Back in 1965, in the days of the Great Society, when all things seemed possible with enough federal money, the government began underwriting student loans. On paper, it was -- and, when properly overseen, still is -- a good idea:
Students who otherwise couldn't afford to attend college could do so on low-interest government loans and repay them with the earnings from the presumably more lucrative jobs to which a college degree gave them access.
The popular program grew -- and grew and grew -- and now student loan debt, in figures calculated last year, is over $1 trillion, more than Americans owe on their cars and credit cards. The amount is likely to be significantly higher when the Consumer Financial Protection Bureau recalculates the debt this summer.
The average loan debt is $25,000, up 25 percent in 10 years; more than 80 percent of those loans are government guaranteed, meaning taxpayers are on the hook for the money.
A vicious circle is at work. College graduates, unable to find work or unable to find work well-paid enough for them to repay their loans, are returning to college, incurring even more debt.
And there's another vicious circle at work. Tuition increases typically outpace inflation, making the cost of college ever higher in real terms. Some critics attribute these increases to the easy availability of federally backed loans. They're easier to get than to repay.
Federal Reserve figures show that nearly a third of student borrowers who have begun trying to repay their loans are delinquent on their payments. And it's not just young people starting out. The Fed says Americans 60 and older still owe $36 billion for their student loans.
One hopes the situation isn't as dire as Tom Raum of the Associated Press paints it: "This debt explosion jeopardizes the fragile recovery, increases the burden on taxpayers and possibly sets the stage for a new economic crisis."
But it wouldn't be the first time Americans were blindsided by financial disasters for which they were forewarned, the housing bubble and the dot-com bubble, to name two of recent memory. And as far back as the early '70s, analysts were warning that underfunded public employee pension funds were promising far more benefits than they could deliver.
Once a loan is delinquent, the government can bring its vast collection powers to bear, garnishing wages, tax refunds and Social Security benefits. And student loans cannot be discharged through bankruptcy, a protection Congress also extended to private lenders in 2005.
The problem for the larger economy is that debt-burdened young people postpone such economically vital activities as getting married, and buying and furnishing a home.
If there's a frugality lesson here, it is being ignored. Parents are increasingly going into debt to send their children, as young as kindergarten age, to pricey private schools. According to the National Association of Independent Schools, the median tuition for private high school seniors is $24,240.
-- Scripps Howard News Service