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College Board says students borrowing more than ever

Michael Santo's picture

Unprecedented amounts of money are being borrowed as students and those seeking to retrain are seeking college degrees at a steep price – they have collectively taken out $100 billion last year, an all-time record, the College Board says.

The debt is putting a huge burden on both young and older students as they look for jobs and try to start new careers. The total outstanding student loan debt has also hit a new record – one trillion dollars, to be exact. This means that one trillion dollars is waiting to be repayed by people who are already challenged in the current economic climate to make ends meet. And the Federal Reserve Bank of New York says that Americans now owe more on student loans than on credit cards.

The College Board reports that students are borrowing twice what they did a decade ago after adjusting for inflation, and total outstanding debt has consequently doubled in the past five years — a sharp contrast to consumers reducing what's owed on home loans and credit cards.

Taxpayers and lenders have little risk of losing money on the loans, unlike mortgages made during the real estate bubble, because Congress has given the lenders and the government broad collection powers, far greater than those of mortgage or credit card lenders. The debt can't be shed in bankruptcy. The lenders have the right to go after wages, assets, and even Social Security checks, lest the borrower chooses to wait until his retirement years to claim inability to pay.

The risk falls squarely back on the student borrowers who will start adult life deeper in debt, a burden that could place a drag on the economy in the future.

Mark Kantrowitz, publisher of FinAid.org, says that "students who borrow too much end up delaying life-cycle events such as buying a car, buying a home, getting married (and) having children," which will have profound social and demographic consequences in the future. Policymakers who are worried about a labor drain might want to take notice.

"It's going to create a generation of wage slavery," says Nick Pardini, a Villanova University graduate student in finance. He believes that student loans are the next credit bubble — with borrowers, rather than lenders, as the losers.

The College Board also reports that full-time undergraduate students borrowed an average $4,963 in 2010, up 63% from a decade earlier after adjusting for inflation. And that’s just the undergraduate debt. Graduate and professional programs can increase that debt exponentially. The median total debt for a medical student upon completion of his or her studies is $160,000.

More borrowers are also in default, defined as nine or more months behind on payments. The percentage of defaults rose from 6.7% in 2007 to 8.8% in 2009, according to the most recent federal data. The consequences for defaulting on student loan debt can be draconian, including the inability to obtain transcripts or prove the completion of a degree. The highest default rates are at for-profit schools that tend to serve lower-income students and offer courses online. Because they are profit-driven, they do everything in order to encourage students to hand over money however they can, including getting into debt. The University of Phoenix, for example, got 88% of its revenue from federal programs last year, most of it from student loans.

Student loan debt is being driven up by soaring tuition, which far exceeds the rate of inflation – on the order of 900% for some schools. Students who wish to have a college education – which is indispensable in securing a reasonable and modest standard of living – must increasingly cover higher and higher tuition fees, for which parental help may not be enough. A brief glance at this list of the country’s most expensive schools, many of which made the U.S. News & World Report Top World Universities, proves the point. Imagine if no one is able to help you financially. You are faced with not only these tuition prices, but also with the cost of housing, food, clothing, books and necessary materials:

Most Expensive Colleges 2011-2012

1.Sarah Lawrence College $59,170
2. New York University $56,787
3. Columbia University $56,310
4. Harvey Mudd College $55,998
5. Eugene Lang College (The New School) $55,890
6. Claremont McKenna $55,865
7. Wesleyan University $55,706
8. Bard College $55,617
9. Barnard College $55,566
10. Trinity College (CT) $55,450
11. University of Chicago $55,416
12. USC $55,384
13. Dartmouth College $55,365
14. Drexel University $55,335
15. Bates College $55,300
16. Johns Hopkins University $55,242
17. Vassar College $55,135
18. Bard College at Simon’s Rock $55,110
19. Haverford College $55,050
20. Pitzer College $54,988
21. Fordham University – Lincoln Center $54,972
22. Connecticut College $54,970
23. Bennington College $54,960
24. Occidental College $54,950
25. Carnegie Mellon $54,922

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