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The Columbus Dispatch
College loan debt drags on students, parents and nation’s economy
By Mary Mogan Edwards

As more U.S. students rack up higher student-loan tabs over the next 20 years, worries about debt will affect government higher-education policy and the colleges themselves.

Some observers warn of a “student loan bubble” or a coming “crash” akin to the mortgage-loan catastrophe of the Great Recession. Other experts, however, say there is no such thing.

“The housing market and the student-loan market are two very different things,” said Antoinette Flores, a senior policy analyst for the left-leaning Center for American Progress.

In the housing bubble, when the artificially inflated value of real estate fell, millions of people were stuck owing more money on houses than the houses were worth.

They could declare bankruptcy, go into foreclosure or make short-sales. By contrast, the growth in student-loan indebtedness creates a burden that borrowers can’t escape.

“Already, they’re paying on it longer, and this keeps them from investing in anything else that’s going on in their lives,” Flores said.

That, in turn, creates a drag on the whole economy.

A recent series of reports by the Federal Reserve Bank of New York showed that, though overall U.S. household debt has returned from a Recession-era collapse to the 2008 peak of $12.7 trillion, that debt looks different from before. Student-loan debt now makes up a larger portion of the average family’s debt: the aggregate total grew by 170 percent, to about $1.3 trillion, from 2006 to 2016; mortgage and credit-card debt grew more slowly. Students are borrowing more and they’re having more trouble paying it off.

This puts greater pressure on colleges and universities to graduate students who are going to earn enough to pay those student loans back.

Traditional liberal-arts and humanities faculties in many cases feel under siege, as their internal funding shrinks along with their enrollment.

Conservatives and liberals disagree about both the causes and potential fixes to ballooning student debt. Liberals decry what they call “disinvestment” in public higher education by states.

For example, though the current Ohio budget calls for $1.98 billion in instructional spending for colleges and universities in 2017-18, the subsidy has shrunk over the decades, both as a share of state spending and as a share of the colleges’ budgets.

This school year, state subsidies will total about 5.5 percent of Ohio State University’s total revenues, compared with 8.3 percent in the 2007-08 school year, said Rob Messinger, a university spokesman.

In the 1970s and ’80s, higher-education spending typically accounted for 12 percent to 15 percent of Ohio’s general-fund spending. For the new two-year budget, it averages 7.9 percent. Critics say this has driven up tuition and, thus, student borrowing.

Knowing students can borrow money, the theory goes, universities are free to raise tuition. Taxpayers and students are then stuck with the financial fallout from debt they can’t pay back.

In the past decade, the U.S. Department of Education under President Barack Obama issued regulations aimed at protecting student borrowers, but the fate of those regulations is up in the air under President Donald Trump.

In June, the department put the brakes on two key initiatives. The gainful-employment rule required colleges and universities to report on earnings of former students and penalizes those with poor results.

Another created a process for former students to have their federal loans discharged if they can prove the college misled them about job prospects or otherwise defrauded them.

Both were sparked by abuses in the for-profit-college industry but apply to other institutions as well. The Trump administration has said it will start the negotiated rule-making process over.

Critics complain that, even if the rules emerge intact, the delay will hurt former students stuck with debt that they deserve to escape.

In April, U.S. Secretary of Education Betsy DeVos rescinded instructions from her predecessor, saying that companies wanting contracts to service government-issued student loans would have to pledge to meet certain guidelines.

The guidelines required servicers to be transparent, provide accurate information to borrowers and treat borrowers consistently.

Read this and other articles at the Columbus Dispatch


 
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