Cap, gown, debt

As the Class of 2015 leaves college this commencement season, its members will move on with coveted degrees and one unwanted distinction: They are the most indebted class ever.

College graduates this year will have an average $35,051 in student debt, according to a study by the publisher of Edvisors.com, a college planning and financing website. That’s about $2,000 more than last year, adding to an overall student debt that now tops $1.3 trillion.

With 7 out of 10 graduates leaving college with student loans to pay, some wonder whether the investment is worth the burden. For college graduates, it is. Researchers at Georgetown University issued a study last week that found the difference between the lifetime wages of college and high school graduates is $1 million.

But the payoff for taking out student loans is hardly clear-cut. Many students take on the debt but don’t graduate. Others are victimized by shady for-profit schools that teach little but saddle students with debt. And even those who graduate from good colleges can be overcharged by private lenders or fall behind in payments. They suffer damage to their credit and find it harder to get hired or to buy a house or car.

Student debt affects more than those who owe. It’s a drag on the economy. Forty million Americans now have at least one student loan, up from 29 million in 2008. Younger college graduates are saddled by debt and flat wages.

It’s time for action that relieves pressure on debtors and addresses the causes of high debt loads. The first and most direct step would be to end or modify laws that bar student debt from being discharged in bankruptcy. Student debt now ranks above car loans and credit card debt in terms of total debt and is second only to mortgages. Yet student loan debtors are denied the relief available to all others who owe much more than they can pay.

The bankruptcy exemption was added in 1976 to protect taxpayers from losses on government-issued student loans. The law has since been tightened to include all federal and private loans, putting student loans in the same exempt category as criminal fines and child support. The answer to ensuring repayment of student debt isn’t letting some debtors be crushed by it. The answer is improving underwriting, counseling borrowers and limiting the amount borrowed.

Another step for immediate relief would be to make federal loans interest-free or extremely low interest. U.S. Sen. Elizabeth Warren (D-Mass.) is a strong critic of the current system in which the federal government is collecting billions of dollars in interest – some of it as high as 8.5 percent on older loans – from young people who sought to become better educated and fuller participants in the national economy.

A broader, long-term response is to reverse the rising cost of higher education. That means cutting administrative bloat and having states restore cuts in funding for public university systems. The Obama administration has tried with mixed results to tie federal aid to how well colleges and universities hold down costs.

Ultimately it falls to higher education itself to wean itself from the easy loan money that has fed growth but also made an education increasingly unaffordable. One leader in this respect has been former Indiana Gov. Mitch Daniels, who as president of Purdue University has become a crusader against inflation in higher education costs. Purdue is now in the middle of a three-year tuition freeze and has cut the cost of room and board and textbooks.

In a Wall Street Journal op-ed, Daniels wrote that the freeze, cuts and debt counseling for students have helped Purdue students reduce their borrowing by 18 percent since 2012, a savings of $40 million. In a conclusion that should be part of every college commencement speech in 2015, Daniels wrote, “As a matter of generational fairness, and as an essential element of national economic success, the burden of high tuition and student debt must be alleviated, and soon.”