How Student Loans are Ruining American Dream

Here is a summary of scathing report published in Barron’s on for-profit colleges. (Via Wall Street Cheat Sheet)

On Sunday April 24, 2011, 10:31 pm EDT

The barren, post-apocalyptic wasteland that was once the American economy (NYSE:SPY) has proved to bear little fruit for recent college graduates. It seems that the avaricious, aggressively credit-dispensing financial institutions at the root of the problem have saddled another critical portion of the demographic with financial woes.

According to a study commissioned by the Institute of Higher Education Policy, one in four recipients of college student loans has fallen behind on their repayments. The report is turning heads of prospective college students and parents alike as the debate continues to rage over the financial and practical logic of doling out the dough for higher education.

Adding fuel to the fire, The LA Times reports that not only is delinquency on the rise, “The number of college graduates with debt increased from less than half in 1993 to two-thirds in 2008, according to the Education Department. And the average debt is going up sharply — to $23,200 in 2008 from $18,650 four years earlier.”

So what’s a kid these days to do? Get educated? “Educating borrowers works,” says Debora Chromy, who thinks that most of the problem is due to lack of knowledge, “Many borrowers end up becoming delinquent or defaulting because they don’t know all of the options available to them.” But is there incentive to teach borrowers the ills of debt?

Last week SLM Corporation (NYSE:SLM) announced earnings showing the student loan market is alive and well. Does Sallie Mae really want to reduce the number of customers in their market? Or will educating students about debt be more like alcohol ads simply asking a binge-drinking society to “Drink Responsibly”?

In addition to the lender, for-profit schools love debt because it allows them to charge higher prices that would normally be unaffordable (hence, less profitable). Publicly traded for-profit schools – Strayer Education (NASDAQ:STRA), Apollo Group, Inc. (NASDAQ:APOL), Career Education Corp. (NASDAQ:CECO), Capella Education Company (NASDAQ:CPLA), Corinthian Colleges, Inc. (NASDAQ:COCO), Bridgepoint Education, Inc. (NYSE:BPI) and DeVry Inc. (NYSE:DV) – have a mandate to maximize profits to shareholders. Is that a major conflict with what the US needs most right now (e.g., less debt-saddled citizens)? Do we even care?

This is a hard-hitting issue the US must solve in the very near future if we refuse to let debt drive more generations further from the American Dream.

More from LA Times:

“We talk endlessly about default rates and what that means for colleges, but not about delinquency,” said Alisa Cunningham, coauthor of the report. “It’s a really big problem, and I’m not sure that anybody really knew the extent of it.”