'Indentured students' jump as U.S. loans corrode education ticket

By Janet Lorin

Bloomberg News

Published: Monday, July 9 2012 8:00 p.m. MDT

Two decades later, politicians on both sides of the aisle were alarmed at the growth of the program, with more than $35 billion of outstanding federal student loans by 1985, according to a speech that year by Representative William D. Ford, a Michigan Democrat.

"We are producing a class of indentured students who must work to free themselves from the bondage of educational debts," said Ford, who sat on the House Education and Labor Committee during the passage of the 1965 Higher Education Act. "How will the next generation afford a home or car if their disposable income is committed to paying off student loans?"

In 1987-1988, the average costs for tuition and fees at a public university were $1,485, and $7,048 at a private college, according to the nonprofit College Board, whose members include colleges and universities. Bennett suggested that the availability of student loans paved the way for colleges to raise tuition at a rate that outpaced inflation.

For-Profit Schools

"Increases in financial aid in recent years have enabled colleges and universities blithely to raise their tuitions, confident that Federal loan subsidies would help cushion the increase," Bennett wrote in a 1987 op-ed piece in the New York Times.

The federal-aid expansion coincided with a boom in for- profit colleges, which have higher student-loan default rates than traditional colleges and rely on federal money for as much as 90 percent of their revenue. Turbocharging the growth of these institutions, George W. Bush's administration eased regulations that capped the federal money they could receive.

Students at for-profit colleges carry the heaviest loan load: 53 percent of degree recipients had school debt of $30,500 or more, compared with 24 percent at private, nonprofit colleges and 12 percent at public schools, according to a 2010 report by the College Board using the most recent federal data available.

In 1992, the government opened the educational loan floodgates even more. Over the next 10 years, outstanding federal student-loan debt more than tripled to about $280 billion from about $80 billion, according to federal data.

Parent Borrowers

Congress under President George H. W. Bush expanded its Stafford program, which had been limited to low-income students. Students could now borrow regardless of income.

At the same time, parents could also take out loans up to the cost to attend, minus any scholarships or loans granted to the student. While parents must pass a credit check to prove they aren't in bankruptcy, they don't need a medical exam and there is no age limit.

The new provisions made the federal program politically appealing to middle-class voters, said Neal McCluskey, associate director of the Cato Institute's Center for Educational Freedom in Washington.

By 2005-2006, tuition and fees at a public university were $5,492, while the costs at a private, nonprofit college averaged $21,000, according to the New York-based College Board. A year later, under President George W. Bush, graduate students were able to borrow up to the cost to attend, which can amount to $100,000 or more. Universities began enrolling more students.

More Degrees

In the past decade, Northwestern University, expanded its graduate offerings aimed at working professionals in the School of Continuing Studies to 2,000 students from 150, said Thomas Gibbons, dean of the school based in Chicago. Two-year programs cost from about $38,000 to $50,000, he said.

Many families like the Brezlers are asking whether graduate school is good value. About a third of people with masters' degrees make less money on average than a typical bachelor's degree holder, according to data analyzed by Stephen J. Rose, a labor economist at Georgetown University.

When Brezler's children decided to pursue graduate school, the idea was "if they got more education, they would get better jobs and would be able to pay back their degrees," Brezler said. "Now the paradigm has shifted."

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