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Student debt newest bubble

Like we need something else to worry about that could derail the economy ...

Three out of every 10 student loans are 30 days past due, and 80 percent of those loans are backed by the taxpayers. U.S. student loan debt, now more than $1 trillion collectively, is higher than the debts Americans have on autos or credit cards, with the average student owing $25,000.

The scary part of this was a quote in an Associated Press report on Tuesday. In that report, William Brewer, president of the National Association of Consumer Bankruptcy Attorneys, says lawyers in his association have seen a similar situation six years ago.

“As bankruptcy lawyers, we’re the first to see the cracks in the foundation,” Brewer told AP. “We were warning of mortgage problems in 2006 and 2007. The industry was saying we’ve got it under control. Nobody had it under control. Now we’re seeing the same signs of distress. We’re seeing huge defaults on student loans and people driven into financial difficulties because of them.”

The problem has more than one leg. First, it’s hard for a student struggling to meet bills and class schedules to turn down cheap money. The student loan rates are 3.4 percent now, though they will go back up to 6.8 percent this summer if Congress doesn’t step in to keep the rate lower.

Second, students generally get no counseling before they enter these loan agreements. Rather than get a part-time job to help defray the cost of higher education, many rely on the loans for general support while in college.

Third, higher education tuition has gone up sharply, especially since state governments, strapped for cash in the recession, found college and university funding a good place to save money.

Fourth, the job market is still down around 5 million jobs from five years ago. It’s hard to repay debt if you can’t find a job that pays well enough to meet your financial obligations.

The biggest problem, however, may be the fact that this is an election year and both parties are jockeying for position. That is usually a recipe for nothing getting done for fear that one party might reap more political benefit than the other.

Even more than a lower interest rate, however, the biggest benefit the government and colleges and universities could provide to students would be counseling on the financial decisions they are making that will impact their lives a decade into the future. Somehow, we have to re-instill in our American culture — one which, frankly, has gotten spoiled over the past few decades — that everything comes at a cost that has to be repaid. A continuation of the government-bailout mentality will make America another Greece, with banks and other governments making fiscal decisions for us.

One thing the federal government — which borrows 40 cents of every dollar it spends — might do, in fact, is lead by example, something it has had little stomach to do, regardless of which party has been in charge. With the fiscal responsibility our federal government now as the example it shows our youth, it’s no wonder that student debt is a ticking financial timebomb.

If that idea of financial counseling for students before they borrow ever catches on, maybe it also can required for Congress and the White House.

— The Albany Herald Editorial Board