Student Debt

I wonder if there will ever be a pause in all the stories about student debt, particularly the antidotes about someone incurring a huge amount of debt that’s now serving as an anchor around their ankles.

It struck me that anyone who has a huge amount of debt from attending a college chose the wrong college. Sometimes (usually), the simplest explanation is the best one.

Student-Loan Debt Is Following Americans into Retirement

I can’t imagine carrying student-loan debt when I was 40 years old. Or 50. Or, for heavens’ sake, 60 or older. But that’s what happening in America according to the New York Fed.

Of course, some of this debt will never be repaid. The U.S. taxpayer, who holds most of the debt via its federal government, will have to absorb the losses. The winners in such a system are the colleges, who received most of the loan proceeds.

When I was a college president, I was shocked by the willingness of some students to incur ridiculous amounts of debt for a college degree with little economic value. There just didn’t seem to be any concern over the relationship between the debt and that which was being purchased with the proceeds, or about the impact of the debt on their lives in the years ahead. I believed then and believe now that we need:

  • to do a much better job of educating our kids about personal finance; and
  • to revamp a seriously flawed student-loan program.

Unfortunately, none of this seems to be a priority, either with our local school boards or our national government. So nothing has changed. Except the loan balance, that is. The total amount of student debt has grown to about $1.5 trillion. And it’s continuing to rise.

Why Do Students Receive Special Treatment? The Bad Kind, That Is.

Student debt is not dischargeable in bankruptcy. Other debt is. Frankly, it seems patently unfair to me that Donald Trump can declare bankruptcy four times, run a university into the ground while creating a $25 million liability, while students are stuck for life with debt they incurred when they weren’t even old enough to drink. But I suppose it’s easy to understand: students don’t have lobbyists.

We now have about $1.5 trillion of student debt and the outstanding balance is rising. As is the default rate. The debt is serving as a drag on the economy and will impact lives adversely for decades to come.

I was heartened today, however, to hear the new chairman of the Federal Reserve Bank address the issue. When asked why student debt isn’t dischargeable in bankruptcy, Mr. Powell said, “I’d be at a loss to explain why that should be the case.” Clearly, it’s an issue that deserves attention in Mr. Powell’s opinion.

Colleges and universities are particularly culpable. They benefit immensely from the current system. And they don’t bat an eyelash while students submerge themselves in oceans of debt. But others are to blame too, including politicians who make it easy for students to borrow more than is prudent, as well as parents and schools who have failed miserably in educating our kids about financial matters.

But we’re way beyond the point of ascribing blame. It’s time to address this problem.