The $1 trillion question: The student loan debt crisis

Student loans exceed either credit card loans or auto loans. (Photo by Daniel Borman used under Creative Commons license.)

By Brad Crofford, Editor-in-Chief

America has a debt crisis, and its students have a problem of their own. Student loan debt presents a problem that reaches far beyond the debtors to negatively impact the larger society.

Last fall during the Occupy Wall Street movement, one of the key messages was a demand for the forgiveness of student loans. Since that time, the problem of student loan debt has become even more severe. According to BusinessWeek in September 2012, student loan debt exceeded $1 trillion in March 2012, making it larger than either credit card debt or auto loans. In 2010, two-thirds of seniors graduated with debt; the average amount was $25,250.

If this amount of average debt seems insignificant, it’s worth noting that it is shaping decisions for many. According to BusinessWeek, 27% of young college borrowers moved in with their parents, 24% said it affected their career choice, and 14% said it even affected their decision to get married.

One common response to such figures is that these students should have chosen a cheaper option, such as a public university instead of a private university. However, this argument doesn’t hold as much water as it might have in the past. With the economic downturn, states are providing less and less support for students. According to The New Times in May 2012, state and local financing for students dropped 24% from 2001-2011. During this same time, tuition rates at state schools increased by 79%; tuition at nonprofit private colleges and universities increased by just 29%. While community colleges do present something of a solution in keeping costs lower for the first two years, rapidly increasing costs for the remainder of study only make this a partial solution for those pursuing a bachelors’ degree or higher.

Another response is to say that these students knew what they were getting into when they took on this debt. It’s their fault and their responsibility. While individual responsibility is indeed important, there are a couple of key contextual aspects to consider.

First, it would be difficult, if not impossible, for students to predict some relevant macroeconomic trends. For example, how could recent high school graduates considering college in 2007 or 2008 have predicted the eventual severity of the economic recession and the horrific job market in which they would emerge? Given such fluctuations that they have no control over, essentially telling students they “should have known better” is misguided.

Second, while this is certainly not true for the majority of cases, students are sometimes misled by universities who focus on revenue over student welfare.  The PBS Frontline documentary Colleges, Inc provide some horrifying examples of for-profit colleges using high pressure tactics and misinformation, causing individuals to take out loans for degree programs that had little to no value or for which they were not prepared.

One final response is that college debt, unlike other debt, is good debt because of the knowledge and skills acquired during college. Unfortunately, this is not the case for students who take out loans but subsequently drop out of college. With massive amounts of debt (the result of sometimes excessive price tags) and no degree to show for it, these students’ financial future is likely dim.

In the light of the rising college costs and such high student debt, what can be done?

First, the government should increase funding for and awareness of service programs such as AmeriCorps, which includes a $5,500 educational allowance for those who complete a year of service. Second, the government should expand programs that forgive government student loans in exchange for public service. Third, state legislatures and universities should take all reasonable measures to arrest the increase in college costs, including the cost of textbooks. Fourth, the federal government should continue to pursue colleges that use high pressure tactics and deception to increase enrollment.

Perhaps, once such measures are in place, this “good debt” will actually be good debt once more.