This student-debt crisis is escalating quickly

posted at 3:31 pm on November 29, 2012 by Erika Johnsen

Throughout his perpetual campaigning, President Obama has made a big point about being the champion of students and young people in helping to make college more accessible and affordable and helping out with student debt — and yet, miraculously, here we are with student-loan debt and college tuition prices both quickly ballooning, and no end in sight. Could it be that perhaps the government trying to do more to “help” prospective-and-past students is actually what’s dramatically worsening the student-debt problem? From the WSJ:

Nearly all student loans—93% of them last year—are made directly by the government, which asks little or nothing about borrowers’ ability to repay, or about what sort of education they intend to pursue. …

Student lending grew rapidly in the 2000s, as did other consumer borrowing. The bulk of the loans were made by private lenders and guaranteed by the federal government. In 2010, in a money-saving effort pushed by Mr. Obama, Congress cut out the private middlemen and had the federal government start making loans directly.

Since the end of 2007, just before the financial crisis hit, total student debt has grown by more than 56%, adjusted for inflation, the new Fed data show. During that time, overall household debt—including mortgages, student loans, auto loans and credit cards—fell by 18%, to $11.31 trillion as of Sept. 30.

Is this ringing any bells for anyone else? Housing market; government taking over for the private sector; easy access to credit; bubbles going “pop!”? Jim Pethokoukis wondered yesterday if student-loan debt isn’t destined to fall victim to our burgeoning bailout culture (because we’ve got plenty of money to burn and everything), and has more of the startling numbers:

Image Credit: Citigroup

Banks already got their bailout, so is it time for loan-laden college grads to get theirs? Consider the following:

1. Student debt has climbed by 74% since the start of the Great Recession, according to a new report from Citigroup, and now approaches $1 trillion.

2. As of the third quarter of this year, roughly 11% of student loans were seriously delinquent, surpassing credit cards for the first time.

3. Default rates are also rising with 9.1% of student borrowers defaulting within their first two years of repayment.

4. Higher default rates mean lower credit scores for Generation Y than other age groups, hurting its ability to buy a first new car or starter home. Rutgers University find that 28% of recent graduates say they have moved back in with their parents to save money, and 40% have delayed a major purchase such as a house or car due to their educational debt.

Government largesse making it insanely easy for anyone and everyone to obtain big loans, without even having to carefully plan their future options and obligations, is only helping to inflate tuition prices and is saddling young people with monstrous amounts of debt — the ramifications of which nobody made them seriously consider when they decided to take it on. What’s more, young people are graduating into the slim employment pickings of the Obama economy, making it even more difficult for them to pay off their investment in the long run. This is not going to get any prettier while big-government policies continue to reign, as American Majority Action‘s Ron Meyer explained further on the Kudlow Report last night:


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krome on November 29, 2012 at 5:49 PM

The first time I went to college, from high school, my parent couldn’t afford to pay. My dad also made too much for me to get a grant.

So, I took a job to pay my tuition (and to take out my girlfriend on a regular basis, too). Fair enough, and I have no complaints all.

Liam on November 29, 2012 at 5:55 PM

What makes the debt so much worse is that student loans can be used to pay for anything. Some students use the money to buy cars, take vacations, eat out, or whatever they desire. They look at it as a loan, and as such, they can use the money for whatever. Ever watch judge judy? She usually asks the plaintiffs how they support themselves considering they don’t have a job. The answer, if they are students, is, yes, student loans.

It’s insane, that they just give the students the cash. If the loan is for books and tuition, then just give them the books and the tuition. Student loans are being used as credit cards.

keep the change on November 29, 2012 at 6:02 PM

Liam,

All I’m saying is that the feds have absolutely NO role in attempting to set tuition controls for state-funded institutions.
I’d love for them to get out of the loan business.
I agree that the controls TX has put in are not a hard cap – but based on how congress “caps” it’s budgets by assuming a certain percentage increase annualy – how do you figure they’d do any better?

Tuition rates are ridiculous, to be sure – but federal intervention is not the answer.

WhaleBellied on November 29, 2012 at 6:03 PM

Tuition rates are ridiculous, to be sure – but federal intervention is not the answer.

WhaleBellied on November 29, 2012 at 6:03 PM

This all has to stop somewhere.

Until the Feds get out of the matter and cap themselves, which will never happen, then cap the tuition expenses. What else can be done as matters stand?

