Student loan debts have reached crisis levels, especially for Blacks.

By: Shanon D. Murray | TheLoop21 (Add to your loop)
Thu, 12/23/2010 – 5:30am
With student debt nearing $1 trillion and Americans owing more on student loans than on credit cards, you know it’s bad when the national media finally pays attention. And that’s exactly what happened this week when CNBC premiered a special called “Price of Admission: America’s College Debt Crisis.”

The report was compelling and well done except for one glaring omission: It didn’t feature any students or families who were African American or of any other non-white ethnicity. If CNBC goes as far as to say college debt is a national crisis – and indeed it is – then that fact should have been made obvious in its reporting about its effect on students and families from all ethnicities and backgrounds.

And the effects are deep and far-reaching. College seniors who graduated in 2009 carried an average of $24,000 in student loan debt. Meanwhile, unemployment for recent college graduates climbed from 5.8 percent in 2008 to 8.7 percent in 2009 – the highest annual rate on record for college graduates aged 20 to 24, according to the Project on Student Debt.

And when college students graduate into a recession, a likely result is student loan defaults.

I launched into the conversation about the college debt crisis last month in an article asking whether Historically Black Colleges and Universities were adding to Black America’s economic crisis. I focused on HBCUs to try to isolate the effect on African Americans and because data analysis revealed that graduates of those schools are more likely to default on student loans.

The national student loan default rate is seven percent, which is the highest it has been since 1997, according to the U.S. Department of Education. But, as CNBC reported, there are concerns that that is a gross underestimation because the current rate only takes into account loans that are defaulted on in the first two years after they are come due.

Why does the federal government insist on using the two-year default rate? Primarily because that is the figure that determines schools’ eligibility for federal student aid, according to CNBC.

Under current federal rules, all schools with default rates of 25 percent or greater for three consecutive years face loss of eligibility in the federal student aid programs. Schools with a default rate greater than 40 percent in the latest year may lose eligibility to participate in the federal loan programs.

Using a longer period to determine a school’s student loan default rate would undoubtedly increase the rate for most schools. In fact, some estimate that 1 in 3 students will default on their student debt during the life of the loans.

Much like the mortgage and foreclosure crisis, the student loan debt crisis is clearly another economic bubble that will further devastate families and households once it bursts.

But what continues to feed it is the disconnect between the goal of graduating college and the skyrocketing costs of education.

Even President Obama during his press conference on Wednesday about the lame duck congressional session reiterated that “education is the single most important determinant for our children’s success and our country’s success in the 21st century… We have to make sure young people can afford to go to college.”

Obama also said it is a national priority to make sure colleges and universities “aren’t restricted to just people who can afford it but are open to anybody with talent and a willingness to work.”

Yet students are caught in a vicious cycle of ever-increasing educational costs and fees that leads to taking out more student loans to attend schools that continue to raise its costs and fees. And at the end of the day, colleges and universities keep the thousands of dollars students borrow while students keep the debt.

It’s a business model that puts all of the risk on students.

Historically, education has always been the surest way to climb the economic ladder. Not only is it a necessity for African Americans, but Obama has made graduating college a national mandate to increase U.S. competitiveness around the world. But if college is a key to success, can we afford it? Can we afford not to?

Shanon D. Murray, an MBA and former financial writer and editor, is a personal finance blogger for TheLoop21.com. Email Shanon at shanon@theloop21.com. Follow her on Twitter @ShanonDMurray.

How Higher Education Is Making Us Broke | TheLoop21.com