the application fees — one for each of our schools, upwards of sixty dollars. I haven’t even made it to college yet, and already I’m falling behind on my dues.

At college, it won’t get any better: going to a top school easily costs $100,000 in four years. Spending this amount of money seems absurd, especially since I don’t have a solid plan to pay it back. Why is that investing $100,000 in a startup venture is seen as a risky move, but investing the same amount in a college degree is seen as necessary or even inevitable?

What I’m most concerned about is this: unlike other loans, student loans are unforgivable. They go with you to the grave (or even beyond).

The Student Loan Bubble

Right now, students owe more than $1 trillion dollars in loans, and that number is expected to increase by $60 billion a quarter. Unfortunately, not only are students taking out more loans, many are defaulting on theirs.

This has created the next subprime crisis — remember the one in 2007? Homeowners in the United States took out mortgages far bigger than they could pay back, which led to the severe downturn in the U.S. (and the global) economy.The scary thing is that right before the crash, the amount owed was $1.3 trillion dollars. The amount of student loans owed will surpass that in just a year and a half.

Is This What I Want?

I know a lot of college students put themselves through school by applying for scholarships or working part-time jobs. It’s possible to graduate from school debt-free, but often there are costs: choosing to attend a school that offers a lot of scholarship money rather than your choice school, picking up multiple jobs that infringe on your studying time, and so forth.

College, as we know, isn’t a surefire way to a great career anymore. We need to find new ways to set ourselves apart from the pack, since there are now over 20 million other students enrolled in college. That’s what people say, yet everyone goes to college anyways and are paralyzed when they graduate and can’t find a job. The opportunity cost of going to college is that we could be using that time to self-educate, create cool projects, and design our own future. We could be turning ourselves into hackademics.

At this point, I don’t know how I feel about college. I’m sure if I really tried, I could make ends meet and leave with a payable amount of student debt. The real question is this: is that $100,000 the best use of my money?

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