Monday, August 13, 2012

The Student Loan Fiasco’s Getting Uglier…(Seemed like a good idea at the time to borrow that extra $10K)

I was fortunate to attend college at a time when it didn’t cost all that much. Even when I went to business school (1979-1981) at a high-end school (MIT), I don’t think tuition was more than $4K-$5K a year. I did borrow a bit of money for Sloan, as I had earlier for my one year of grad school at Columbia. The sum total of my borrowing was, maybe, $5 - 6K.

School in those days, of course, was nothing near as fancy as it is now. When I went over to Sloan (MIT) during my 25th reunion year, I was astounded by how nice the facilities were, when compared to the rather minimal digs we had when I was there. (The student hangout between classes and for lunch was pretty much two large round tables in a sort of no man’s land on the floor that housed the administrative offices.)

And, hey, it was worth it.

But the average loan burden that a student graduates with is far in excess of $6K. It’s somewhere in the $30K range. And that’s the average.

I’m of mixed emotions here.

I do think it’s worth having some skin in the game to get an education, and borrowing to attend college is skin.

I also think that a liberal arts education is (or at least can be) worthwhile, even if it doesn’t translate into a brilliant and lucrative career. It’s actually kind of sad that, whether we like it or not, this sort of an education is turning into a luxury item that only a few will be able to afford. (The good news, of course, is that online education – and I’m not talking “I Am Phoenix” here – means that those who love learning can easily and cheaply become life-long learners. Real schools, good schools – MIT is one of them – have lots of course materials on line for free.)

On the other hand, it seems really and truly crazy to borrow a ton of money to major in, say, women’s studies or “communications” or 20th century film or Baltic languages at a third tier college where you’ll graduate with a degree that has limited value, and where you won’t have (gag, but I have to say it), built the sort of network that can help your find a decent job. Better you should major in something that has at least a vague chance of translating into a job where you’ll make enough to pay off those irksome and heavy-duty loans. Or find a less costly state school than the charming little private college you have your heart set on, without the pocketbook to follow your heart.

Especially when you consider that, unlike a mortgage on which you’re underwater, you can’t walk away from student loans. No bankruptcy. No no-can-do. No death do us part.

In fact, there’s now a new wrinkle to the student loan problem, and that’s that the parents who co-signed for their kids (or grandkids), or who directly took out loans for their kids (or grandkids), are finding that their Social Security is being tapped to make good on those loans.  Also being hit are some retirees who are paying off their own loans – including mid-life-change-of-career-back-to-school debt. (Source: Smart Money.)

According to government data, compiled by the Treasury Department at the request of, the federal government is withholding money from a rapidly growing number of Social Security recipients who have fallen behind on federal student loans. From January through August 6, the government reduced the size of roughly 115,000 retirees' Social Security checks on those grounds. That's nearly double the pace of the department's enforcement in 2011; it's up from around 60,000 cases in all of 2007 and just 6 cases in 2000.

The government can withhold up to 15%. Given that the average Baby Boomer has done a pretty abysmal job saving for retirement, and is heavily reliant on Social Security, having 15% clawed out is going to hurt.

Roughly 2.2 million student-loan debtors were 60 and older during the first quarter of 2012, and nearly 10% of their loans were 90 days or more past due, up from 6% during the first quarter of 2005, according to the Federal Reserve Bank of New York.

This is going to be short-term ugly and long term worse.


Pink Slip’s been on the student debt hobby horse in the past. Early post on borrowing to go to law school. Another one on young folks who think Debt Is Cool, and yet another about a young woman who borrowed an extra $10K to live in a fancy-ass dorm.

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