A Lesson in Finance After school: debt and default. Who is to blame? What is to be done?

Jacob Sullum:

My wife and I recently made the last payment on her federally backed Stafford loan from graduate school. She had borrowed $21,500, which is slightly more than the average for the two-thirds of four-year college students who take out loans and about half the average for graduate students who borrow. We made modest payments every month for about nine years, and now we're done. Given the extent to which my wife's degrees enhanced her earning ability, the loan was a sound investment.

My wife did not feel that her education had done her "far more harm than good," that it had condemned her to "a lifetime of indentured servitude" or that she was living in "student loan hell." Neither of us was driven to despair, divorce, suicide or expatriation by the constant pressure of crushing indebtedness and relentless collection agencies. In other words, our experience was very different from the horror stories that Alan Michael Collinge tells in "The Student Loan Scam" to reinforce his argument that student loans are "the most oppressive" type of debt "in our nation's history."

Student-loan data suggest that my wife's case is far more typical than the examples cited by Mr. Collinge, all of which involve people who defaulted on their loans and saw their debt mushroom as a result of penalties, collection fees and compound interest. According to the Education Department, the two-year default rate for federal student loans (both direct government loans and private loans backed by government guarantees and subsidies) is less than 5%. A separate Education Department analysis found that the 10-year default rate for college students who graduated in 1993 was less than 10%.

Posted by Jim Zellmer at February 26, 2009 1:01 AM
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