The Human Side of College Debt

Barry Lenson

If you graduated college owing a ton of money in student loans, here’s some news you should know:

Declaring bankruptcy might not help you erase the loans that you took to finance your education.

According to “When Good Loans Go Bad,” an article by Daniel L. Bennet in Forbes last week, “Rising delinquency and default rates indicate that borrowers are struggling to repay the loans that they took out to pay for college, especially in the midst of the current economic environment. The fact that student loans are unable to be dismissed in bankruptcy has created a financial nightmare for some borrowers. They're drowning in a mountain of student debt and can't collect the dividends that a college education is supposed to pay.”

It’s Not Academic

A recent article in the New York Times, “Placing the Blame as Students are Buried in Debt,” brings it all home by telling the story of Courtney Munna, a 26-year-old woman who took on $100,000 in debt while she was an undergraduate at NYU. Ms. Munna’s story is harrowing. She hasn’t been able to find a good-paying job. To delay making big loan payments, she has become a night student. (As long as she is a current student, she does not have to start repaying her loans. However, this tactic does not prevent interest from piling up on the staggering sum that she owes.)

Ron Lieber, the author of the article, writes: “Ms. Munna does not want to walk away from her loans in the same way many mortgage holders are. It would be difficult in any event because federal bankruptcy law makes it nearly impossible to discharge student loan debts. But unless she manages to improve her income quickly, she doesn’t have a lot of good options for digging out.”

Lieber places some of the blame for Munna’s predicament on Citibank, which issued her several loans that she would find difficult to repay. He also directs blame at NYU, which suggested that Munna approach Citi for a loan after Sallie Mae turned her down because she had already borrowed too much there.

There could be an even bigger problem too: Colleges don’t want to discourage students from borrowing. To do so would be to admit that students might not be able to get high-paying jobs after graduation.

So the net result is that people like Courtney Munna dream their way into debt, and then find it hard to dig out. But there is a better way, which is to reduce the cost of college through distance learning courses and the other tactics that you have been reading about on this blog.  If you don’t pay for an expensive classroom course, you don’t have to borrow money to pay for it. That’s pretty simple. But when it comes to paying for college, simple usually works best.

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