A lesson on student loans

WITH APOLOGIES TO Dr. Seuss, I'd like to add some lines to his wonderful book Oh, the Places You'll Go!, which is a popular graduation gift for college students. Seuss begins:

Congratulations!

Today is your day.

You're off to Great Places!

You're off and away!

You have brains in your head.

You have feet in your shoes.

You can steer yourself any direction you choose.

You're on your own.

And you know what you know.

But you'd better know what you owe because your debt is high.

Oh, the places you'll go once your student loans go bye-bye.

The last two lines are mine.

There are more than 38 million student-loan borrowers with more than $1.1 trillion in outstanding debt, according to the Consumer Financial Protection Bureau and the Department of Education. A recent study by Fidelity Investments found that 70 percent of the class of 2013 is graduating with debt averaging $35,200, which includes federal, state and private loans as well as debt owed to family and accumulated through credit cards.

Many graduates can't go in any direction they choose. They have to take any job they can get. They have to move back home. They can't buy a house or a car. They don't want to get married and merge with someone equally indebted with student loans.

Consider the following:

* Between 2007 and 2010, the average student-loan balance for households increased by almost 15 percent, even as Americans reduced other types of consumer debts, according to the Consumer Financial Protection Bureau.

* FinAid.org created a student-loan debt clock to show outstanding federal and private student loans. It reached the $1 trillion mark May 8, 2012.

* If you "include capitalized interest, total federal and private student-loan debt probably hit the $1 trillion milestone in late 2011," according to FinAid.org. Total student-loan debt outstanding surpassed credit-card debt for the first time in June 2010.

* A recent TransUnion study found that more than half of student-loan accounts are in deferred status, where the repayment of the principal and interest is temporarily delayed. Deferred loans now represent 43.5 percent of all student-loan balances.

* For the first quarter of 2013, outstanding student-loan debt increased $20 billion to $986 billion, according to data released by the Federal Reserve Bank of New York. Delinquency rates for student loans at least 90 days late dropped a little to 11.2 percent from 11.7 percent. But in a footnote, the bank cautioned that the "delinquency rates for student loans are likely to understate actual delinquency rates because almost half of these loans are currently in deferment, in grace periods or in forbearance, and therefore temporarily not in the repayment cycle. This implies that among loans in the repayment cycle, delinquency rates are roughly twice as high."

* For the first two months of this year, severe derogatory or charged-off student-loan balances hit $3 billion, an increase of 36 percent year over year, according to the credit-reporting agency Equifax. "Driven heavily by economic factors, including unemployed or underemployed consumers going back to school along with the rising cost of tuition, student lending has demonstrated consistent, year-over-year growth," said Amy Crews Cutts, Equifax's chief economist.

* A year ago, the National Association of Consumer Bankruptcy Attorneys warned that the student-loan "debt bomb" would be America's next mortgage-style economic crisis.

There are congressional efforts to address the mounting student-loan debt. However, much of the bickering centers on the coming interest-rate hike for federal loans. The rate is set to increase July 1 from 3.4 percent to 6.8 percent. The Republican-led House passed a bill that would tie the rates for subsidized and unsubsidized Stafford loans to the 10-year Treasury note plus 2.5 percentage points. The bill faces opposition in the Democratic-controlled Senate and a veto threat from the Obama administration. Whatever the rate, we need a long-term solution to the amount of debt families are taking on.

In the Fidelity survey, half of 2013 graduates with student loans said their level of debt surprised them. They hadn't realized how much they had borrowed. Thirty-nine percent said that had they been aware of how much they would owe, they would have made different choices in their college planning.

So I say to the high-school graduates heading off to college and planning to go down the street of student loans, listen also to these words from Dr. Seuss: "You'll look up and down streets. Look 'em over with care. About some you will say, 'I don't choose to go there.' With your head full of brains and your shoes full of feet, you're too smart to go down any not-so-good street."