The Feds have already intervened, by guaranteeing student loans. Washington created the problem, ignoring the Law of Unintended Consequences. Lack of foresight is a staple of Washington and other all levels of government.

We can’t fix it, so the place that created the problem in the first place is the only one that can fix it.

Problem is, their forever-fix is to just throw more money at it. That’s never worked before, here or anywhere else, but why should government let fact and truth get in the way of higher ideals elucidated by people who are certain they are better than us common plebes?

Liam on November 29, 2012 at 6:14 PM

What about the poor schleps that don’t even graduate?

I guess they can feel better that they did not get into as much debt as they could have. But I guess it doesn’t matter. Neither the loaner, the loanee, or the product provider will get hurt by this. Just the taxpayer.

TexAz on November 29, 2012 at 6:24 PM

My niece graduated last spring. She had a sign taped to her hat that said “Class of 2012. DEBT FREE!”

She owes no money to anyone. :)

evilned on November 29, 2012 at 6:28 PM

A lot of the kids from the middle class that are borrowing now, because it was their time to go to college in this recession, may have had parents in past years who would have paid for it all. Or they might have used their home equity loan at a reasonable rate.

Middle class parents don’t see much financial aid for their kids, gone are the days when the baby boomers went to college and middle class kids took the SAT and got MERIT scholarships.

They are prohibited at many colleges. The financial aid has to go to Pell grant students, who may not be the kids that would have been eligible for a merit scholarship.

Rules at the college accreditation agencies prohibit the schools from attracting top students with merit program, and rules tell them they have to satisfy 100% of the need of a Pell grant student before they give an outstanding student from a middle class family any financial aid at all.

The solution? Pell grants only for the top needy kids that get high scores on the SAT or ACT, and have superior grades. The Pell grant program is being wasted when it could be a merit program.

The Pell grant program should not be seen as a way to a job for kids that can’t do school work or did not pass high school calculus. The Pell grant program should not be used for high school remedial courses. It should fund the TOP students.

Fleuries on November 29, 2012 at 6:39 PM

I had a student tell me once that he was supporting his family on his student loans. He didn’t come to class much either. NY State is trying to rein in that kind of thing by instituting the UF grade — unearned F. If a student gets one of these the state will come after them for the financial aid money it paid out for the class.

IdrilofGondolin on November 29, 2012 at 7:21 PM

The first time I went to college, from high school, my parent couldn’t afford to pay. My dad also made too much for me to get a grant.

So, I took a job to pay my tuition (and to take out my girlfriend on a regular basis, too). Fair enough, and I have no complaints all.

Liam on November 29, 2012 at 5:55 PM

The modern student faces an average of $30K in debt per year in terms of tuition and fees and room and board and books, etc.

http://usatoday30.usatoday.com/money/economy/story/2012-06-13/college-costs-surge/55568278/1

I paid the excess for my own college, which amounted to about $2,000 in 1978. That took about five years to pay off. The rest was covered by scholarships — I double majored in Latin and mathematics, and, believe me, there were a LOT of Latin scholarships, and the pool of students going after them was very very small.

I don’t know how students nowadays can cope with that kind of debt load. I’ve paid my kids’ way through as undergrads, and it’s been really tough — because we are also saving at the maximum rate for retirement as well.

Both my kids got off to really bad starts — I estimate about $70K went down the tubes so to speak before they recovered and got serious about school and left the “N units attempted, zero units completed” phase of their lives.

Of course, the difference between my day and the modern day is how the Feds have screwed up the cost of education — just as they screwed up the cost of real estate — with all their easy money. But, unlike a mortgage, a student loan is a form of indentured servitude — there is no way to get it off the books without paying it back. You can’t discharge student loans via bankruptcy, and many employers (such as school districts) are obligated not to employ people delinquent on their loans, or, in the case of medical professionals, to cancel their licenses to practice.

unclesmrgol on November 29, 2012 at 7:27 PM

I was stupid for being able to afford my morgage. Now I am stupid for not again putting myself 1000′s in debt on useless degrees.

Yeah I am sure I could make much more than 35K a year if I got edumicated with a piece of paper… but at what cost? Sitting here now it would have been worth it.

watertown on November 29, 2012 at 8:37 PM

This whole thing is a classic example of civilizational corruption and a society-wide pyramid scam.

