A Bachelor's Degree in Debt

 

My family spent the President's Day weekend in one of the frozen towns in upstate New York that serves as home to two of the 4,500 colleges and universities that call the Empire State home to get a look-see at some potential locations for my younger daughter to call home for the next four years.

The good news is that it was two of the better-known institutions, both armed with impressive academic pedigrees. The bad news is that I already have one in a private college and, as you well know, I'm an editor, not a hedge fund manager.

The worse news is that my oldest now has several outstanding loans, and according to a recent report released by the National Association of Consumer Bankruptcy Attorneys, some 81 percent found that potential clients with soaring student loan debt have increased over the past three or four years and fully one quarter of those polled said student loan cases have increased anywhere from 50 percent to 100 percent.

Houston, we have a problem. Or more accurately, a crisis.

For example, of the Class of 2005 borrowers who began repayments the year they graduated, one analysis found 25 percent became delinquent at some point and 15 percent defaulted. The Chronicle of Education estimates the default rate on government loans at 20 percent. The report from the group, "Student Loan 'Debt Bomb': America's Next Mortgage-Style Economic Crisis," pointed out that college seniors who graduated with student loans in 2010 owed an average of $25,250, up 5 percent from the previous year.

The amount of student loans taken out last year crossed the $100 billion mark for the first time, and total loans outstanding will exceed $1 trillion for the first time this year.

But parents like yours truly are often on the hook as well.

Loans to parents for the college education of their children have jumped 75 percent since the 2005-2006 academic year. Parents have an average of $34,000 in student loans, and that figure rises to about $50,000 over a standard 10-year loan repayment period.

And here's the rub.

Lenders have little risk of losing money on the loans, unlike the mortgage implosion, because lawmakers imbued them with broader and more aggressive collection powers, far wider than for example credit cards or mortgages.

Therefore right out of the chute, graduates are often saddled with heavy debt loads, and as a result of having to make even the minimum payments, will surely delay other purchases. That may result eventually in an economic slowdown.

So what is the answer? Attending far more affordable junior colleges initially before matriculating to a four-year school? More stringent evaluations of a student's ability to replay the loan by assessing the potential wages of their majors - say, accounting versus art history?

I'll let far brighter minds than mine sort this out and I hope it's soon. With one loan and another looming, I don't want to be asking folks at age 70 if they want fries with that.

 

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