Student loans tying you down?

By DEANNA ISAACS  |  September 12, 2012

Like rising home prices in the housing bubble, tuition increases were enabled by easy credit. Students everywhere borrowed, but none more than those at for-profit schools. Holmes notes that at four-year for-profits in 2008, 97 percent of graduating students took out loans. At least they graduated. In the worst cases, students leave with debt but no degree.

And here's the important distinction about student loans: they're uniquely hard to shed. While some subsidized student debt can be "forgiven" — if you make all your payments for 20 years and still have a remainder, for example, or if you spend your career in public service — they're the only kind of consumer debt that can't be discharged through bankruptcy. Unlike credit card debt and mortgages, if you take out a student loan — even a bank loan without a government subsidy — you'll be on the hook until it's paid. In theory, you could still be ponying up for that film class from your Social Security check.

In 2010, in spite of a multimillion-dollar lobbying effort by Sallie Mae, the Obama administration closed private lenders out of the government's undergraduate student loan business. Now those loans are being made — as they were at first — directly from the government to the student. But the debts outstanding at this point will still be handled by the same players, under the old rules.

Holmes, teaching in Europe this summer, e-mailed recently that what we have left is "one trillion dollars of outstanding loans and a system based on ever-higher tuition every year. . . . The substantial work to solve the long-term debt problem remains to be done."

This story first appeared in the Chicago Reader.

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