Monday, May 21, 2012

Media and Financial Aid

It's no big secret that the media is always looking for the next big story. They were all over the "housing crisis", and since that was a huge success, they are looking for the next bubble. Most of them have gravitated toward student loans, calling it the next crisis or bubble that's about to burst. But is it really? Is it hype? You be the choice, but in the meantime here's some interesting notes.

The most important thing to note is the massive size difference between the numbers of the housing bubble and the student loan industry. Currently, the student loan industry is around $867 billion. Sound like a lot? Well, compare it to the amount that the housing market comprised in 2006 when it burst: $22 trillion. That's about 25 times larger than the student loan industry. If every single student defaulted at the same time, it would have a fraction of the impact as the housing market since the housing market lost $8 trillion when it burst. $8 trillion, compared to (at worst) $867 billion? Big difference.

Another important thing to note is that if FA is restricted or cut, it won't drive down tuition costs. There have been studies done on this, and each one seems to have its own result, which is usually what they were looking for. The simple fact is that schools that receive assistance from state and local governments have received less, which causes them to raise tuition to compensate. The cost of technology has been driving up tuition prices for years. It may make some things cheaper, but school isn't one of them. To compete on a technological avenue, the schools have to dump more and more money into the technological side, but this doesn't help tuition prices. If FA is restricted, more than likely, this will only result in less students attending school because they can't afford it.

The other element that the media likes to latch onto is the fact that students are borrowing too much. They like to show these huge amounts that people have borrowed and defaulted on. Last Tuesday, the local news had a story about a doctor who earns 6 figures every year but has defaulted on his loans. These are common and take little into account for the causes. The most common stories include students who have borrowed over $200k. However, the truth is that only about 0.5% of borrowers have borrowed over $200k, 0.7% have borrowed between $150k-$200k, and 1.9% have borrowed between $100k-$150k. The other thing most don't realize is that these are graduate students, not undergraduates because loan limits restrict it. The truth is that over 43% of borrowers have between $1k-$10k of student loan debt, and another 30% have borrowed between $10k-$25k. But these don't make the news.

Unfortunately, this "story" fits in the category of the car wreck analogy. People have to look at car wrecks when they pass because it's dark and sad and not normal. People tend to secretly enjoy what is out of their control and like to see bad things happens to others, then feel freaked out that it could happen to them. It's nothing new. So, you couple the idea that people feed on the negativity of the news and the notion of the media to look for the next story, and you are left with the wrong side of the stories being told to scare the masses. Sometimes, we just need to research the facts ourself.

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