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Student loan crisis calls for mortgage-style flexibility

Post by TNT Editorial Board / The News Tribune on March 24, 2012 at 4:14 pm |
March 23, 2012 4:16 pm

This editorial will appear in Sunday’s print edition.

For a sobering observation about student debt, it’s hard to beat this:

“Bankruptcy attorneys from across the country . . . report that what they are seeing at the ground level feels too much like what they saw before the foreclosure crisis crashed onto the national scene: more consumers seeking their help with unmanageable student loan debt, and with no relief available.”

That line, from a February report commissioned by the National Association of Consumer Bankruptcy Attorneys, echoes a growing concern among economists.

Total student debt in this country is now closing in on $1 trillion and exceeds what Americans owe on either their credit cards or their auto loans. Increasing numbers of former students are falling behind on their payments. Total delinquency on student loans hit $85 billion last year, according to Bloomberg News.

The Federal Reserve Bank of New York recently scoured the credit records of the 241 million Americans tracked by Equifax. On Monday, the Fed reported that 40 percent of those Americans under the age of 30 had outstanding student loans; the average was $23,300. Nearly 10 million college students and graduates may have past-due balances of 30 days or more.

All those numbers add up to trouble that could easily spill over from personal financial anguish to another economic crisis this country does not need. Countless people are connected to those loans, including the federal government and the parents that co-signed many of them.

The worst thing about a recession is the way it compounds itself, one form of distress spawning another. In this case, millions of former students are having a tough time repaying their debt because they’re broke – either unemployed or under-employed.

Meanwhile, states are cutting support for their higher education systems – cutting it radically, in the case of Washington. It’s becoming harder and often more expensive to get the degrees that make repayment doable.
Solutions are not obvious. The United States can’t afford a wholesale bailout of student debt – which in any case would be a gross injustice to struggling taxpayers who never went to college in the first place.

And just as there were irresponsible homebuyers who bought far more house than they could afford, there are irresponsible students who gave little thought to how they were going to repay their loans. For example, someone who racks up a $40,000 balance studying French literature with no practical plans for a job to finance the payments.

Still, if that French lit major can’t make the payments, it does no one any good to pretend he can. Forgiveness may be a bad idea, but more flexibility – the kind of flexibility being extended to upside- down homebuyers – could keep the tide of defaults from rising into a tsunami.

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