This month, young people across Kentucky will be enrolling in state colleges and universities. Students will be relying in large part on student loans to cover the cost.
While middle-class incomes stagnate, tuition costs continue to outpace inflation, especially wage inflation. The large tuition increases that have continued for many years are not sustainable in the long run.
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For some time, money has been cheap. Low interest rates allowed more Americans to fund a lifestyle through loans, which were often beyond the borrower's ability to repay.
A lack of financial literacy has separated Kentucky's citizens from a healthy understanding of money and debt. Nowhere is this more pronounced than in young people who have yet to face the challenges of financial independence.
At age 18, students are signing obligations they will be repaying for years to come. These debtors may know that their actions incur a later obligation to make regular payments, but it is unlikely that they have a solid comprehension of it.
Without a rational basis for understanding the consequences of their actions, students are less likely to act as rational purchasers. As a result, tuition is likely to increase beyond levels that are affordable before the consequences of the financial overextension are felt.
It may be too late for a generation of college students before it is recognized that the cost of higher education is too high. This would pose serious consequences for Kentucky.
The money has to come from somewhere, presumably future wages. Personal savings will be further reduced, and capital that would otherwise be used in Kentucky's economy will be diverted elsewhere.
Money spent on loan repayment cannot be funneled to retirement savings or a down payment on a house. Money servicing interest will leave the state for economies in the nation's banking capitals. The college graduate will have greater earning power than someone without a degree, but at what point are those earnings offset by monthly loan payments?
The greater the average student debt, the more wealth is taken from Kentucky and sent to other regions of the country.
Before college students earn their first paychecks, they are in debt. With less disposable income available, parts of Kentucky's most important professions will be hurt. Higher student-loan costs have a direct impact on the public service sector. Teachers, social workers and others who work for generally lower pay than they would get at a private firm are squeezed the most.
Public service should not be a luxury of the privileged. Unfortunately, many young professionals are being forced out of public service, in large part, by burdensome student debt.
Tuition increases can do only so much to improve our university system. Some people would like a system in which tuition is significantly higher, but scholarship and financial aid are more forthcoming to those families with greater financial need. This option diverts the money it raises away from teacher salaries and course offerings to increasing levels of bureaucracy to weed through thousands of applications and assign tuition levels and scholarships in a necessarily subjective manner.
The wiser choice, the more efficient choice would be to keep tuition low and the costs within reach of middle-class families.