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Reason for Student Debt Crisis, According to Sheila Bair

Posted By:  |  October 15, 2015  |  0 Comment(s)

Sheila Bair President of Washington College in Chestertown, MD spoke with MarketWatch explaining what she believes is the real reason is behind the student debt crisis.

Sheila Bair Photographer: Andrew Harrer/Bloomberg *** Local Caption *** Sheila Bair

Sheila Bair Photographer: Andrew Harrer/Bloomberg *** Local Caption *** Sheila Bair

“You have this dynamic of declining real wages and an increased need for a college degree,” Bair said to MarketWatch. “And so what you end up having is more and more young people applying for college with fewer families able to pay for it.”

Low-wage workers are watching their incomes drop while middle-class workers are seeing a miniscule increase in their wage, according to the Economic Policy Institute, a left-leaning think-tank. The crisis stems from a catch-22 system with an increased number of Americans having less money to dedicate toward a degree yet more employers are demanding a degree before they consider hiring.

Bair said this “very well intentioned” system of government lending programs has forced more students and families to take out student loans explaining how this crisis has demonstrated parallels to the mortgage crisis.

“Debt is not the answer; real wage growth is the answer” to Americans’ inability to afford homes or degrees, Bair said. “The baby boomer generation has just been too easy to default to the financial sector and credit to get things that we want without focusing on real economic growth.”

For-profit schools have taken much of the blame due to heavy advertising and shady marketing tactics luring in students already under economic hardship. Schools like the former Corinthian Colleges, including the better known Everest College, encouraged students to take out substantial loan amounts while inflating the school’s graduation rates. Two-year community colleges also have been under the same scrutiny, although to a lesser extent. Several students enrolled at these colleges struggle to pay down their debts or are not paying on them at all, according to a Brookings Institute study.

“There needs to be more accountability by schools who have been taking advantage of these kids, It makes me very angry,” Bair said.

In July the U.S. Department of Education stated the Obama Administrations has taken action by setting in place the gainful employment regulations to “crack down” on the trade schools industy of abusive practices. Under new regulations, for-profit schools are now required to take initiative in preparing grads to enter the workforce. Without documented proof, these schools will be stripped of their federal funding.

Democratic presidential candidate Hillary Clinton proposed a $350 billion education plan  pledging to provide free two-year college education with the federal government backing up these states with grants. Clinton also endorsed a proposal introduced by bipartisan lawmakers to require colleges to give back a share of the federal funds their students have not paid back.

Bair said the strategies some colleges have used such as hiking up tuition rates in hopes that more wealthy students will attend simply isn’t working. Tuition is on the rise although revenue from increased tuition costs has remained stagnant over the past 13 years, according to  Inside Higher Ed.

Graduating college debt-free is an aspiration many students hope for and is ultimately determined by factors circling around parents saving for their children’s education.

“I was blessed,” Bair said, thanks to the help of her parents.


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