Federal Student Lending Swells

Having a conversation with a perspective client yesterday I found myself explaining my thought process on treating college funding and planning as no other investment vehicle in that you must look at the return on investment.  I often site the example of a student who wants to become a teacher and deciding to go to a school charging some $50k or more a year in tuition, room, and board.  How would you expect that student soon to be teaching professional to pay that back based upon the current range of salaries for teachers?

Just because a loan is available to you doesn't mean that you have to take it.  However these days through the financial aid process most schools already incorporate the federal loans a student is eligible for as part of their financial aid package.  It is assumed that the student will take out the loans in order to attend school at the institution.  I completely disagree with this process.  A loan is not aid, it is a loan required to be paid back.

The WSJ released this article which details out some chilling statistics on the rise of student loan debt (no surprise to DWCM readers who have followed out posts on this topic throughout the past 2 years).

• U.S. student-loan debt rose by $42 billion, or 4.6%, to $956 billion in the third quarter, the Federal Reserve Bank of New York said Tuesday. Overall household borrowing fell during that period.
• Payments on 11% of student-loan balances were 90 or more days behind at the end of September, up from 8.9% at the end of June, a rate that now exceeds that for credit cards. Delinquency rates for all other consumer-debt categories fell or were flat.
• Nearly all student loans—93% of them last year—are made directly by the government, which asks little or nothing about borrowers' ability to repay, or about what sort of education they intend to pursue.

• "Is there any way the federal government could possibly come out to the good?" Sen. Bob Corker (R., Tenn.) asked at a Senate Banking Committee hearing in July on student loans, noting that the government demands no collateral and has no underwriting requirements. "What we're really doing is piling up debt down the road the same students are going to have to pay off."
• So-called Stafford loans account for more than three-fourths of federal student loans. They impose no credit standards and are capped at a total of $57,500 for undergraduates. Some of the money can be used to cover living expenses. For loans to parents and some graduate students, which have no upper limits, the government weeds out borrowers with an "adverse credit history," such as a bankruptcy filing in the previous five years.