Traverse City Record-Eagle

Archive: Tuesday

November 26, 2013

Editorial: Student loan debt weighs on best, brightest

Ah, to be one of the really big rollers in the world, raking in billions in profits. In 2012, that was Exxon Mobil, with a profit of $44.9 billion and Apple at $41.7 billion; this year, according to the Detroit Free Press, the U.S. student loan program made $41.3 billion.

That’s right, a profit of $41.3 billion. For comparison, the Free Press report said, that would be one year of tuition at the University of Michigan for 2,955,426 Michigan residents.

If you’re confused by the concept, you’re probably not alone. The feds say they don’t actually make a profit, but it seems that way because of the accounting method used.

Under the federal Credit Reform Act of 1990, the government measures cash outflow as the disbursement of the principal loan amount and inflow as the payments of interest and principal and fees.

But others say a system called “fair value accounting” does a better job of factoring in the cost of collecting delinquent or defaulted loans and there is actually little to no profit in student loans.

Whatever accounting method is used, however, there is no doubt that student loans are a major drag on the national economy and are holding back young people who should instead be buying homes and cars and getting on with their careers, not scraping to make loan payments and protect their credit.

As a national education and economic strategy, it’s a loser; saddling grads with huge loan debt not only devalues a college degree but prevents many young people from going on to college in the first place at a time when business leaders complain the nation doesn’t have enough trained people to fill needed jobs and they must recruit overseas.

Instead, it’s estimated there is more than $1.2 trillion in student loan debt nationally; that’s more than the nation owes on credit cards. It’s a burden on both graduates and the economy that we’re paying for.

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