Student Loan Debt Cycle: Breaking Free from Its Grasp

PROBLEM #27: How can I attend college without being a statistic in the student loan debt cycle?

The student loan crisis is at an all time high – $1.4 TRILLION – with a “T”. That is a crazy big number. If you had 1 million people who each had a 1 million dollars, combined they would have one trillion dollars. That’s how much money current or former students owe for their college education. This is a PROBLEM of monumental proportions. This epidemic affects everyone in some way. (This story from student loan hero breaks it down well.) Either you or someone you know is or has been in clutches of this student loan debt cycle. My question is, Is it worth it? Was it worth it for you?student loan debt

Explaining the Student Loan Debt Cycle.

Why is college so expensive? It’s a cycle fueled by loans. Think about it. Student A wants to attend School XYZ, but can’t afford it. Instead of applying to a school that Student A can afford, they apply for assistance (aka – student loan) instead. In Student A’s mind, this is the only option available.

The school realizes that Student A is using loans to purchase their degree. They raise their tuition – citing rising costs or some other reason – all the while knowing that the funds will still be available in the form of a loan. They also know that Student A still wants to attend their prestigious university. Student A still applies to School XYZ with student loans (just like the college hoped). Because the government/lender has been “generous” with their monies, School XYZ seizes the opportunity to raise their tuition again.

It’s an ongoing cycle perpetuated year after year – with students caught in the middle. Colleges/universities make money with rising tuition, while lenders make money with interest paid by unsuspecting college student hopefuls.

There are three parties involved in this skyrocketing debt problem. Any of the three involved parties could end the cycle, but each has too much invested to stop. Let me explain.

What can Students do?

Students can simply stop attending or applying to expensive School XYZ, and our capitalist market will take over. If you think colleges aren’t in it for the money/profit, you’re fooling yourself. There are certainly professors who care about providing students with a quality education. But the college/university is a money-making machine. But what if attendance starts to drop, because tuition is too high and students have come to their senses? Then, to compete for students, the school will be forced to lower their tuition.

A college/university is a money-making machine. Click To Tweet

But . . .

Students have been duped by the marketing of the big schools. They have believed the lie – if you get a degree from our school, you will be guaranteed a job upon graduation. What they fail to mention is that a degree from almost any school can also land you a similar job. Whether you actually get that job depends more on the individual – their skills and experience – and not where they received their degree.

The perception also exists that a degree from a prestigious school means something. What does it mean actually? That you took on mortgage-level-debt to obtain said degree? In my opinion, this is foolish. You can get the same education from many schools – not just the expensive ones. If students were to attend lower cost schools, the expensive schools would be forced to lower their tuition to compete. Cycle broken.

What should Lenders Do?

In an ideal world, lenders realize the crisis that they are perpetuating, and they become more strict with their loan requirements. They only lend where there is a reasonable expectation of re-payment. Or perhaps lend based on the income potential of the degree desired. They could also limit the total amount they lend to each applicant. Government regulations could be implemented to force any of these scenarios to happen.

But . . .

billsAny of these strategies will put a dent in the profit line. They lend less money, and by extension they receive less interest. So why would they even consider this? They probably wouldn’t.

But the main risk of lending – that the borrower will default (not be able to pay back) on their loan – is more probable than ever. Consider this: the default rate for all student loan rates is around 10%-12%. (Check out this story from Just for comparison, the housing market crashed when mortgage defaults were around 9%. The student loan market is due for a reset. It’s just a matter of time.


How can the Colleges and Universities help?

Colleges/Universities can decide to put their students interests above their own profits. They can not only offer a good quality education, but also at an affordable rate. With this “affordable education” would come minimal tuition increases each year. They can also be realistic in their projections about job placements after graduation. Instead of trying to “sell” their school, they can be truthful in preparing future students for life in the real world. Providing debt reduction education can also ease the student loan debt cycle.

But . . .

Applying these principles would require budget cuts across the board. There would be cuts to tenured professor salaries. As well as cuts to other school personnel’s salaries. Do you think school leaders would be on-board to take pay-cuts for the benefit of their students? I’m not sure that’s even plausible. They would also have to adjust their thinking to place more weight on student outcomes rather than securing funding for next year.


You can control you - only you. Click To Tweet

I’m sure you realize that you can’t control what the lenders/government/colleges/universities will do. You can control you. We live in a capitalist society (I wouldn’t have it any other way), but we need to be smart in our college decisions. In the end it always comes down to money. Don’t jeopardize your future perpetuating the student loan debt cycle. Here’s what you should do.

  • Choose to only go to a school that you can afford.
  • Work before/during school to pay for it.
  • Get a degree in a field that you can realistically land a good job – that can also pay the bills. (Check out this post on what career you should choose.) Research the earning potential of your desired degree.
  • Refuse to take out debt to pay for your degree.

If you have been ensnared by the student loan debt cycle, you have a mountain to climb. Don’t shy away from it. And don’t rely on loan forgiveness programs. You got yourself into this mess – you can get out.

A college education is a valuable thing – just not that (mortgage-level-debt) valuable. How much is your degree worth? More or less than you actually paid for it?

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  1. I’d have to say my degree is worth what I paid for it. Mainly because I did not over-pay for my degree.

    I went to an in-district community college the first two years. The next two years I went to a private university comparably priced to a public in-state university but it had an accelerated semester scheduled which allowed me to graduate sooner, thereby getting to work in the field I wanted sooner.

    I also worked full time during my college years, sometimes more than one job.

    I know others will passionately disagree with me, but I see no reason to spend more than necessary on out of state, our of district colleges and universities. It’s interested how much society spends on bragging rights.

    Thanks for the great post!

    • I totally agree. My degree was worth what I paid as well. It’s all about maximizing your initial investment (money spent for your degree) to future income ratio. Thanks for the comment.

  2. Chris,
    Great post on a crucial topic for our generation and the ones to follow. You make some solid points, but I fear that greed will win the day… At least until something big changes. Nice job,

    • Thanks for the comment. Greed seems to always win out. And even if there are a few (in any industry) who truly care, and give out of kindness, they are quickly squashed and/or outnumbered – unfortunately.

  3. From “someone on the inside” . . . a college professor . . . this is great stuff!

    The college education in America transitioned greatly over the past half century from a public good to a private good. But as that occurred, the consumer (the student) didn’t learn (or wasn’t taught) how to assess the value of his/her education.

    Instead, now, we live in a higher education world of inflated prices, inflated (and false) scholarships, inflated debt, inflated expectations . . . countered on the other side with exaggerated claims that a college education is worthless.

    Both parties essentially prey on the student.

    • Right – a college education is certainly NOT worthless, but it’s also not a guarantee of future income – that is more a function of the individual student’s drive and willingness to learn. Thanks for stopping by – and commenting.

  4. Pingback: All Debt Carries Risk, but Not All Risk is Equal - CYinnovations

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