Student loan debt outpaced credit card debt for the first time last year and is likely to top $1 trillion this year as more students go to college and a growing share borrow money to do so.
While many economists say student debt should be seen in a more favorable light, the rising loan bills nevertheless mean that many graduates will be paying them for a longer time.
“In the coming years, a lot of people will still be paying off their student loans when it’s time for their kids to go to college,” said Mark Kantrowitz, the publisher of FinAid.org and Fastweb.com, who has compiled the estimates of student debt, including federal and private loans.
Two-thirds of bachelor’s degree recipients graduated with debt in 2008, compared with less than half in 1993. Last year, graduates who took out loans left college with an average of $24,000 in debt. Default rates are rising, especially among those who attended for-profit colleges.
The mountain of debt is likely to grow more quickly with the coming round of budget-slashing. Pell grants for low-income students are expected to be cut, and tuition at public universities will probably increase as states with pinched budgets cut back on the money they give to colleges.
Some education policy experts say the mounting debt has broad implications for the current generation of students.
“If you have a lot of people finishing or leaving school with a lot of debt, their choices may be very different than the generation before them,” said Lauren Asher, president of the Institute for Student Access and Success. “Things like buying a home, starting a family, starting a business, saving for their own kids’ education may not be options for people who are paying off a lot of student debt.”
To be sure, many economists and policy experts see student debt as a healthy investment — unlike high-interest credit card debt, which is simply a burden on consumers’ budgets and has been declining in recent years. As recently as 2000, student debt, at less than $200 billion, barely registered as a factor in overall household debt. But now, Kantrowitz said, student loans are going from a microeconomic factor to a macroeconomic factor.
Susan Dynarski, a professor of education and public policy at the University of Michigan, said student debt could generally be seen as a sensible investment in a lifetime of higher earnings.
“When you think about what’s good debt and what’s bad debt, student loans fall into the realm of good debt, like mortgages,” Dynarski said. “It’s an investment that pays off over the whole life cycle.”
According to a College Board report issued last fall, median earnings of bachelor’s degree recipients working full time year-round in 2008 were $55,700, or $21,900 more than the median earnings of high school graduates. And their unemployment rate was far lower.
So Sandy Baum, a higher education policy analyst and senior fellow at George Washington University, a co-author of the report, said she was not concerned, from a broader perspective, that student debt was growing so fast. Indeed, some economists worry that all the news about unemployed 20-somethings mired in $100,000 of college debt might discourage some young people from attending college.
A decade ago, student debt did not loom so large on the national agenda. Barack and Michelle Obama helped raise awareness when they spoke in the presidential campaign about how their loan payments after graduating from Harvard Law School were more than their mortgage payments.
“We left school with a mountain of debt,” Obama said in 2008. “Michelle I know had at least $60,000. I had at least $60,000. So when we got together we had a lot of loans to pay. In fact, we did not finish paying them off until probably we’d been married for at least eight years, maybe nine.”
Even then, Michelle Obama said, it took the royalties from her husband’s best-selling books to help pay off their loans.
In 2009, the Obama administration made it easier for low-earning student borrowers to get out of debt, with income-based repayment that forgives remaining federal student debt for those who pay 15 percent of their income for 25 years — or 10 years, if they work in public service.
But if the Obamas’ experience highlights the long payback periods for student debt, their careers also underscore the benefits of a top-flight education.
“College is still a really good deal,” said Cecilia Rouse, of Princeton, who served on Obama’s Council of Economic Advisers. “Even if you don’t land a plum job, you’re still going to earn more over your lifetime, and the vast majority of graduates can expect to cover their debts.”
Even believers in student debt like Rouse, though, concede that hefty college loans carry extra risks in the current economy.
“I am worried about this cohort of young people, because their unemployment rates are much higher and early job changing is how you get those increases over their lifetime,” Rouse said. “In this economy, it’s a lot harder to go from job to job. We know that there’s some scarring to cohorts who graduate in bad economies, and this is the mother of bad economies.”
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