Skip to main content
Part of complete coverage from

The looming crisis of student loan debt

By William J. Bennett, CNN Contributor
updated 8:55 AM EST, Thu December 6, 2012
STORY HIGHLIGHTS
  • William Bennett: A college degree seems synonymous with debt and underemployment
  • Bennett: Student loan debt is reaching bubble-bursting levels
  • He says the government is not helping by flooding higher education with more loans
  • Bennett: The bad lending policies are eerily similar to causes of the subprime mortgage crisis

Editor's note: William J. Bennett, a CNN contributor, is the author of "The Book of Man: Readings on the Path to Manhood." He was U.S. secretary of education from 1985 to 1988 and director of the Office of National Drug Control Policy under President George H.W. Bush.

(CNN) -- A college degree was once synonymous with academic excellence and workforce readiness. Today, it seems synonymous with debt and underemployment.

Last week, the Federal Reserve Bank of New York reported that student loan debt increased to $956 billion, more than auto loan debt or credit card debt. More worrisome, the student loan 90-day delinquency rate increased to 11% this past quarter and for the first time exceeds the "serious delinquency" rate for credit card debt.

Student loan debt is reaching bubble-bursting levels. By comparison, in October 2007, the start of the subprime mortgage crisis, 16% of subprime mortgages were 90 days delinquent, according to Federal Reserve Chairman Ben Bernanke. By January 2008 it accelerated to 21%. If the economy heads off the fast-approaching fiscal cliff and tax rates spike for lower- and middle-class Americans, it may accelerate student loan defaults to crisis levels. The big banks got their taxpayer bailout; taxpayers may soon be on the hook for another.

William Bennett
William Bennett

Even if the markets manage to avoid another debt crisis, the mountain of student loan debt is already taking its toll on a weak economy.

Become a fan of CNNOpinion
Stay up to date on the latest opinion, analysis and conversations through social media. Join us at Facebook/CNNOpinion and follow us @CNNOpinion on Twitter. We welcome your ideas and comments.



In September, Pew Research Center reported that a record one-in-five households owe student loan debt. The average student loan debt in 2011 was $23,300.

Unlike credit card debt or automobile loans, student loans are virtually impossible to liquidate, even after declaring bankruptcy. So 20- and 30-year-olds buried under student loan debt are forced to put off other purchases crucial to the health of the economy, like buying a car or home or investing in the markets. Many are moving back in with their parents and delaying marriage and starting a family, two of the most vital building blocks to a healthy and prosperous economy. Valuable human capital is withering before it can even set its roots.

The problem now rests in the hands, and wallets, of taxpayers. In 2010, the federal government consolidated its power in the student loan industry so it could eliminate private middlemen and directly issue and guarantee loans. By 2011-12, the federal government issued 93% of all student loans.

By nature, student loans are inherently risky. Students have hardly any credit worthiness. But the government is making a bad situation even worse. Federal lenders are notoriously lax. For example, they don't distinguish between loans to students pursuing highly employable fields such as health and education, and students pursuing majors that have a high unemployment rate, like architecture and arts.

And yet, the federal government continues to flood the higher education market with more loans. In 2010, the Department of Education distributed $133 billion in student aid. In 2011, it was nearly $157 billion, a 17% increase. As I've said before, these increased subsidies have not curtailed student loan debt or tuition costs.

What's driving this debt crisis is a vicious cycle of bad lending policies eerily similar to the causes of the subprime mortgage crisis. Over the past 50 years, it has become conventional wisdom that everyone should go to college. High school guidance counselors and college admissions offices preach it, parents believe it and politicians cater to it. With near-universal demand and parents willing to pay or borrow almost anything to get their son or daughter through college, colleges and universities can drive up their prices.

When tuition prices rise, the government subsidizes the difference by increasing federal loans. But these easy loans, many of which are increasingly going to middle-class students, only increase the price ceiling that colleges can charge, thus completing, or starting, the cycle.

Of course, these aren't the only problems in today's higher education financial crisis. Many colleges and universities are failing at their most basic responsibility: education. Students are graduating ill-equipped for the needs of the modern workforce. More than half of all college graduates in 2010-11 were unemployed or dramatically underemployed. Many employers rate college graduates today as unprepared or only somewhat prepared for the job.

