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College borrowers need education on their options

ALBANY HERALD EDITORIAL: How to deal with college student loan debt is a $1.2 trillion question

How big a deal is student debt in the United States?

That’s a $1.26 trillion question.

Numbers this month from the Federal Reserve Board of Governors peg the student loan debt in the United States as of April at a preliminary estimate of $1.2616 trillion, more than a third of Americans’ total outstanding $3.1482 trillion debt bill for loans that don’t involve real estate. By comparison, Americans owe a total of $870.4 billion on their credit cards and $891.9 billion on motor vehicle loans, according to the preliminary April numbers.

Turn back the clock to 2009 and the rankings are a bit different. Credit card debt led the “Big 3” at $916.8 billion, ahead of student loan debt at $831.6 billion. Motor vehicle loans were at $719 billion that year.

So, while credit card debt is creeping back up from its 2010 low of $840 billion and car loans are rebounding, neither is moving up at the 51.7 percent rate that student loans have in that period of just over five years.

A good deal of that is because the cost of higher education has soared. According to statistics cited by Gordon H. Wadsworth, author of “The College Trap,” from 1986 to 2011, the cost a college education skyrocketed just under 500 percent, compared to the Consumer Price Index rising just over 115 percent in that same period. In his article on InflationData.com last year, Wadsworth noted that a college education that cost $10,000 in 1986 would have cost $21,500 in 2012 if higher education’s costs corresponded to the CPI. Instead, that $10,000 college bill in 1986 would be $59,800 in 2012. Other sources also state that individuals can expect college cost inflation to increase at rough double the price of overall inflation. The federal government says the average debt for a student graduating with a bachelor’s degree is about $29,400 today.

That makes it harder for a family to foot the bill for a college education for a child, much less more than one. And never has college been more important that it is today. A college degree is the great equalizer in America, with statistics showing time and again that the higher an individual’s educational advancement is, the better his or her chances are of seeing a corresponding advancement in wealth and quality of life.

With the high costs — and apparently little compunction on the part of government at the state or federal level to take a critical look at the higher education inflation rate and determine whether it’s merited — students and their parents have had to turn increasingly to student loans to defray the costs. This is particularly true for the middle class, where those in charge of grants and such determine a prospective student’s family makes too much money to qualify for financial aid.

Those students and their families face a particularly difficult conundrum: Falling behind to get ahead.

President Obama announced an executive order Monday that his administration says will help about 5 million more borrowers of direct federal loans starting in December 2015 by establishing a loan payment cap of 10 percent of a borrower’s monthly discretionary income (that portion above 150 percent of the poverty rate). Now, that is only available to those who were new borrows in 2007 and who received a loan disbursement after Oct. 1, 2011. The 5 million people with older loans who will now be eligible were already eligible for a payment capped at 15 percent of their monthly discretionary income. Meanwhile, parents who have taken out PLUS Loans for a child and students who have private loans for college will get no relief under the action.

Obama is pushing Congress to pass legislation that would allow borrowers — including PLUS loan and private loan borrowers — to get reduced interest rates, but it’s unlikely to get out of the Senate and even less likely to pass the House given that it would be paid for by raising taxes on wealthier individuals. Democrats don’t have any expectations that the legislation will pass. The proposal is simply positioning the Democratic Party for the November elections by once again pitting borrowers against “the rich.”

Meanwhile, one aspect that can be dealt with is the bad advice borrowers are getting from loan servicers, who haven’t been forthcoming with information on various ways borrowers can improve their repayment situations. Given the choice between helping the borrower and looking out of their own financial interests, it’s not surprising that the borrowers have been losing out.

In a statement announcing the executive action Monday, the White House alluded to that, saying the U.S. Department of Education “will renegotiate its contracts with federal loan servicers to strengthen financial incentives to help borrowers repay their loans on time, lower payments for servicers when loans enter delinquency or default, and increase the value of borrowers’ customer satisfaction when allocating new loan volume. These changes will improve the way that servicers are compensated to better ensure high-quality servicing for student loan borrowers.”

Giving servicers an option to do the right thing — even if it is only to avoid a financial penalty — won’t resolve the situation, but it will help in many individual cases. Getting deep into debt through the various loan programs is easy. Getting easily understood information and streamlined methods of controlling that debt should be just as easy.

The Albany Herald Editorial Board