Student debt and defaults surge

“I’m sure that all people wish they did not have to borrow to go to college,” says Dr. Chiteji of Skidmore College in Saratoga Springs, N.Y., who has studied indebtedness among the young. “We’d all like the things we want to be free to us.... [But] the costs of college have to be borne by someone in society, and there’s a strong economic argument for having that ‘someone’ be the student.”

Most young-adult debt profiles haven’t yet reached horror-story status. In fact, young people’s overall indebtedness as a proportion of income has not changed much since the 1960s, according to Chiteji’s research.

There is an important difference between then and now, though. Mortgage debt used to be virtually the only major debt held by young people. Now, their debt load is much heavier on schooling.

And student debt can be extremely difficult to discharge, even in bankruptcy court. (Click here to see how one former grad student did it.) That’s partly because of a crackdown on defaults following a record default rate of 22.4 percent during the 1990-91 recession.

The difficulty of discharging student loans is one reason that Applebaum has launched his efforts. If student debt is forgiven, he argues, the economy will be stimulated. That would free a great many people to buy homes and cars, he says.

Applebaum is building a student-debt advocacy organization, and in January, he started the Facebook group “Cancel Student Debt to Stimulate the Economy,” which has mushroomed to 160,000 members as of early April.

Now, more than a few members of Applebaum’s Facebook group are wrestling with the question: How much is a good education – especially a private, liberal-arts education – really worth?

In 2004, Brian Kraus graduated from Cornell College in Mount Vernon, Iowa, with a double major in business and economics and sports management – and with $50,000 of mostly private student debt. Now, he’s a customer-support manager at a Denver telecommunications firm, and he’s making monthly loan payments of just over $500. In a few years, on his payment plan, he expects the amount he owes each month to rise near $1,000.

“I signed for [the loans] and I believe in paying them, and I will do so until I can’t do it anymore,” says Mr. Kraus.

He realizes that, in a tough economy, many won’t sympathize. But, he says, “If our debts were paid – and I do believe they need to be paid rather than just forgiven, or else we are causing more issues for the loan companies – then think about the amount of money that could be directly infused into the economy.”

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