First it was homeowners and bank officials who learned the dangers of debt. Then it was governments from Athens to Washington, DC.
Now maybe it is the turn of many young Americans, just starting their work lives, who are learning the hard lessons of debt, financial professionals say.
More of those pursuing the American dream of higher education are deeper in the red than ever before, say planners and debt specialists.
“In 2011, college graduates are leaving school with close to $23,000 in debt. That’s the highest number we’ve ever seen,” according to Howard Dvorkin, founder of Consolidated Credit Counseling.
Dvorkin says that some 65 percent of students use loans to finance their education and that, as of December 2010, student debt was reaching record levels.
Another student loan observer, Mark Kantrowitz, who runs FinAid.org and Fastweb.com, says student-loan debt now exceeds credit-card debt. “It’s become a big, big problem,” he says.
The problem, a financial iser notes, is that many young people contemplating how to pay for higher education are guided by college officials. And these officials aren’t looking out for the long-term interests of the student who will enter the work force with huge amounts of debt. And that angers Anthony Ogorek, a certified financial planner in Williamsville, NY.
“It’s a disgrace,” he says. “Many universities are loading these kids up with debt that they won’t be able to pay off for decades.”
Ogorek says most student financial-aid officers don’t discuss the dangers of debt and how much on average young people will earn in their 20s as they start paying off loans.
“It will limit what they can do for many years,” he contends. “Student loan officials,” Ogorek adds, “have no fiduciary responsibilities to these young people. They are just doing what they can to fill the seats and do what is best for the college.
The result is that many college students are “like lambs being led to the slaughter,” he charges.
Still, Sandy Baum, a consultant to the College Board, says that “the vast majority” of those taking loans do end up paying them off over time. But she agrees that young people and their parents “should get more information before taking these loans.”
As a general rule, Baum says, undergraduates should not take on more than $20,000 a year in debt.
She also contends that loans offered through federal programs are more likely to give young people a chance to pay off over a longer period than private loans do.