Student Debt To Hit $1 Trillion By Year's End

There has probably never been a greater need for education and retraining, but the cost of obtaining it is soaring. The cost is especially high if you have to borrow the money.

A new report from the Federal Reserve Bank of New York says U.S. students are borrowing a startlingly large amount of money to pay for an education, strapping themselves with a huge debt as they begin careers when jobs are hard to come by.

Students and workers seeking retraining are borrowing extraordinary amounts of money through federal loan programs, potentially putting a huge burden on the backs of young people looking for jobs and trying to start careers. The Fed reports new student loans totaled more than $100 billion in 2010, and by the end of this year the amount of all outstanding student loan debt will reach $1 trillion.

Doubled in five years

While consumers have cut credit card and mortgage debt lately, total outstanding student debt has doubled in the last five years.

The debt, and the problems is causes, is a common theme in complaints to ConsumerAffairs.com. Tiffany, of Cumberland, Md., said her mother's parent loan through Sallie Mae to pay for her education started out at $9,000 and was placed on a “deferment.”

“Today we got another statement in the mail saying we owe a total of almost $20,000,” Tiffany told ConsumerAffairs.com. “I don't understand how this company can add interest during a deferment that lasts until May of 2012! It'll take me about ten years to pay off the 20 grand and I will never be able to own a car or move out of my mother's house, at least not until I'm 32 years old anyway.”

The cost of private education has skyrocketed in recent years as schools have spent money to attract the most gifted students. Costs at public colleges and university have also risen, in part because state funding hasn't kept pace with the spending.

For-profit colleges

The growth of for-profit colleges has also helped run up the loan totals. Theresa took out student loans to attend the for-profit University of Phoenix, but now has buyer's remorse.

“I received a bachelors degree in business administration from UOP,” Theresa told ConsumerAffairs.com. “Potential employers do not view University of Phoenix as a scholastic institution. My degree is worthless in the business world. It is a joke. The college credits will not transfer to other institutions. And I have a student loan debt of over $30,000.00. The time and money spent to obtain what I considered one of the biggest achievements were all wasted.”

Students who leave school with crushing debt will not easily be able to default. Congress has written the law so that the debt must eventually be paid. It doesn't even go away in bankruptcy. That means millions of people will be working a good portion of their adult lives to pay back their loans.

High default rates

The government says the highest default rates are on loans for for-profit institutions, which tend to serve a low-income student body. Recent immigrants who are trying to enhance their workplace skills also often turn to these institutions.

Financial advisors, meanwhile, urge prospective students to consider a community college, which is acknowledged as one of the best values in education. The cost of two-years at a community college is often a fraction of what it costs a traditional four-year or for-profit colleges.