June 24, 2013 10:23:29 AM
OXFORD -- It's amazing, isn't it, how many great ideas -- real great ideas -- from the not-so-distant past are creating havoc today?
A guarantee that taxpayers would repay college loans if students couldn't was one such idea in the 1960s. Lenders became far more generous when their risk dropped to zero.
Loan programs, augmented by federal Pell grants, which do not have to be repaid at all, blossomed. Doors to colleges and universities opened wider.
The premise for the guarantees -- documented in the legislative history -- is that America's actual existence was in jeopardy. The Cold War was raging and the press was reporting with alarm that major scientific advances were being made by the Russians and Chinese while our young people were on surfing safaris with the Beach Boys.
We simply had to get smarter, fast.
While the loan programs -- and there are many -- were a noble response to a national emergency, they were also imbued with egalitarianism. Opportunity is for everyone. Universities should not be closed to all except those who paid tuition up front or had good credit at their banks. Very democratic.
Fast-forward to today and the justification based on the national interest in ratcheting up our collective intelligence has been, well, shunted aside. Don't want to talk about that, do we? In its place is the belief that higher education is, well, an entitlement. Government will sponsor us as we learn everything from hair styling to quantum physics.
There swelling chorus of alarm and discontent in linked to Congress, which has been dallying with a doubling of the interest rate (3.4 percent to 6.8 percent) on subsidized Stafford loans (the type where government pays interest until student payments start). Too, economists everywhere have sounded their gongs to alert us that total student debt is larger than total credit card debt.
No one saw this coming.
"Do something," we say. "Fix it."
How bad is the problem? It's bad, but not intractable.
Mississippi, usually among the first of the worst and the last of the best, is almost in the middle of the pack.
We're 33rd among states in that 54 percent of our 2011 public and private college bachelor's degree grads had debt. We're 29th among states in that the average amount owed is $23,537. So says the Project on Student Debt, which has amassed all the data.
A couple of asterisks for Mississippi: One is that the average cost of a bachelor's degree in this state, while soaring, is still a bargain compared to tuition and fees in other states.
Another is that due to the prevalence of poverty, a larger share of Mississippi students receive Pell awards. It's not necessarily a bragging point, but students from more affluent states don't get as much "free money" and, as a result, may borrow more.
There's also -- or should be -- scandal. For-profit, online colleges lure people in with their TV ads and buy now, pay later pitches. The repayment default rate for these "institutions" is double those of brick and mortar colleges and rising. Their eligibility should be lopped off, but hefty campaign contributions and effective lobbying indicate that's not going to happen.
Anyway, that average Mississippi graduate who owes $23,537, faces payments of $231.65 a month for 10 years at 3.4 percent or $270.86 at 6.8 percent, which is already the rate for unsubsidized Stafford loans. (Sorry, but it gets complicated.) The note and the difference is not insubstantial to a person just starting out in a career, perhaps just starting a family. Repayment won't be easy, but it won't be impossible, either.
Besides, an array of remedies is in the works. Most prominently, in newer loans, demanding repayment at a rate greater than 10 percent of a debtor's annual income will be forbidden. Debtors may even be allowed to cancel what they owe via bankruptcy, which is not now allowed.
Just as there was a political imperative to create guaranteed student loans, there is a political imperative to create escapes, alternatives to financial disaster.
The takeaway here -- the practical hint to families with prospective college students and those who are students today -- is to do everything possible to avoid borrowing a penny or a penny more than is absolutely necessary.
Government guarantees of student loans (to attend legitimate schools) was a good idea. A college education is a wonderful thing to have. But loans of any type can be a trap for the unwary, especially when they're so easy to get and the due dates sound so distant.