One Trillion Dollars: U.S. Student Debt

Posted by Judy Anne Cavey on Dec 1, 2011 in , , | No Comments

Who’s to blame for this? It’s a combination of several factors.

This is a complex problem facing college students, grads, dropouts and anyone who consigned for a student on a loan. But it also is a growing issue for the American people, in general, because several experts are citing it’s the next “bubble” for the U.S. And since we are wallowing in the aftermath of the last burst bubble–subprime mortgage loans–we can’t afford to have this latest bubble burst.

FinAid, a great site for college financial aid information, recently set up a clock for your viewing pleasure. Simply log on to StudentLoanDebtClock to see the current loan debt tick by, it includes federal and private student loans.

The Beginning of the Bubble

Wanting to get to the core of this issue, I scoured several sites and publications in search of the truth. What I discovered in one particular piece by Andrew Barr, The Road to Nowhere: The Higher Bubble and Liberal Arts Education, was disturbing information I hadn’t seen detailed elsewhere. It all began back in 1965, with President Johnson’s Higher Education Act, when Pell Grant and Federal Stafford Loans were born. Mr. Barr points out, “The flaws in the philosophy behind such plans are obvious. The government makes these programs available, essentially “free money” if need is demonstrated, and so colleges raise tuitions accordingly.” Basically it’s a vicious cycle–students need more loans to compensate for higher tuition.

The Pell Grant expenditure costs our government (American taxpayers) $40 billion a year. Mr. Barr points out these expenditures are “not clearly outlined by the Department of Education.” Richard Vedder, of The Chronicle of Higher Education, calls this, “…a travesty packaged within a scandal wrapped with indifference and hypocrisy.” There’s a mouthful!

It would appear, based on this information, students are on the right track by questioning their college tuition increases. In fact, since 1985, tuition has increased–brace yourself–498.31%! I have to ask this question: why has it taken this long for anybody to look (suspiciously) at the vicious cycle? Because, as Mr. Barr described it, there is zero transparency in the 2010 Digest of Education Statistics outlining expenditures warranting tuition increases. Without real figures to feast our eyes on, it’s impossible to know how the books are being cooked.

All the Contributors

There is a movement, “Occupy Student Debt Campaign”, which is urging students to refuse to pay off loans in response to tuition hikes. They hope to force education reform and want free public education. While I applaud their efforts for reform, here’s my opinion: it’s a bad idea for any student to default on their loans. I’ve stated this in other blog posts–it will ruin your life. What can happen? Your credit rating and score will be worthless, meaning you won’t be hired, can’t get a car loan, won’t be allowed to rent an apartment or purchase a home–and that’s just the beginning. They’ll also go after any wages you earn in the future. Additionally, you can’t file bankruptcy and expect these loans to disappear, they won’t.

Before students and parents start to join in this occupy campaign, they first must look at their own contributions to this mess. As a student, did you have other options to the huge debt you are now accumulating? For example, were you accepted to a great state college, but opted to go to the expensive private college in another state instead? Perhaps mom and dad wanted to brag to their friends how they’re sending you off to an Ivy League school? Or maybe you knew full well you’d never be able to afford to pay your loan back, but signed the papers anyway? Yes, these are blunt but honest questions, requiring answers to get to the whole truth.

Then there’s the problem of the type of loan obtained. Federal loans are cheaper and have better repayment options than private student loans. Unsubsidized Stafford and PLUS loans don’t require financial need. And submitting a Free Application for FAFSA is a must. Also, the private loans won’t qualify for the recent payment reduction President Obama expedited through Congress. If little or no effort was made to seek out alternatives to expensive private loans, you can’t blame anyone else for that.

There are more contributors to the student loan debt crisis. I’ll discuss them and more in my next blog on Monday.

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