Reform is needed at many levels. Money-hungry institutions should be subject to more accountability and transparency; uninformed consumers should be aware of the alternatives to four-year colleges like trade and technical schools; and irresponsible federal lending needs to be reined in.

But above all, American society at large must stop pushing the notion that everyone should, or deserves, to go to a four-year college. It took a recession and massive taxpayer bailout for Americans to realize that not everyone should, or deserves, to own a home. We can't afford to learn this lesson the hard way again.

Follow us on Twitter @CNNOpinion

Join us on Facebook/CNNOpinion

The opinions in this commentary are solely those of William J. Bennett.

ADVERTISEMENT
Part of complete coverage on
updated 12:53 PM EDT, Tue September 30, 2014
Jeff Yang calls Ello a wakeup call to Facebook and Twitter, and a sign of hope for fast-rising upstarts Pinterest and Snapchat.
updated 6:48 PM EDT, Tue September 30, 2014
Paul Waldman says the Secret Service should examine its procedures to make sure there are no threats to the White House--but without losing the openness so valuable to democracy
updated 4:49 PM EDT, Tue September 30, 2014
Jesse Williams says the videotape and 911 call that resulted in police gunning down John Crawford at a Walmart reveals the fatal injustice of racial assumptions
updated 7:03 PM EDT, Tue September 30, 2014
Mel Robbins says officials should drop the P.C. pose: The beheading in Oklahoma was not workplace violence. Plenty of evidence shows Alton Nolen was an admirer of ISIS.
updated 3:11 PM EDT, Tue September 30, 2014
The Occupy Central movement has already achieved much by bringing greater attention to Hong Kong's struggle for democracy, William Piekos says..
updated 3:11 PM EDT, Tue September 30, 2014
The Occupy Central movement has already achieved much by bringing greater attention to Hong Kong's struggle for democracy, writes William Piekos.
updated 10:13 AM EDT, Tue September 30, 2014
As Prime Minister Narendra Modi visits America, Madeleine Albright says a world roiled by conflict needs these two great democracies to commit to moving their partnership forward
updated 10:04 AM EDT, Tue September 30, 2014
John Sutter: Lake Providence, Louisiana, is the parish seat of the "most unequal place in America." And until somewhat recently, the poor side of town was invisible on Google Street View.
updated 9:11 AM EDT, Mon September 29, 2014
Julian Zelizer says in the run up to the 2016 election the party faces divisions on its approach to the U.S.'s place in the world
updated 10:19 AM EDT, Mon September 29, 2014
Ruben Navarrette says Common Core supporters can't devise a new set of standards and then fail to effectively sell it.
updated 9:29 AM EDT, Tue September 30, 2014
Earlier this month, Kenyans commemorated the heinous attack on the Westgate Mall in Nairobi.
updated 2:59 PM EDT, Tue September 30, 2014
David Wheeler says Colorado students are right to protest curriculum changes that downplays civil disobedience.
updated 9:58 PM EDT, Fri September 26, 2014
Sally Kohn says when people click on hacked celebrity photos or ISIS videos, they are encouraging the bad guys.
updated 7:55 AM EDT, Fri September 26, 2014
Loren Bunche says she walked by a homeless man every day and felt bad about it -- until one day she paused to get to know him
updated 9:32 AM EDT, Tue September 30, 2014
ISIS grabs headlines on social media, but hateful speech is no match for moderate voices, says Nadia Oweidat.
updated 8:33 AM EDT, Mon September 29, 2014
A new report counts jihadists fighting globally. The verdict? The threat isn't that big, says Peter Bergen.
updated 5:37 PM EDT, Tue September 23, 2014
Ebola could become the biggest humanitarian disaster in a generation, writes former British Prime Minister Tony Blair
updated 12:58 PM EDT, Fri September 26, 2014
ISIS has shocked the world. But will releasing videos of executions backfire? Four experts give their take.
updated 10:39 AM EDT, Fri September 26, 2014
Eric Holder kicked off his stormy tenure as attorney general with a challenge to the public that set tone for six turbulent years as top law-enforcement officer.
updated 9:09 AM EDT, Fri September 26, 2014
LZ Granderson says Obama was elected as a war-ending change agent, not a leader who would leave behind for his successor new engagement in Iraq and Syria. Is he as disappointed as the rest of us?
updated 5:10 AM EDT, Wed September 24, 2014
Gayle Lemmon says the question now is how to translate all the high-profile feminizing into real gains for women
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT