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.
4 Comments
Bill, I feel your pain!
As has been articulated through many articles in recent months, one of other elephants in the room is the growing burden of educational costs. There is a very real impact on savings and lifestyle of many parents faced with the same dilemma. Though there is evidence as to the correlation of employment opportunity/income to school selection, it may not be as important depending on your choice of specialization.
The bigger challenge facing parents and students is the continued crunch on college budgets, especially state schools. To offset these deficits, higher ed is opting for higher tuition-paying out-of-state and foreign students to the detriment of locals. Scholarships are few and far between, mostly athletic, putting the emphasis on sports not academics. Again, priorities askew! That leaves parents the choice of the burden of student loans or raiding their dwindling retirement accounts. Educational savings plans are choice, if adopted early enough. Many find this options difficult, as the catch 22 is starting early when most young parents, especially these days, are just trying to maintain.
Add to that the lure of post graduate degrees, many schools flooding the market with every version of advertising to attract those educational dollars. The problem is, studies show there is no return on that investment, especially for the pricier offerings.
Our educational system, from primary through secondary, is in need of serious change. The challenge is, the elephant has grown too big to manage and no one wants to tackle the chore.
Next conversation, elder care, one of the other mammoths in the room!
Posted by: NvWealthCare | March 1, 2012 2:09 PM
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How about this: Get your kids to go to an in-state public university. Get scholarships. The Hope Scholarship in Georgia paid for both my sons' tuition. These are good schools and both are doing really well--certainly as well or better than graduates of Syracuse or Utica. Of course, my boys worked really hard in high school.
Probably would be good to recommend to your kids that, if they did poorly in high school, they are NOT going to do well at an expensive college far from home.
Come back to the real world and avoid debt. It's time.
Posted by: Doug Marvel | March 1, 2012 11:32 AM
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It's not too late to look for outside scholarships, which can replace some of the student loans in every financial aid package. High school seniors are eligible for many outside scholarships. So much so that my son was overfunded for his year at college. Linda, principal at Logos Financial Counseling, Inc. You can email me at logosfinancialcounseling@gmail.com for more information.
Posted by: lindabyerly | February 27, 2012 2:17 PM
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Great article! Excellent! Kudos mega.
Imbued with that collection authorization is the ability to put a student loan debt flag on to seize an IRS refund. If only mortgage companies had that kind of clout, we could have even more angry clients than we do now.
Just made my first student loan repayment last week. Don't want calls from "customer service" as some student-loan collectors from Windham Professionals prefer to refer to themselves. I don't believe ti to be a true "customer" relationship but clearly it entails "service."
Posted by: EnrolledAgent | February 27, 2012 12:35 PM
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