The Coming College Loan Crisis: Lawmakers Face A Tough Decision On Offering Financial Aid

Monday, June 03, 2013 13:05
The Coming College Loan Crisis: Lawmakers Face A Tough Decision On Offering Financial Aid

Tags: college planning

Congress has applied a double standard in which businesses are bailed out from under their debt load while today’s graduates are left saddled with college loans likely to take the average college graduate decades to pay back. That’s the argument from an economics professor who are likely to see the borrowing rate on federally guaranteed Stafford loans double to 6.8% in July unless Congress overcomes its partisan differences and temporarily reduces the rate for a year while a longer term solution can be explored.

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“The rolling thunder of accumulating student debt sounds a lot like the perfect storm of mortgage liabilities that threatened major financial institutions and precipitated the Great Recession in 2007,” says Nancy Folbre, an economics professor at the University of Massachusetts, Amherst, in today’s New York Times.
“The number of student borrowers increased 54% from 2005 to 2012, while the average debt per borrower increased 56%, to $25,000,” says Folbre, citing Federal Reserve Bank of New York data.
Folbre says today’s graduates won’t be able to afford homes and cars and that will slow U.S. economic growth. “High default rates in turn, raise the cost of the loans, fueling the conservative argument that interest rates on them should be set much higher than those on loans to banks,” says Folbre. “Of course, loans to large banks are more secure in part because they are bailed out when they get into temporary trouble. My students wish that they, too, were too big to fail.”

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