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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP® Joel Ohman

UPDATED: Mar 23, 2012

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“I am the first in my family to go to college. Without family support, I self-financed three college degrees (BA, MA, and PhD) at state colleges between 1988 and 2005 using Pell Grants, multiple jobs, scholarships, and $90,000 in subsidized and unsubsidized student loans.

My loans have been bought and sold so many times it is impossible to keep track of changes in rates, balances, and terms of service since I have never had to resign any promissory notes. Eventually, I was able to consolidate the loans with Sallie Mae at a 7 percent interest rate. My loan payments have ranged from $400-600 per month depending on the loan provider and lowest possible payment option available.

…I am currently a public school teacher with an income of $50,000, barely enough income to pay the interest-only payments. I have never missed a payment in over ten years … and my loan balance stands at $105,000. To date, I have paid over $40,000 in loan payments and because my income restricts me to interest-only payments, and the 7 percent daily capitalized interest rate, I now owe $15,000 more than I borrowed….

My student loan situation has nothing to do with a lack of financial responsibility. I have never missed a student loan payment and I have paid off $20,000 in credit card debt and a $10,000 car loan since graduation. I have no mortgage or any other outstanding debt, just my student loans. I have a credit score of 820. However, because of the usurious interest rates, capitalization of interest, and the sole option of interest-only payments, I will never be able to pay off my student loan.”

The skeptic may look at this story and believe it to be a fluke; a scenario birthed from bad luck. However, the most interesting (and sickening) point to note about this experience, which was posted by the user debttired on the Consumer Financial Protection Bureau’s comment board, is that, despite what the skeptic may believe, it is not unique. Thousands of other stories expressing a similar experience as this one have been posted on student support websites across the internet. And while this particular story very persuasively presents an argument against the United States’ higher education system, the consequences arising from the flaws in our current system are proving to be much larger than this one individual’s shattered life.

The type of injustice experienced by this student loan borrower may be giving rise to a trend that will require a much more substantial fix than debt forgiveness, particularly given the United State’s supposed struggle to maintain its place as a top world power. That trend we’re talking about is the complete deterioration of our nation’s higher education system.

Two Wrongs Don’t Make a Right

According to CNNMoney, in order to deal with cost-cutting measures and the student loan crisis a growing number of colleges are resorting to reducing tuition and speeding up the rate by which students graduate with a degree.

“These types of initiatives have been used to some degree in the past, but have become increasingly prevalent since the economic downturn—and we expect to continue to see them spread,” explained Tony Pals, a spokesman for the National Association of Independent Colleges and Universities.

Lower tuition sounds wonderful to the ears of current or prospective students on the verge of taking out student loans—but the trade off is a lower quality of education.

In order to make up for the college’s lost costs from reduced tuition, universities are expediting students’ studies, giving them degrees quicker, showing them the door, and making room for new fodder to enter their institution.

If this trend continues, the nation with the most prestigious, most sought-after universities will soon find their degrees losing more and more weight.

While the high costs of colleges have led to a national crisis as far as personal debt is concerned, committing another “wrong” by diminishing the integrity of our nation’s education institutions is hardly a step towards correcting the problem.

California Has Always Led the Nation

If Americans wish to see what the future of the nation looks like, they only need to look at California. From progressive and civil movements to innovative technology, California, standing firm as the 7th largest economy in the world, has long proven to be an influential leader amongst the nation’s 50 states. But leaders don’t always produce optimistic or acceptable results, as is the case with California and its education system’s current condition.

The California State University Board of Trustees recently received devastating news that the Cal State system could lose up $200 million in funding for the 2012-13 academic year, as reported by the LA Times.

The $200 million in question will be removed from the state’s education budget if legislation is not passed in November. If such a cut occurs, that will equate to millions of lost dollars for each of the 23 Cal State campuses.

Cal State Long Beach (CSULB) is expected to lose $26 million as a result of this funding slash. Such financial blow will require the school to extract money from student loan borrowers by charging more or by turning some away.

“We already are spending so little on our students,” said F. King  Alexander, the president of CSULB. “We can no longer spend less on them and give them a quality education unless we reduce enrollment.”

And reducing enrollment is exactly what CSULB is doing, as Alexander expects an astonishing 23,000 applicants to be wait-listed come fall of 2013.

The Cal State system, which has been one of the most prestigious state-funded higher education systems in the entire world, is feeling its knees buckle under the student loan dilemma and mismanagement of state funds.

‘We’re just going get stupider’

But what’s to come of this?

As the internet continue to serve as an outlet for student loan borrowers to share their debt experiences, future college-goers may start to be dissuaded from attending a university here.

If our institutions continue to cut corners in an effort to make up for the lack of federal and state funding, and if they continue to suck money from our young student loan borrowers, then the adjective “quality” will soon become foreign and unknown in our nation’s education system. Those willing to take on the burden of student loans will venture elsewhere, seeking an education of greater value.

And what would that mean for the United States?

“We have to have doctors, we have to have lawyers, we have to have microbiologists, and we have to have newspaper reporters, and public school teachers, and professional photographers… and those are all careers that require a significant amount of education. We’re just going to get stupider until there’s a change. We’re just going to get dumber.”

This ominous prediction by a graduate named Mel, found in the short film Default: the Student Loan Documentary, may be more accurate than any of us want to admit. If our system continues on the course it’s headed down now, we may very well just become “stupider.”