This generation of college students, our generation, is the most debt-burdened in history.
According to a the federal student aid study from 1993 and 2004, 62 percent of students who graduated in 2004 graduated with student loan debt. A whopping 40 percent graduate with unmanageable debt loads.
Lenders consider payments that eat up more than what is considered financially sound to be unmanageable. This is a problem that needs addressing.
The average debt per student is also rising. The median ranges from $6,100 for an A.A. from a public school to $24,600 for a B.A. from a private university.
Debt averages $15,500 for a four-year degree from a public university. This is one-third higher than in 1990, and the debt is even greater for post-graduate studies.
The median loan amount for a master’s degree rose from $18,578 in 2000 to $26,119 in 2004. This is an increase of 47 percent, while doctoral students endured a 45 percent increase in student loan debt.
However, none of these statistics take into account the various private loans that many students take out. There are an estimated 25 percent of students who put at least some of their education on credit cards.
One of the major problems with college loan debt is that many people, after accumulating debt, don’t actually finish their degrees. Life gets in the way of prospects for a bright future through unemployment, medical problems and divorces.
Another huge problem with student loan debt is the growing domination of private corporations in student loans.
One company, Sallie Mae, owns four times as many federal student loans than any other company. They have had a 1,900 percent growth in their stocks since 1995 and have grown to manage over $107.4 billion in loans.
The problem with this type of loan is the ridiculous amount of money these companies can make off of students through extra fees, interest and loans that go into default (when a loan is not paid and a government agency takes it over).
One example is Alan Collinge, a former aerospace engineer. Collinge originally borrowed $38,000 in loans from Sallie Mae to complete his three degrees at the University of Southern California. After making over $7,000 in payments, Collinge’s government job disappeared after 9/11 and he was left unemployed.
His student loans went into default, and after two years, Collinge got a bill for $85,000. He now owes over $105,000 to the Department of Education.
Collinge definitely isn’t the only one to have had his original student loan debt doubled, tripled or even quadrupled.
The alternative to this type of loan is the Direct Loan Program. Rather than allowing companies like Sallie Mae to dole out loans through subsidies from the government via the Federal Family Loan Program, direct loans can be obtained straight from the U.S. Treasury.
President Clinton created direct loans in 1993 and now we are beginning to discover the huge advantages of direct loans. In fact, according to President Bush’s education budget, loans through the Federal Family Loan Program cost the federal government $12.09 on every $100, while direct loans only cost 84 cents.
Currently only 30 percent of the total loan volume is made up of direct loans. According to the Congressional Budget Office, a modest expansion of the Direct Loan Program could save up to $12 billion in the next ten years.
This is where the STAR Act would come in. The STAR Act proposes to make some of the $12 billion in savings available to colleges in the form of Pell Grants for lower-income students.
Many colleges would then be able to increase their Pell Grants by up to $1,000 each, which could help lower-income students and possibly make their decisions about whether or not to continue their education.
With the major economic problems associated with the growing student loan debt and the inability for many people to afford school at all, we need to take action now.