While the nation struggles under the weight of overspending, millions of Americans struggle with the weight of over-lending. Encouraged by guidance counselors, admissions officers, and even their own parents, they took out large students loans to finance their college educations. Now that they’re graduated, they are pinned beneath student loan payments that can dwarf mortgages. Unfortunately, the government has little incentive to provide relief, because Uncle Sam actually profits from student loan pain.
The Size of the Issue
The size of the student loan problem in the United States is truly mind-boggling. In June of 2010, student loan debt surpassed credit card debt as the largest body of debt in the country. Nationally, graduates owe more than $850 billion dollars, a debt figure that increases at a rate of $90 million dollars annually according to USA Today.
The federal government holds more than $605 billon of that debt, with the rest in the hands of private lending agencies, according to Mark Kantrowitz of FinAid.org, a website dedicated to student loan issues. Some 62 percent of students from public school graduate with debt, as do 72 percent of students from private non-profit schools and 96 percent of students at for-profit institutions as of January 2011. The average graduate with a bachelors degree in 2008 held $23,200 in debt, and 10 percent of bachelor’s degree holders have more than $40,000 in student loan debt.
In terms of potential profits for the government, a student with $30,000 in debt at the prevailing 6.8 percent rate will pay more than $42,000 over ten years to retire the loan. Multiply that $12,000 in profits by the numbers of students with loans, and it becomes clear that the federal government is rolling in student loan money even as students struggle to make monthly payments in the current economic climate.
No Escape for Borrowers
Uncle Sam has little incentive to address the debt levels among students because of the size of the government profits from student loan woes and the political incentives to keep student loan groups operating. Lobbying groups for Sallie Mae, the Student Loan Corp, and Citigroup, the largest holders of student loans, contribute millions of dollars to re-election campaigns. Most loans through fees, deferments, and penalties balloon over the course of the loan, ensuring that the government collects far more than it lends.
Borrowers are uniquely pinned down under student loan burdens. In 1998, Congress made student loans the only type of loan that can’t be discharged in bankruptcy. That same year, Congress eliminated the statue of limitations on student loan collections, ensuring that the government can hound indebted students right up until the day they die. Indeed, death is the only way to wipe out student debt completely … but only if there are no co-signers on the loan. Parents of deceased students remain liable for student loan payments if they co-signed on the original loan.
No End in Sight
In terms of relief from the debt burden graduates face, there doesn’t seem to be any end in sight. The new Speaker of the House, John Boehner, was the largest recipient of campaign contributions from student loan makers, according to The Student Loan Project. Attempts at student loan reform have been continually opposed by student loan makers, who argue that loan reform would force them to cut jobs at their origination and collection sites, according to the New York Times.
As a result, millions of Americans remain pinned under heavy debt burdens. Many of these student loans were encouraged under the premise that a college education would lead to a better future. Instead, students face years of monthly payments that prevent them from buying cars, making down payments on homes, or even going out to eat. Until a compromise is found, Uncle Sam will continue to profit while dismayed graduates struggle to make ends meet.