How the Great Recession Caused the Current Student Loan Crisis
Written by adminSeptember 7, 2018 Most young adults over the age of thirty remember what it was like during the Great Recession. Stores were closing. The mall was empty. No one was buying new cars or trucks. In the early 2000s, everyone was buying a home because the mortgage rates were perfect. By 2009, those same people were facing foreclosure. Students by the millions were willing to sign for a student loan just to go to college.
It was a scary time, especially if you were trying to take care of your family. Charles Newmeyer was one of those people. He’s one of the millions of people who were forced to make something out of the worst economic disaster to ever hit the United States. It wasn’t for lack of trying.
The Student Loan Crisis Worsened
Newmeyer thought he could improve his odds of finding a job if he got a degree, so he decided to get an advanced degree in automotive technology. The problem was, he didn’t learn anything he already didn’t know. Newmeyer racked up nearly $80,000 in debt for a degree he didn’t need that failed to help him find work.
After he graduated, Newmeyer regretted his decision to choose WyoTech, a for-profit school. He realized he could’ve spent much less going to a community college and get the same degree. Now, his family is still struggling, this time with the added burden of debt payments.
“Right now, it doesn’t fit into my budget, and I’m ignoring phone calls,” Newmeyer said about his student loan bill. He’s decided to take the route of going into default. He’s not the only one. It’s estimated that by 2020, 40% of all student loans will be in default.
In 2008, before the worst of the recession hit, Americans owed $651 billion. In less than a decade, that number shot up to $1.5 trillion. That’s because the downturn took money out of people’s pockets. If jobs are scarce and no one can even pay their necessary bills, how can they afford their student loans?
The Perfect Storm
The economy as a whole was suffering. If Americans weren’t working, then states were struggling with keeping their budgets in check. Individual states help to fund public colleges, so when money started getting short, the funding became limited. That forced those colleges to raise their prices.
Ben Miller, senior director of the Center for American Progress, knows just how much that further hurt students. “People had less money to pay for college, they had to pay more for it,” he said.
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Just like Newmeyer, millions of students flocked to these colleges, hoping the extra education would put them in a better position. Instead, they found themselves hurting from deep financial wounds nearly impossible to recover. This crippling only made the collapse that much worse. Many Americans are still suffering, even as the economy seems to be on fire.
“The thing that scares me the most is this is where we are years after this recession, so what’s going to happen the next time we have a recession,” said Miller. As bad as this sounds, it was the for-profit schools that made things worse.
For-Profit Schools Exacerbating Student Loan Misery
As the community colleges raised their rates, for-profit schools came rushing in. They knew students were desperate to improve their lives and took advantage. Colleges made all sorts of promises, using highly controversial marketing tactics, telling anyone who would listen that they had terrific job-placement rates. All they had to do was take out a student loan, and they were set. They’d have a job the second they graduated.
These schools even said they’d help their students fill out paperwork and connect them with the top employers in their field. Most of the time, these claims were fraudulent. These colleges were enrolling a record number of students who were merely trying to get through the recession.
More debt accrued, the lives of students became more burdened, and the cycle repeated. The debt added up dramatically to now $1.5 trillion. “We have a generation of folks who tried out college, and now have debt that is going to be very hard for them to walk away from,” Miller said.