Parents struggle to pay kids’ college debts

College loans are bankrupting parents, reports the New York Times. Colleges encourage parents to take out Parent PLUS loans, which have more than doubled since 2000, to pay their children’s tuition. Others co-sign private student loans. If parents are hit by health problems, layoffs or divorce, there’s no repayment flexibility.

“You don’t want your children, much less your neighbors and friends, knowing that even though you’re living in a nice house, and you’ve been able to hold onto your job, your retirement money’s gone, you can’t pay your debts,” said a woman in Connecticut who took out $57,000 in federal loans. Between tough times at work and a divorce, she is now teetering on default.

People over 60, the fastest growing group of debtors,owe $43 billion, up from $8 billion seven years ago. More are defaulting. The government garnishes Social Security benefits to collect on unpaid student debt.

“It makes you feel like a failure as a parent, to be unable to help your children and to have all your hard work end in a pile of debt,” said one New Jersey man, who took out a second mortgage of $280,000 to help cover his children’s college costs. “I sent my older kids to private colleges, and I was happy to do it because it’s how you help them get started off. But I can’t do it for the youngest, and I haven’t even been able to start the conversation with him.”

Start talking, Dad.

A 27-year man about to complete his second bachelor’s degree — this one’s in Russian literature — tells the Times he doesn’t know how much he and his mother owe for his years in college.

What will college cost? It’s still confusing

Net price calculators  – now required on nearly all college web sites — let future students enter their personal information and get an estimate on the true cost of a specific college, including financial aid, not just the “sticker price.” But the calculators are difficult to find, use, and compare.

Not surprisingly, people who borrowed heavily for college now say they didn’t understand what they were getting into.

Parents can borrow unlimited amounts through federal Parent Plus loans, regardless of their ability to repay the loans. Not surprisingly, an increasing number of parents face garnished wages (and Social Security checks) and ruined credit.

19% of families owe college debt

Nineteen percent of households owed student loan debt in 2010, more than double the share two decades earlier, according to a Pew Research Center analysis of government data. Forty percent of households headed by someone younger than age 35 owe such debt, also a record high. The average debtor family owes $26,682 in unpaid college loans, up from $23,349 in 2007.

The U.S. Education Department has released two-year and three-year default rates for student loans that came due in 2009 and 2010. In two years, 9.1 percent defaulted, double the rate six years ago. Defaults rose to 13.4 percent in three years.

The default rates don’t include borrowers who’ve deferred payment because of hardship, such as unemployment, notes the Wall Street Journal.  “Over the long haul, the government projects that nearly 1 in 5 borrowers will default on federal student loans.”

Borrowers can link repayments to their discretionary income; the balance will be forgiven after 20 years. But college debt is still a burden: Debtors are likely to postpone buying a new car, much less buying a home.

Glenn Reynolds has more in The Higher Education Bubble.

Job training funds run out

Community colleges are being asked to train Americans for jobs, but workforce training funds are exhausted, many college leaders report. General education classes are cheap; high-tech job training is costly.

Also on Community College Spotlight: Some California colleges no longer offer federal student loans for fear of being penalized for high default rates.

The best bang-for-the-buck colleges

The University of California at San Diego tops Washington Monthly‘s list of the top colleges for social mobility (enrolling and graduating low-income students at an affordable price), research and service. Next in line are Texas A&M, Stanford, University of North Carolina and Berkeley.

Only one of U.S. News‘ top ten schools, Stanford, makes the Washington Monthy’s top ten. Yale fails even to crack the top 40. New York University, which has floated to national prominence on a sea of student debt, is 77th. NYU does particularly poorly on the new “bang for the buck” measure.
Thirteen of the top 20 Washington Monthly universities are public, while all the top-ranked U.S. News colleges are “private institutions that spend more, charge more, and cater almost exclusively to the rich and upper-upper middle class.”
Also in the Washington Monthly, Stephen Burd calls for Getting Rid of the College Loan Repo Man who fails to distinguish between deadbeats and people who just can’t pay.

The higher ed bubble

How many college borrowers are “underwater” on their student loans?

“Part of the American dream is that if you work hard, and you get an education and you apply yourself, you’ll be successful,”  a Rutgers researcher tells NPR. A third of young college graduates don’t believe this any more.

College dreams turn into debt nightmare

In Student Loans Weighing Down a Generation With Heavy Debt, the New York Times introduces yet another debt-doomed borrower: Kelsey Griffith, 23, borrowed $120,000 to earn a marketing degree from Ohio Northern University. She’s working two restaurant jobs and will move in with her parents while looking for a marketing job.

Her father, a paramedic, and mother, a preschool teacher, have modest incomes, and she has four sisters. But when she visited Ohio Northern, she was won over by faculty and admissions staff members who urge students to pursue their dreams rather than obsess on the sticker price.

