Burden of student loans squeezing grads

New York Times: Burden of student loans squeezing grads

In some circles, student debt is known as the anti-dowry.

Student loan debt outpaced credit card debt for the first time last year and is likely to top a trillion dollars this year as more students go to college and a growing share borrow money to do so.

While many economists say student debt should be seen in a more favorable light, the rising loan bills nevertheless mean that many graduates will be paying them for a longer time.

“In the coming years, a lot of people will still be paying off their student loans when it’s time for their kids to go to college,” said Mark Kantrowitz, the publisher of FinAid.org and Fastweb.com, who has compiled the estimates of student debt, including federal and private loans.

Two-thirds of bachelor’s degree recipients graduated with debt in 2008, compared with less than half in 1993. Last year, graduates who took out loans left college with an average of $24,000 in debt. Default rates are rising, especially among those who attended for-profit colleges.

The mountain of debt is likely to grow more quickly with the coming round of budget-slashing. Pell grants for low-income students are expected to be cut and tuition at public universities will probably increase as states with pinched budgets cut back on the money they give to colleges. ...

And there is this little detail ...

Unlike most other debt, student loans generally cannot be discharged in bankruptcy, and the government can garnish wages or take tax refunds or Social Security payments to recover the money owed.

Comments

[Chuck]

College debt is a noose that is ever tightening around the necks of students and parents alike. Where is the break point when people begin to reason that enough is enough? Increasing debt, fewer jobs, smaller incomes, longer payoff timelines, more defaults...it all adds up to one bad situation.

[Dana Ames]

This has happened because there is less money available from the state and fed. gov't for financial aid. If a student is approved for financial aid nowadays, it's likely to be in the form of loans, rather than grant aid. California still has a grant that covers tuition for students with high GPAs and limited income, but the income cutoff has risen over the years and is now about $80K. If you can get into a private school you have a better chance of getting grant aid, because private schools have larger endowments than public schools.

My student loan burden after four years was $3500. My son's was $20,000; that was before grad school. I told my son he can weigh his out-of-pocket education expenses against the price of a very nice car; the education will "get him farther" and the interest rate is better... But it is a shame that deserving students are put in this bind.

My older daughter is probably going into military service for training to eventually get her into the FBI; one of the considerations for her is that her federal student loan debt will be forgiven.

Dana

[Michael W. Kruse]

One problem is that inelastic relationship supply and demand in higher education. In many industries, as demand increase prices go up, giving incentives for more providers to enter the business. Their increased supply drives the cost back down.

But creating a institution of higher education takes 100s of millions of dollars and years to develop. Then it takes more years to develop a reputation as a quality institution. Universities can expand some to capture the extra demand but the excess demand also means they can be more choosy about who they will admit and charge them higher tuition. No competitor is going to suddenly pop up and steal away the students clamoring to enter their school.

In many ways there is something approaching an monopoly effect going on.

[Chuck]

I agree. I believe also that what happened 50-75 years ago with home ownership is now happening with higher education. Due to the high cost we are now shifting from a pay-as-you-go to a borrow-as-you-go system. Banks are acting as the "middle man" and as such the product is costing us even more. In addition, the more that we rely on loans (banks) to fund education the less market forces (what you and I can actually afford) play upon that cost. Because the banks' pockets are much deeper than mine the price can rise according to their substantially deeper pockets rather than my substantially shallower. Once again, not a good situation in my view.

[ceemac]

Don't forget that one of the reasons that costs are going up is that the traditional age students themselves are more demanding about certain parts of their college experience. They are unwilling to live in the dorms I lived in 35 yrs ago nor are would they accept the limited food choices offered in the cafeteria 35 yrs ago.

Also many (if not most) schools now include some type of overseas experience. Back in the day the only students who studied abroad were language majors who were rich.

[JMorrow]

Oddly enough, with your last point, when I was in college alittle less than a decade ago, it was actually cheaper to study abroad in some cases. After you factored in travel expenses, tuition was less expensive and in many cases cost of living was as well. My university required direct matriculation into the foreign university's program, so you paid that university's tuition not that of your home institution. Not sure if that continues to be the case.