Loans

I was interviewed by our University radio station about the shape of the US economy.  Though I answered at length, my conclusion was and is that the economy is strengthening and that the signs of recovery are more and more visible. At the end of the interview, I was asked about students’ loans and how I felt about many students needing to go into debt to finance their higher education.

I know that taking out loans may be considered onerous and if the loans are above a certain level, it clearly begins to limit future options.  But in general, loans are an acceptable and even desirable way of benefiting today from something that you can’t afford to pay for until tomorrow or later. Many of us have mortgages and cars loans and credit card bills that we pay off, over time. We pay these obligations according to a schedule and often we don’t think twice about doing this. Education works the same way but with an added bonus.  Loans allow us to pursue higher education or an advanced degree and as a benefit, the usual higher potential earnings, make it easier to pay back the obligation.  Education continues to be a sound investment. If you look at the present discounted value of your income over your earning years and the costs you have incurred (including foregone income) you will find the results support the value of higher education.

The system is far from perfect. If you finance both the undergraduate and graduate experience, the loan obligation can be very high and difficult to accommodate.  If you don’t graduate, having pursued a degree but not having been successful limits your potential and limits your earning power.  You have foregone income by being a full-time student but because you have not graduated, many jobs are unavailable to you.  Not in any way a good combination.  And borrowing money on the undergraduate as well the graduate level, could almost force you to select a profession that maximizes your economic return but doesn’t help meet society’s needs or your long term goals.

Post secondary education is as important today as high school was when I was just starting to go to school.  Government should be more supportive and do even more to facilitate students being able to take advantage of these opportunities.  A credit toward the first two years of college makes good sense and would benefit our society and our economy. In addition, loan repayments should be more closely geared to a person’s disposable income.  And for moving into a position that responds to societies needs but isn’t well compensated, repayment schedules should provide an extra incentive.

Loans clearly make a positive difference. At the same time, we as a society should do more to recognize the importance of an ever more educated and sophisticated work force and invest accordingly.