Business

$1 trillion in student loan debt sparks furor

Three years after the housing-market meltdown, a college education may be the next part of the American Dream to turn into a nightmare.

For the first time, Americans owe more on their student loans than they do on their credit-card bills, with a tally that could soon top $1 trillion — leaving millions of Americans with a crushing debt burden at a time when decent-paying jobs are scarce.

“I’ve paid on my student loans, but I owe just as much as when I started,” says Laura Pounders, 56, who went back to college 16 years ago in hopes of securing a higher-paying job than the two she had.

“It makes me cringe when I hear politicians say we need people to go to college. Why? So you can accrue $50,000 in debt and get a job that pays $8 an hour? I’m going to die with this debt.”

John Smith, 31, of Brooklyn, works part time at a Trader Joe’s because he hasn’t found work in his field for over a year, despite having a master’s degree. He has about $45,000 in student loan debt. His girlfriend, Meropi Peponides, 27, a graduate student at Columbia University, will have over $50,000 by the time she graduates.

“I don’t know in the end what exactly this will achieve, if anything. But if it makes people wake up just a little bit, it’s worth it,” Peponides said. “The potential is huge. That’s why I’m here. I felt the potential somehow.”

Smith said he has sent out about 200 resumes in his search. He’s looking mainly for work with nonprofit organizations. “The jobs that I’ve been applying for are all entry level jobs in my career field. I don’t think I’m shooting for the stars trying to get those jobs.” Smith said, noting that five years ago, before grad school, he was able to get work at that level.

He was carrying a sign that said, “I am the 99 percent,” a slogan that resonated with him. “It’s true,” Smith said. “I am one of the many people that are having a lot of trouble finding ways to make it through things right now.”

With college-tuition fees skyrocketing, student-loan debt has more than quadrupled over the past decade.

Much of that money has been handed out with even fewer checks and balances than the easy home loans that led to the 2008 housing-market implosion — a situation that some say has created a ticking time bomb.

Just as Americans bought houses with the expectation that prices would keep going higher, they got loans to pay ever-increasing tuition rates based on the expectation the college degrees were passports to a middle-class life that would easily allow them to pay off the debt.

“The massive burden of student loans is already dragging on the rest of the economy,” says Glenn Harlan Reynolds, a University of Tennessee professor whose “Instapundit” blog highlights a looming higher education bubble that is set to burst.

Unlike home-mortgage holders who can get a fresh start by simply walking away, student-loan borrowers don’t have that luxury.

“You can’t get rid of student-loan debt in bankruptcy,” says Andrew Gillen, research director at the Center for College Affordability and Productivity. “It pretty much follows you to your grave.”

For every student who defaults on a loan, at least two more are behind on their payments. Only 37 percent of borrowers who started repaying their loans in 2005 are able to pay them back fully on time, a recent report from the Institute for Higher Education Policy shows.

“The problem isn’t going away and is getting exponentially worse by the day,” says Robert Applebaum, a Staten Island lawyer who started a petition urging the government to forgive student-loan debt in a giant bailout that would stimulate the economy.

“People are underwater on their student loans, just like they’re underwater on their mortgages. The degrees aren’t worth what people paid for them, and it’s affecting the whole economy. I can’t tell you how many people have told me they’re putting off starting families and buying cars.”

Since launching his Forgive Student Loan Debt petition six weeks ago, Applebaum has attracted more than 600,000 signatures from supporters.

The fallout from the tuition bubble could have a profound effect on the higher-education system, where some colleges have spent staggering amounts on state-of-the-art labs, luxurious residence halls and giant football stadiums to woo prospective students.

“Back in the day, education was something that was supposed to be good in its own right,” says Robert B. Smith, a Boston-based higher-education lawyer with LeClairRyan.

“But do we want to spend $250,000 to send Johnny to college so he can study Renaissance poetry and become a barista at Starbucks, or send Sally so she can be a bartender at the latest club?” Smith added.