Government Financing Of Higher Education Leaves Millions Of Americans Worse Off

A large part of the government’s investment in higher education over the past 15 years may have done more harm than good. According to a new report by the Wall Street Journal’s Josh Mitchell, many Americans who have taken advantage of government-financed grants, low-interest loans and loan guarantees are now worse off than they were before.

The plan was for the government to help finance students who wanted higher education. The government was aiming for higher earning power for the student and an improved U.S. labor force. Unfortunately, the actual result was not so pretty. Total outstanding student debt now sits at $1.2 trillion, four times what it was in 2000.

Of the 1.4 million students that left a for-profit college from September 2006 to September 2008, 70 percent of them dropped out without achieving their intended degree or certification.

Another study of students who enrolled in nonprofit colleges in 2005 revealed only about half graduated within six years.

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Student debt is a heavy enough burden for students who actually obtain their degrees, but students who drop out are left with thousands of dollars of additional debt and no boost in earnings power to show for it.

The rising student debt load and the high level of delinquencies from borrowers unable or unwilling to pay is reminiscent of the housing bubble back in 2007.

Many of these borrowers have already taken significant hits to their credit scores, and others are financially suffocating under their debt. Either way, the student debt these Americans have taken on has certainly not improved their ability to contribute to the U.S. economy.

Companies with significant exposure to student loan debt include The First Marblehead Corporation FMD, Navient Corp NAVI and Nelnet, Inc. NNI.

Disclosure: The author holds no position in the stocks mentioned.