Home > 2012 > Students

The Other Student Loan Slow Jam: Is It Time for a National Service Corps?

Advertiser Disclosure Comments 1 Comment

College GraduatesIf you haven’t taken the time to watch President Obama slow jam the news on Late Night from last week, take the time. It was a political masterstroke that so infuriated conservatives (because they’re incapable of approaching that level of coolness), that they actually tried to make being cool, uncool. It, of course, was not that cool.

The slow jam was all about student loans, and though it may have been a big deal for Jimmy Fallon’s ratings, it didn’t really do much to address the breadth of the crisis. A lifetime ago, I proposed something that might actually go someway toward fixing the school financing bubble we all face, though many will view it as even uncooler than the GOP’s attack on coolness. More on that later, but first, let’s take a closer look at the substance of the slow jam.

[Credit Calculator: Use Credit.com’s Free Credit Report Card]

The Late Night appearance placed President Obama at the forefront of the student debt crisis. It was arranged so Obama could voice his support for legislation that would keep interest rates for federally subsidized Stafford loans at 3.4 percent. They are set to increase to 6.8 percent on July 1 unless Congress acts. Most politicians think rates should stay low, but they don’t all agree on how to pay for it. Republicans want to use a fund marked for public health. Democrats want to pay for it by eliminating certain subsidies for oil companies and increasing taxes on the wealthy. Either way, it’s a head fake.

Locking the interest rates at 3.4 percent will save the average student a few thousand dollars over the life of the loan, but it will do nothing to solve this nation’s higher education problem where often only the very rich or those willing to take on permanent debt can go to college. So the President can slow jam this all he wants, but even the ghost of Barry White couldn’t make this interest rate deal anything more than lipstick on a pig.

So permit me to slow jam just how badly higher education in America is broken.

Awww yeah. Mmmm.

College in America is insanely expensive. According to data from The College Board, since 1981, tuition at private colleges has nearly tripled and it’s nearly quadrupled at public colleges (in constant, 2011 dollars). In the early ’80s tuition and fees at a private college ran just $10,144. Now it’s $28,500. A public college cost $2,200 and in 2011/12, the average was $8,200. And remember, these are all 2011/12 dollars and none of these figures includes room and board. That means that an education at an ‘elite’ private institution can run a middle class family that doesn’t qualify for aid, close to a quarter of a million dollars. And if the next 30 years is anything like the previous, some of the kids in Sarah Lawrence’s class of 2042 could be saddled with somewhere in the neighborhood of $720,000 in student loan debt.

[Featured Article: What’s a Credit Score? Really.]

Sure, college graduates do earn more than non-college graduates, but consider the costs. There have always been and will always be ebbs and flows in the overall economy and the employment rate. What’s troubling now is the fact that when kids graduate with $100,000 or more in student loan debt, and can’t get a job, they won’t be able to pay back these sizable debts. So, they’ll either default on or defer their student loans, which will cause that debt to sky rocket. Then their credit will take a hit, which, depending on what state they live in, could make it even harder for them to get a job. And even if they do manage to get a job, the mountain of student loan debt they are paying will make it very hard for them to save up enough to buy a house, a car or their own kids’ college tuition, which means that our housing market and economy in general could remain anemic for generations.

Student loans are the roach motel of debt. They are almost never discharged in bankruptcy. Banks and colleges know that repayment of these loans is the third certainty in life—after death and taxes. While there are efforts afoot to reform current bankruptcy law to make student loans dischargeable, lenders aren’t terribly concerned because they have an alternative. According to one report, 90% of student loans have cosigners (i.e., for every kid who escapes the hook, there is a parent dangling on the line).


Credit.com’s Credit Report Card
Check your credit bureau profile for free with this great tool. See your detailed credit evaluation, expert advice on managing your credit, and unlimited free updates every 30 days.
Get Started Here »

There will be ripples. Student loans, just like mortgages, are securitized. They are sliced and diced into little pieces and sold off to investors. So, when the great wave of student loan defaults happens (and it will happen), because these loans are securitized we could see ripples throughout the financial system, just as we did when people started defaulting on their mortgages. The difference here is that mortgages are backed by real property—houses—which banks can repossess.  What backs student loans? Smart kids? Underwater parents? We could be looking at a whole lot of money simply evaporating.

[Related: Read more columns by Adam Levin]

It’s a big mess, and year by year we’re making it worse, but there might be an alternative to this broken system. Since 1969, I have supported the concept of a National Service Corps and said so in a floor speech that I drafted for a certain U.S. Senator I used to work for. The idea was based upon President Kennedy’s Peace Corps and had been proposed at the time by a number of luminaries.

The premise is simple: at age 18, you serve the nation for at least two years. In return, America underwrites your education at a four-year public university or technical school.  Your contribution can be in the form of military service, infrastructure improvement or community building.

This would accomplish a number of things, not the least of which is to provide American students with some real world experiences that would lead to more informed decisions about and a greater appreciation for college and career. It would also give a boost to our economy by nurturing productivity and infrastructure enhancements. And as a bonus, eliminating the all-volunteer Army might help to prevent us from engaging in elective wars.

Next week we’ll take a closer look at how a program like this might be able to work.

Image: Cuban Refugee, via Flickr

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Our Owners

Credit.com is owned by Progrexion Holdings Inc. which is the owner and administrator of a number of business related to credit and credit repair, including CreditRepair.com, and eFolks. In addition, Progrexion also provides services to Lexington Law Firm as a third party provider. Despite being owned by Progrexion, it is not the role of the Credit.com editorial team to advocate the use of the company’s other services. In articles, reporters may mention credit repair as an option, for example, but we’ll also be sure to note the various alternatives to that service. Furthermore, you may see ads for credit repair services on Credit.com, but the editorial team isn’t responsible for the creation or implementation of those ads, anymore than reporters for the New York Times or Washington Post are responsible for the ads on their sites.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team