“You need this certificate in order to be employed by the mainstream job market network. Now, first you’ll have to sink in a minimum of $80,000, probably more like $120,000 to get this certificate. You can get Papa Sug to front you the money, though. But don’t worry about it, think of it as an investment. Because once you have that certificate you’ll finally be able to make decent money and will be able to pay of Sug.”

…4-8 years later…

“Ah you have your certificate, very good for you. However, at the moment we’re all full and everybody we know of is all full too. But I’m sure something will open up eventually. Say, why don’t you go ahead and just get a job at a place that doesn’t care whether you have you certificate or not, and use that money to pay back Sug?”

And so a massive amount of people in their 20 and 30s are debt slaves based on a promise/dream that was true for the boomers: “go to college, make more money, have a better life”, that simply ISN’T true today. Their parents, teachers, and employers sold them this fantasy, based on nothing but Obama-style “hope”, with no eye to reality whatsoever. The job opportunities aren’t there, the economic expansion isn’t there and hasn’t been for at least a decade.

Daikokuco on November 29, 2012 at 9:05 PM

Nothing more than the law of unintended consequences.

With the advent of the ‘self esteem’ balogna, dumbing down of K-12 by emphasizing the use of computors and calculators rather than paper, pencils and brains and multi-language students, kids are finishing high school that can’t read. Can’t balance a checkbook, cannot so simple math in their heads.

With that, employers wanted more college degrees. The federal govt started giving out grants and created a liberal loan policy. Bingo, kids got more money.

Kids got more money, colleges started charging more. Tuition costs go up, loan ceilings are raised. A circular argument.

Solution: Toughen up the high school curriculum. No federal grants, no federal loans. Colleges and Universities use scholarships and discretionary loans to kids that (A) have the ability to complete school and (B) are obtaining a degree which leads to a job.

Too many of these coddled youngsters feel they need a BA or MA in Art Appreciation to work in a museum when they are probably better suited to be a plumber, cabinetmaker or electrician.

joelj31 on November 29, 2012 at 10:27 PM

There’s an easy solution to this: Come up with a way to evaluate people for ability to perform basic work without a 4-year degree, which means nothing anyway.

alwaysfiredup on November 30, 2012 at 2:27 AM

Let. Them. Burn.

And by “them” I mean both colleges and the students who borrowed $80,000 for degrees in Classical Mayan Basket Weaving. And in this case “burn” is metaphorical.

Hopey-changey college students helped elect Obama, and colleges and universities are a major part of the progressive indoctrination machine. Now let them reap what they sowed.

Once the student loan bubble pops, major re-structuring the educational industry will follow. Ideally it would end with fewer kids borrowing a lot less money to get degrees.

The university system would lose some of its clout as an arm of the progressive movement, too…but this happy scenario would require allowing the free market to deal with the student loan bubble, and we all know the Democrats will never let that happen.

My guess is if they are at all able to do so, the Democrats will tax/borrow however many billions it would take to keep leftist professors employed as re-education specialists and forgive student loan debt.

MidniteRambler on November 30, 2012 at 5:45 AM

My guess is if they are at all able to do so, prediction is that the Democrats will tax/borrow however many billions it would take to keep leftist professors employed as re-education specialists and forgive student loan debt.

MidniteRambler on November 30, 2012 at 5:45 AM

FIFY

IlikedAUH2O on November 30, 2012 at 10:28 AM

Neo Classical Architecture

Look at what exploiters and dictators are drawn to building.

Since I like the Greeks, I hate to descend into any discussion about their alleged man/boy behavior.

However, I have noticed something spooky about Greek(s) in this nation, (I mean frats and not the people around the world who serve Feta on salads except for the Metaxas Greek Government) Thomas Jefferson and the universities who are so fond of N.C. Architecture and Greek Revival in particular.

My point is that they mistreat the innocent and powerless and the buildings are emblematic of what they get away with.

Look at TJ and his slaves. In the meantime, we have numerous dictators who used the style of the Greek and Roman buildings. Only the US was not a wildly ambitious empire out to rule the world. Well, how about an openly admitted gang bent on world domination? This included Napoleon and Hitler.

Later, we have colleges who are largely unregulated (and forget accreditation) and who extract money and effort from people on promises that would put the infomercial marketers to shame. The NCAA is something that make the normal charges of racism or child exploitation in this country rather lame. Close to slavery if you ask me. And look at Penn State…

If only MSNBC could talk to some of my black and athletic friends, we could get a real helpful crusade against exploitation started. And add the consumer people the left loves to inform kids and parents what the returns are really going to be!

