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The value of an education: Spiraling college costs and student debt spark doubts over payoffs

Published: Sunday, May 20 2012 8:37 a.m. MDT

New graduates listen to a 2012 commencement address. Debt loads for graduating students have increased sharply in recent years.

Brian Nicholson, Deseret News

Nick hated his job. But looking back, he wishes he had thought twice before leaving it. A recent college graduate with zero debt — a rarity of late — Nick was selling mutual funds and annuities, earning a respectable entry-level salary in 2005.

With the economy booming in 2006, Nick, who asked that his real name not be used, decided to upgrade his skills with an MBA, eventually settling on a small private school perched on a seductive piece of California coastline.

With the school dangling expected starting salaries pushing $100,000 for graduates, Nick began racking up student debt for tuition and living expenses.

Two years, one MBA and more than $130,000 in debt later, Nick entered a fading job market just as the recession began.

Over the next four years, amid spells of unemployment and underemployment, interest on Nick's debt drove the principal up to $160,000. Nick now has a good job that he enjoys and is beginning the long dig out of his debt hole. But it won't be easy. "I am now paying over $1,000 a month on interest alone," he said.

Nick is on the extreme edge of the tsunami of student debt that has helped motivate the Occupy Wall Street movement and roiled presidential politics. The debt is driven largely by skyrocketing tuition costs, which have dwarfed general inflation and even outpaced growth in health care costs.

Pointing to growing tuition and high default rates, some have begun echoing Herbert Stein's dictum: "If a trend cannot be sustained, it won't be." The fear is that student debt is a new bubble that, like the housing bubble, will burst and hamstring the economy as borrowers like Nick see their life options shrink under debt.

On the other side of the balance sheet, student loans are now the federal government's largest asset, according to investor data aggregator Doug Short at Advisor Perspectives, which generates data for investors.

By 2011, he said, 31 percent of money owed to the federal government was in student loans, with the next closest category being mortgages at 8 percent. This has huge implications for government solvency as pressure grows for loan forgiveness and interest rate cuts, and a politically driven Congress and president are poised again this month to lower interest rates on student debt.

Explanations for the cost spikes and debt spirals in higher education are disputed, but many experts are questioning the bang-for-buck ratio and calling for an overhaul in how America thinks about — and pays for — post-secondary education.

What is it worth?

One scenario of student debt is captured by Mark Kantrowitz, the publisher of finaid.org and an expert on college financing. A student goes to an elite university and, encouraged to "follow his dreams," majors in ethnomusicology and racks up $100,000 in debt. "Not a very lucrative degree," Kantrowitz said. "There are only two jobs you can get with it. You can be a music librarian for a record label, or you can go to graduate school and go on to teach more victims."

A popular belief is that a bachelor's degree is worth a million dollars, a number originally offered in a 2002 U.S. Census Bureau report and then picked up and widely touted by the College Board. The idea is that over a lifetime, a college degree increases a worker's earnings by roughly that figure, compared to those who do not earn a degree.

But that belief is rife with flaws, according to Mark Schneider, a vice president at American Institutes for Research, a social policy think tank. Schneider said the College Board backtracked on the million-dollar claim, but the number took on a life of its own and has never died.

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