Updated: May 17, 2012 8:07AM
Student loan debt topped $1 trillion for the first time late last year — more than credit card or auto loan debt. Buried in that alarming statistic are countless heartbreaking stories of students who never will break free of their debt.
Congress cannot let this go on. An army of young Americans shackled with loans they can never repay could be ruinous for the economy.
The federal government started its student loans in 1965, opening college doors to young people who would pay back the loans when they got the job. Later, the federal government added a provision that the loans could not be discharged in bankruptcy. That put a stop to the practice of declaring bankruptcy after graduating from, say, medical school and leaving the government holding a big IOU.
But in 2005, the prohibition on discharging student debt through bankruptcy was extended to private loans. Some for-profit schools found they could make big profits by encouraging students — wooed with promises of high-paying jobs — to borrow huge amounts.
The schools get the money upfront, and their bottom lines are unaffected if students don’t graduate or don’t get jobs in their fields. Ninety-five percent of the for-profit school revenue comes from the federal government. Accrediting agencies — funded by the schools they oversee — provide scant protection. It’s a system that’s ripe for abuse.
Some for-profit schools have long records of turning out graduates well-prepared to get good jobs. But others focus on luring students and helping them apply for loans. The students often are still in their late teens, unaware of how much the loans will eventually cost, and their parents often have little education and thus are unable to steer their children to better options.
“I don’t think the students have a clue the indebtedness they are getting into,” U.S. Sen. Dick Durbin (D-Ill.) says. “If they drop out, it’s a double disaster. They have got the debt and nothing to show for it. If they finish with a worthless diploma — just as bad.”
All too often, while top executives of the businesses lavish themselves with multimillion-dollar paychecks, disillusioned students are left with worthless degrees, no jobs and insurmountable debt. They can’t get a federal job if they are in default on their student loans, and they can’t borrow another nickel to go to a better school.
The weight of all that debt may be affecting the overall economy, as cash-strapped young people put off getting married and buying big-ticket items such as cars and houses.
One woman who testified at a hearing before Durbin said she owes $90,000 after earning a for-profit school law-enforcement degree that turned out to be worthless. She wound up living in her parents’ basement.
President Barack Obama is pushing proposals to make repayment easier. Durbin is promoting legislation that would remove the protection against bankruptcy for private loans, which often charge higher interest and can shoot up quickly through penalties if a student doesn’t have the money to make every payment. Missing just one student loan payment makes a borrower delinquent.
Those efforts sound wise to us. Being financially destroyed at a young age is one lesson young people don’t need to learn first-hand.