“As an 18-year-old, it sounded like a good fit to me, and the school really sold it,” said Ms. Griffith, a marketing major. “I knew a private school would cost a lot of money. But when I graduate, I’m going to owe like $900 a month. No one told me that.”

Ninety-four percent of students who earn a bachelor’s degree borrow to pay for higher education — up from 45 percent in 1993, according to a Times analysis of Department of Education data. This includes federal and private loans.

Elite colleges with big endowments can offer generous financial aid — and a degree that’s valuable in the labor market. Ohio Northern charges $50,000 a year for a degree of moderate economic value. “Pursue your dreams” is a cruel hoax being played on 18-year-olds and their financially naive parents.

Only 38 percent of payments on federal student loans are being paid, down from 46 percent five years ago, the Times reports. Some borrowers are still in school. Others have deferred payments. Some have defaulted.

Forty percent of recent college graduates have delayed a major purchase, such as buying a car or a home, because of college debt, estimates a Rutgers study.  Only half of the surveyed graduates had a full-time job.

Panderfest

Democrats and Republicans have created a panderfest over heavily subsidized student loans that go primarily to middle-class students, writes Rick Hess. Interests rates were cut — “temporarily” — in 2007. Now President Obama argues the lower rate should remain in force because of the tough job market.

But the debate only affects loan costs for people starting college in 2012-13, which means theyre mostly relevant for grads entering the workforce in 2017, or later. Is the President trying to tell us that he expects the job market to still be brutal in 2017?

Keeping interest rates low is “doubling down on failure,”writes Glenn Reynolds (Instapundit) in the New York Post.

His lower-rate plan would apply only to new loans, and only to loans taken out under the federal Stafford Loan program. He’s not helping previous borrowers get out from under their mountains of debt. He’s helping new borrowers build their own debt mountains.

A serious student-loan reform would link “students’ ability to borrow” to “the likelihood that they’d be able to pay” the loans back, Reynolds argues.

Right now, student loans are sold on the basis that “college” promotes higher earnings. But “college” isn’t an undifferentiated product. Some degrees — say in Electrical Engineering — increase earnings dramatically. Others — in, say, gender studies — not so much. A rational lender would be much more willing to finance the former than the latter.

Now, student debt can’t be cleared in bankruptcy. That should change, Reynolds argues. But colleges should bear some of the costs.  “Obama’s interest-rate ‘fix’ . . .  just pumps more hot air into the bubble.” Reynolds new book, The Higher Education Bubble, is due out in June.

If you fund it, they will spend

When financial aid flows to affluent students, college raise tuition to capture the dollars, writes Andrew Gillen of the Center for College Affordability and Productivity. However, aid to low-income students, such as Pell Grants, is unlikely to push up tuition, he writes in an Inside Higher Ed essay.

Aid restricted to low-income families allows students who were previously priced out of higher education to attend, without giving colleges the ability to raise tuition without again pricing these students out of higher education. That is not the case with aid given to relatively affluent students who will attend college regardless of price.

Not all colleges will raise tuition, when aid rises, he adds. Instead, “many colleges will instead grow their applicant pool, allowing them to become more selective” and move up in college rankings.

“Don’t leave money sitting on the table” was the ethos, when he attended meetings with university administrators to discuss tuition, writes Peter Wood in a Minding the Campus discussion.

The metaphoric table in question was the one on which the government had laid out a sumptuous banquet of increases of financial aid. Our job was to figure out how to consume as much of it as possible in tuition increases. . . . A substantial portion of the money we captured would be reallocated as “tuition discounts” or “institutional aid.”

. . . And we did all this in the pursuit of educational excellence. It was a large private university in the shadow of world-ranked neighbors and it was attempting to pull itself up in the world of prestige and influence by its bootstraps. There were townhouses that needed buying; laboratories that needed building; faculty stars that needed hiring; classrooms and residence halls that needed refurbishing; symphonies that needed performing; grotesque modern sculptures that needed displaying; and administrators that needed chauffeuring.

Herbert London adds a quote from Derek Bok, a former Harvard president:  “Universities share one characteristic with compulsive gamblers and exiled royalty: there is never enough money to satisfy their desires.”

The federal government should provide college aid only to low-income students with performance criteria to weed out mediocre students, proposes Richard Vedder, Gillen’s colleague at CCAP.

Make the college absorb some of the risk for loan defaults — a lesson we should have learned from the financial crisis. Give Pell Grants as vouchers directly to students, not schools. Reinstate private lending options. Unveil new human capital contract approaches that reduce debt reliance. Downsize and reinvent federal programs and allow market discipline to operate more.

Student lending needs to be rethought, write Vedder and Gillen in a Chronicle of Higher Ed commentary.

Sallie Mae drops ‘unemployment penalty’

Under pressure from an online petition, Sallie Mae will stop charging a forbearance fee – $50 every three months per loan — to unemployed borrowers. Instead, what the private lender calls a “good faith deposit” will be applied to the balance of the loan.