Getting Beyond the Student Loan Crisis

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Getting Beyond the Student Loan Crisis

As freshmen enter their first year of college, most believe—along with their parents—that a college degree will guarantee a job with a better salary than they would have earned if they had gone directly into the workforce right out of high school.

The fact that most students need to take on massive debt to pay the skyrocketing cost of college does not deter them, since they believe their higher income will enable them to pay off the loans and still come out ahead.

Sadly, this cost/benefit scenario is not panning out for a significant number of students. They are accumulating the debt, but a large portion is not deriving the benefit. Consider the facts:

  • In 2011, the average four-year college graduate owed $26,600. In 2004, this number was $18,650.1
  • In 2012, outstanding student debt surpassed $1 trillion. This was a first. In 2003, the debt was one-fourth this total.2
  • Outstanding student debt is now held by nearly 20 percent of all U.S. households. This compares to only 15 percent in 2007.3
  • Of the households headed by someone younger than age 35, 40 percent are carrying debt from student loans.4
  • Since 2007, not only has the size of the average debt increased, it has taken place in nearly every demographic and economic category.5

If the vast majority of these borrowers were gainfully employed and paying down their balances, there would be less concern. But this is not the case.6

  • According to the U.S. Department of Education, in the first quarter of 2013, $3.5 billion in government and private student loans went bad.
  • There are currently 6.8 million federal student loan borrowers in default.
  • These borrowers owe a total of $85 billion, and the department's systems for collecting the bad loans are not keeping up with the defaults.

Up until 2010, student loans were provided by a mix of government and private institutions. Then the federal government eliminated private middlemen. As a result, by 2012, 93 percent of all student loans were issued by the federal government. The amount of these loans now exceeds the total credit-card debt of the U.S. population.7

Since the student loans are backed by the government, taxpayers foot the bill of defaults. This cost is added to the taxpayer funding of government Pell Grants, which have increased over the years. The cost of these grants jumped from $25.3 billion in the 2009-2010 academic year, to $34.5 billion in 2011-2012.8

The growth of these grants mirrors the growth in tuition and the growing inability of students to pay for college...

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