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Federal college loans are hurting students, taxpayers

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Posted: Saturday, July 20, 2013 12:00 am

Last week, I had a heart-to-heart with my son about the looming expense he’s about to incur when his children, my grandchildren, begin college in 2016. Between 2016 and 2022, at least one child will be enrolled in college. Unless some unforeseen scholarship or winning lottery ticket gets cashed in, his estimated annual expense for one child would range into the high five figures; when both are enrolled at the same time, twice that sum.

Unfortunately, the University of Pittsburgh and Pennsylvania State University are America’s No. 1 and No. 2 most expensive public colleges, both costing about $16,500 per year. The once affordable option of attending a local state university is now out of reach for most.

I asked my son how he feels about borrowing (he doesn’t have the cash; who does?) in the middle six figures, total, to put two kids through college, since data shows that about 50 percent of recent college graduates either don’t have jobs or have jobs that don’t require a degree. He sat in stunned silence.

Increasingly, borrowing money to finance college educations is a bad idea. About 2.2 million Americans who are 60 and older have co-signed private student loans for their children and will be responsible for that debt if they can’t pay. And according to a new Wells Fargo study, which surveyed 1,414 millennials between the ages of 22 and 32, more than half of them financed their education through student loans and say debt is their biggest financial concern.

That’s logical considering that student borrowing topped $100 billion for the first time in 2010, and total outstanding loans now exceed $1 trillion. Student loan debt is now higher than $798 billion U.S. credit card debt.

All the statistics are grim. Some 37 million Americans have outstanding student loans. A quarter owe more than $28,000. Two out of five student borrowers become delinquent in the first five years after beginning repayment. According to the New York Federal Reserve Bank, the number of student borrowers who are at least 90 days late on payments has jumped from 8.5 percent in 2011 to 11.7 percent today. The new, higher interest rates will make timely repayment more difficult.

Delinquencies lead to bad credit scores, which in turn make it difficult to buy a car, a home or get married and start a family — all of which have a negative long-term economic effect. Many millennials not only can’t afford their own home, but Census data shows that nearly 6 million Americans ages 25 to 34 lived with their parents in 2011, up from 4.7 million in 2007.

Even though many don’t have a child in college, they may not escape the consequences of massive accumulated student debt. Like the sub-prime mortgage disaster of few years ago, Washington is funding the student loan crisis, too. Some analysts think the ultimate consequences may be worse than the mortgage meltdown.

About four-fifths of total student loan amount outstanding is borrowed directly from the federal government, but without any independent creditworthiness assessment. Almost everyone qualifies. Failure to evaluate the underlying credit in mortgage lending led to the global economy’s near collapse.

One excellent option to enrolling in college directly after high school is to join the growing part-time economy, save every penny while still living at home, and take community college courses with transferable credits. Then, after a junior and senior year at an accredited university, students will have diplomas from recognized colleges.

Joe Guzzardi retired from the Lodi Unified School District in 2008. He lives in Pittsburgh. Contact him at

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1 comment:

  • Jerome Kinderman posted at 11:57 am on Sat, Jul 20, 2013.

    Jerome R Kinderman Posts: 2370

    There are other options that should be considered insofar as post-high school education is concerned:

    Consider choosing a career that doesn't require spending $15,000+ for four years of education. Of course for those who want to become doctors, lawyers and other professionals, degrees are a must. And many of those require post-graduate studies as well. So how long will it take for them to actually repay all that debt as they enjoy the fruits of their educational labors? A friend of mine recently insisted that medical care and education (including at least a four-year degree) should be free. So who pays for that? Naturally the United States taxpayer. I refused to engage in debate about that - been there; done that - stalemate.

    So how about the military? Not only does one four-year stint in the Army result in quite a bit of funding for college, but many careers in the military come with some pretty hefty bonuses as well. Of course they'd have to sock away those bonuses if they want to use them for education. Most do not (in my estimation). But believe it or not, staying in the military isn't all that terrible either. After just 20 years, one can "retire" and then continue life with a new career. As most of us over 40 now understand, 20 years goes by quite fast - but when one is 18, how many believe that? Unfortunately though I hear there's rumblings in the DOD that 20-year retirements may become a thing of the past.


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