So Your Kid's In College—Now How Are You Going To Pay For It?

Here’s the good news: my son is going to college. Here’s the bad news: it’s going to cost us over $60,000 a year, or actually, $120,000. Yep, you read that right. It will cost us $120,000 pre-tax dollars each and every year for the next four years to send our beloved son off into his glittering future.

And by the time he graduates, his sister and younger brother will be in college costing us as much, if not more. In case you needed a little help with the math as I did, we are likely to be in for over $1.5 million pre-tax dollars by the time our children are launched. 

So, you can understand why we are particularly interested in the debate raging in Congress right now over student loan debt. Everyone agrees we have a crisis looming on our hands. Tuitions continue to skyrocket and students burdened with post college debt are struggling to find jobs in this shaky economy. In fact, the unemployment rate of recent college graduates is over 25%. As they postpone paying off their loans, these newly minted potential tax payers find themselves in a financial quagmire. The result? Loan defaults are at an all time high of 8.8% with no sign of letting up.

In a recent column, Representative Clark Hansen (D., Michigan) explained the conundrum facing student borrowers quite well. He wrote:

“Students who studied hard, played by the rules, and are now desperate to find work are being denied basic opportunities and are, accordingly, falling behind on payments. They are finding that their degrees, like homes at the height of the real estate bubble, were vastly mispriced assets that are now hard to finance. Yet, unlike the debt from a home bought in the boom years, it is impossible to walk away from the debt incurred by getting a degree. A student borrower cannot discharge or even refinance their debts in bankruptcy, regardless of how desperate his or her situation becomes. And, if a student borrower does default, he or she will face perpetually rising interest rates and compounding fees with no hope of escape.”

In short, they can’t get a foothold into the economic engine that is at the heart of our country and the risks to all of us are grave. Already, student loan debt encompasses more than credit card debt in our country for a total of $8.7 billion dollars. Some are saying that student loan defaults will be the next economic crisis this country will face with consequences are as dire as the housing defaults we are just barely recovering from. 

So what is the solution? In the short-term, the obvious answer is a careful restructuring of the student loan system. The recently proposed Student Loan Forgiveness Act (SLFA) of 2012 goes a long way to helping ameliorate the challenges facing student borrowers. It offers a debt forgiveness system for those who have reliably paid over the last decade; it caps the interest rate at 3.4% (if the law does not pass, it will jump to 6.8% by July and will likely increase from there); it encourages public service by offering a reduced forgiveness time table for those who commit to serving their country; and it helps consolidate private loans for those who are forced to go outside the federal loan program to secure funding for college.

Sadly, but not surprisingly, this obvious solution has become a political football. At the core of the issue is how to fund this student debt bailout. In order to underwrite the SLFA, The Republicans would like to strip the Affordable Care Law of its resources for women’s health services. The Democrats want to tax the rich saying it is their duty as American citizens to help ensure others have the opportunities they did. As far as I can tell, this means the SLFA is headed down a dead-end path. But who knows; perhaps Washington will surprise us.

Beyond loan forgiveness, we need to consider how to get at the root of the problem. We need to establish a meaningful vocation track like the ones found in Europe because college for all is not the solution. We also need to put pressure on colleges to limit tuition increases (a daunting prospect as demand continues to outstrip supply for quality education and public institutions are straightjacketed by dwindling state coffers). We need to begin to see college as we once viewed high school, a social good that is essential for all citizenry to ensure they can both participate and contribute to the sustained growth of our society.

And while this debate continues to rage, I’ll be pondering how in the world we are going to pay for our children’s college experience. Because we own our home in Palo Alto, we won’t qualify for a federal student loan. Perhaps one of the soon-to-be minted Facebook gazillionaires would like to by my house. Hey, you, make me an offer I can’t refuse...anyone?