But that would put Dem against Dem and lefty against lefty, wouldn’t it?

IlikedAUH2O on November 30, 2012 at 10:57 AM

Can someone explain to me how this is a “crisis” ?

I get the superficial comparison with the housing crisis, but there is an extremely important difference (actually, more than one)

First of all, people do not take out student loans to buy something that is traditionally viewed as an appreciating asset. The “value” of a degree has always been dubious, especially those outside of the hard sciences.

Second, because a degree, let alone a collection of college credits earned but never assembled together to complete a degree program, are not a tangible asset, they cannot be bought and sold and used for collateral in the way that “mortgage backed securities” were to both accelerate rising prices and values and to make them more attractive to securities trading.

If it is even possible for this bubble to burst, what is the societal impact ? Frankly, I don’t see much of one, outside of some unemployed, overpayed professors or more likely, administrators.

deadrody on November 30, 2012 at 11:54 AM

Every time I read one of these articles on student loans, I feel like a fool. My wife and I saved carefully for our kids educations, skipping fancy trips and buying a modest home we can afford and foregone many “perks” of middle calss life to make sure our kids got thier undergarduate degrees and started life, debt free.
Now it looks like 0bozo will forgive the student debts and leve suckers like me holding the bag.

ChicagoBlues on November 30, 2012 at 12:07 PM

DON’T TELL ME YOU DIDN’T SEE THIS COMING………I’M FROM THE GOVERNMENT….AND I’M HERE TO HELP……

nonstopca on November 30, 2012 at 12:12 PM

…..of middle class life to make sure our kids got thier undergarduate degrees and started life, debt free.
Now it looks like 0bozo will forgive the student debts and leve suckers like me holding the bag.

ChicagoBlues on November 30, 2012 at 12:07 PM

God Bless you for sacrificing and helping your children! I’m sure that they love and support you showed them has a whole mountain of good effects you may not even see.

You do have a point. Today we have candidate Obama out telling people about the affordable college education he will fund for them. This is something the politicians like to discuss as it is a long time, if ever, before people figure out they have been bamboozled. The fact is that college is a nice place to hang out until you grow up but over educated, left wing politically active kids occasionally grow up to be revolutionaries like Che.

We need reporting about job opportunities before kids and doting parents sign up for these huge investments and not forgiving loans will make a number of people take a long look at the job situation and maybe the whole industry.

IlikedAUH2O on November 30, 2012 at 12:47 PM

The answer to defaulting student loans is an expanding economy, and jobs for young adults.

Obama is insane.

Fleuries on November 30, 2012 at 1:43 PM

We need reporting about job opportunities before kids and doting parents sign up for these huge investments and not forgiving loans will make a number of people take a long look at the job situation and maybe the whole industry.

IlikedAUH2O on November 30, 2012 at 12:47 PM

I think we’re heading in that direction. Currently, when a student completes their Financial Aid application (FAFSA) they get statistical information on the institution they are applying for. This includes graduation and retention rates.

Trends in TX seem to show that the state funding for universities is slowly moving away from a purely enrollment-based funding model more to a student success based model. Funding will be tied to not only graduation rates, but the usefulness of said degree. Degrees awarded that have a direct tie to needs in the job market – so you’ll see more credit for those hard sciences degrees and less for those cross-cultural studies of people who like to dress like pandas degrees.

I can tell you from personal experience that at least here, there is great concern for the debt students are taking on. We repeatedly warn and council students on the repercussions. Many, however, just want their money.

WhaleBellied on November 30, 2012 at 1:46 PM

Yeah, who needs student loans?
Do like Romney said and just borrow the money from your parents. Duh!!!!
Politricks on November 29, 2012 at Yeah, who needs student loans?
Do like Romney said and just borrow the money from your parents. Duh!!!!
Politricks on November 29, 2012 at 3:38 PM

Post & run troll, I see. Never bothering to show up to articulate why you think being a parasite is a good thing.

Working and saving are foreign concepts to parasites.
Bevan on November 29, 2012 at 3:53 PM

+100

How do you save $80,000 by the time you’re 18?
TheBlueSite on November 29, 2012 at 3:57 PM

Don’t go to a college that costs more than you can afford. You may have to wait til you are older, like I did, to go.

