By Ben Werner
U.S. Sen. Mark Warner worries the escalating cost of earning a college degree is causing an alarming number of students to mortgage their futures against their diplomas.
Student loan debt is the next big financial crisis facing the nation, Warner said last week while speaking at Tidewater Community College's Portsmouth campus with educators and students harboring entrepreneurial dreams.
"Student debt is north of $1 trillion," Warner said. "It's more than student credit card debt."
Already, 71 percent of the class of 2013 entered the job market with an average student loan debt of $29,400, according to the nonprofit advocacy group the Institute for College Access and Success. In Virginia, 60 percent of college seniors graduated owing an average of $25,017 per student, and in North Carolina, 59 percent of seniors graduated owing an average of $23,893 per student, according to the institute's reporting.
And the trend is to take on more debt. As the cost of college increases, students and families are encouraged to simply borrow more to pay for the escalating costs.
The U.S. Department of Education projected $112 billion in new loans will be generated during the current fiscal year, more than a 5 percent increase from the $106 billion in new loans generated during fiscal year 2013.
"We just can't have higher education costs continue to escalate," Warner said. "We've made a deal with the devil."
Warner is pushing a trio of initiatives he said would ease some of the costs for students. Warner's proposals include:
* Establishing a system called Know Before You Go that will allow students and their parents to get a clear idea of how much college will cost and offer a better understanding of the job market and earning potential for various majors and career paths.
* Expanding Pell grants to pay for community college. Increasingly, Warner said the rising cost of attending four-year colleges would spur students to attend community colleges before earning bachelor's degrees. The Pell grant system should accommodate this reality.
* Adjusting the student loan interest rate benchmark, such as pegging the interest rates on loans to somewhere in the range of 150 to 180 basis points above the 10-year Treasury note interest rate. This would lower interest rates, but not create a mandated cap lenders would balk at.
The fear is if the level of student borrowing continues to increase, this debt will ultimately become a drag on the economy. Recent graduates carrying large debt loads will find it harder to buy homes or secure funding to start new businesses, weakening two of the pillars supporting the nation's recent economic growth - the housing sector and small businesses.
Recent national wage data suggests the rate of salary increases is no longer keeping up with the steady growth in student debt, which grew by an average of 6 percent annually from 2008 to 2012, according to the Institute for College Access and Success.
Salary increases nationally did keep pace during this time, potentially dampening the effects of increasing student debt. Between June 2008 and June 2012, total civilian compensation increased by 7.4 percent, rising to a national average of $30.61 per hour from $28.48 per hour, according to the U.S. Bureau of Labor and Statistics. Civilian employment includes both private industry and federal and state government employees.
But since 2012, civilian compensation has nearly stagnated, increasing a mere 1.3 percent, inching up to $31 per hour in June 2013. Yet experts expect the cost of college to continue increasing.
What this means is students such as William Cody Herbert and Johnny Warren, two Portsmouth high school seniors who hope to one day own their own businesses, are already facing the possibility that paying for college may dampen their entrepreneurial endeavors.
Herbert is a senior from Churchland High School who works at a commercial nursery and plans to study horticulture with the goal of opening his own nursery.
Warren, a senior from I.C. Norcom High School and a member of the state champion basketball team, plans to study civil engineering and own his own firm.
But both have an edge - they're taking college courses at the Portsmouth campus of Tidewater Community College through a partnership with Portsmouth Public Schools called the First College Program.
For a discounted rate, Portsmouth high school seniors can simultaneously earn college credits and their high school diplomas.
Herbert said the cost of attending college is the reason his parents wanted him to apply to the First College Program. He'll finish this semester needing only to pay for three years' tuition at a four-year school.
The First College Program appealed to Warren as well.
"The less debt going into college, the less coming out," he said.
A total of 950 Portsmouth high school students have finished the First College Program since it started a decade ago. Warner called it a model for the state and the nation, as he learned details about the program while visiting campus.
The ambitions of Herbert and Warren sounded familiar to Warner, who recalled failing two times in business after graduating from Harvard Law School. His third try succeeded with cellular phones. But considering that it's common now for law school graduates to carry more than $100,000 in loans, Warner didn't sound so sure his success story could be easily replicated today.
"When I came out of college I had $15,000 in debt," Warner said, "so I could afford to take a chance."