Why should an education cost $80000?
tom daschle concerned on November 29, 2012 at 3:59 PM

And it wouldn’t if the Fed wasn’t SETTING the price of education like it SETS the price of Health Care by MEDDLING in the free market system already in play & DISRUPTING prices.

But the trolls here today have missed these obvious points & have failed to be relevant, as usual.

Badger40 on November 30, 2012 at 1:58 PM

Not all the money students borrow is used for school. Every girl my 25 year old son meets has a huge student loan debt. I imagine many young couples are starting off their lives being in debt. How sad.

lea on November 30, 2012 at 2:17 PM

This is becoming a crisis because of the student loan default rate, and how it is tied to accreditation. If too many of a school’s students don’t pay their loans, the school is held responsible for not providing them with the education needed to get a job. Now that all the loans since 2010 have been controlled by the government, we taxpayers are not only on the hook in case of default (something that was guaranteed for quite some time) but they cannot be discharged in bankruptcy. That means all the Obama supporters who got massive student loans and can only get a part time service job with that history or women’s studies degree will be ruined, as well as the schools that produced them. My students have suffered because I have been unable to use private student loans, but at least most graduate and get a job in their field of study at Guardian College

spudmom on November 30, 2012 at 6:55 PM

No one seems to mention those of us who went to those Mc-schools that had their debt sold to Sallie Mae, a friend of Barney Fwank’s, A private Student Loan lasts forever, you cant go bankrupt even on those. Ive been working my arse off to paying that one down, Im starting to now see the light at the end of the tunnel happily.

ninjacoastie on November 30, 2012 at 6:58 PM

A college chancellor making 1.6 million dollars? Seriously? For what? A winning football team?

http://en.wikipedia.org/wiki/Gordon_Gee

I went to medical school on an Air force plan and owed them time for tuition. I came out with no debt other than the time I had to serve. I currently make about a fifth of what Gee makes, and he has shorter hours with no night call (except with hot coeds) and, essentially, no risk. He won’t be sued if a kid flunks French.

I screwed up, and it will only get worse for docs. Good luck ten years from now. The “Best and the Brightest” sure won’t be in medicine. They’ll be running insurance companies, banks, or solar manufacturers and getting bailed out every time they run a company into the ground.

NoPain on November 30, 2012 at 7:18 PM

The Democrats will move to bail out the poor students. If the Republicans raise objections, they will be the bad guys. Thus, A large pool of voters will be secured by the Democrats. So, what’s the problem again?

claudius on November 30, 2012 at 7:50 PM

According to the whistle-blower, Rev. Jackson also encouraged the government employees to load first-generation and low-income college students up with student loan debt — because Democrats in Congress, he allegedly promised, would eventually pass laws to forgive that debt later. “[T]hose people will continue to vote Democratic,” Jackson Sr. said, according to the whistle-blower.

J_Crater on November 30, 2012 at 10:20 PM

Nearly all student loans—93% of them last year—are made directly by the government, which asks little or nothing about borrowers’ ability to repay… …

The point of the switch was to count the revenue from student loans into the government as profits to the government. The profits are channeled into health care in the Affordable Care “Obamacare” Act. Someone is counting on this money to balance the budget.

It turns out, like Cash for Clunkers that this was harder for government types to implement than they thought, and they have had to sell some of this work back to the old companies that used to do student loans, Sallie mae, etc.

The big difference is, that in those days, they subsidized the work to make it look good to Sallie mae, and the loans were out at about 3%. But when the government eyed the profits, they chose 8% as the interest rate…so some parents are paying the government 8% interest PROFIT for these loans. And some students are getting a subsidy that lowers their interest rate. WHY?
Why? If the government is setting the rate, and the government is technically collecting the profits, why is the rate 8% unless you get a subsidy? And where, pray tell does a subsidy go? It is a money creation scheme for the government…Claim that people owe you 8% interest, give them a break and PAY FOR IT, by borrowing money to do you the favor. When they only need set the interest rate based on prime, and only enough to cover the expense. The government is not supposed to be in business collecting profits as a loan industry.

So, when they say that they will have to forgive loans, don’t forget they will say they counted on that money as revenue, and someone will have to PAY the government for it. When perhaps everyone could have paid their loans back, if only the interest had been set around prime rate, and of course:

if students could only find a job after they graduate.

Fleuries on December 3, 2012 at 10:26 AM

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