At a time when incompetent bankers and financiers have received over a trillion dollars in bailouts, some people are beginning to ask: why not a bailout for America’s college graduates?

An increasingly more expansive endeavor. [College of Humanities. The Ohio State University.]

Going to college in America has become an ever more expansive affair. Tuition has risen a staggering 439% since the 1980s. In contrast, household income since 1967 has risen 31% [though purchasing-power parity has greatly expanded as goods and services are cheaper]. Families are saving and spending more for college than ever before, The average tuition for an American private college is now $25,000 a year, and that for a state public college is now $6,600. The latter may not seem so much, particularly in comparison to the former, but that it still a significant sum for lower and middle class families especially when more than one child is going to college.

With more high-school graduates going to college [so more children to support] and with tuition only rising, parents have encouraged their children so seek student loans - both public and private.

Students loans used to be a rather infrequent occurrence, now it is the norm. About two-thirds of college graduates are indebted due to student loans; the average amount of debt isn’t small either at $20,000! Student loan debt in America is now at $87 billion from $41 billion [2007 dollars] a decade ago.

Many of those graduates are now asking if the government can write off the debt of bankers who were greedy and inept, why should students who have worked hard and acquired debt through no greed or ineptitude but out of necessity be shackled with debt?

Many of those students are now launching a movement to cancel all student debt and naturally they have chosen Facebook, this generation’s town hall, to organize.

Robert Applebaum, a lawyer in New York, began his legal career as a prosecutor before deciding that, with $75,000 in law-school loans, he could ill afford to stay in the public sector. He started a Facebook group on a whim earlier this year: “Cancel Student Debt to Stimulate the Economy”. Three months later, it has more than 180,000 members.

There arguments are based not purely on self-interest, but with regards to the national interest. They argue, with some persuasion, that this generation will have to pay the Baby Boomers’ - Americans born in the decade after World War II - retirement and medical bills. Removing their debt may make them more productive.

Will it happen? Not likely. The government had to bailout banks because the entire economy depends on them, student loan debt is not exactly the same thing unless it becomes so crushing for graduates.

Sandy Baum, a senior policy analyst at the College Board, says that cancelling all student debt would be arbitrary and irrational. She prefers targeted loan relief: as of July 1st graduates who work in low-paying jobs can have their federal loan payments capped at a certain portion of their income. People who work in public-service jobs like teaching can have part of their federal loans forgiven altogether.

Personally, although I would benefit from the cancellation of all student debt, I am opposed to the idea. It would teach the rising generation the wrong lesson, one of dependence on the state rather than self-reliance and personal responsibility.

But student debt has gotten to big and interest rates often quite high that the government needs to take a more active role. A big deal of the rising burden of student debt is due to loans obtained from private lenders. In 2008, students borrowed $17.5 billion from private lenders as opposed to $2.5 billion ten years ago. Although private lenders often package their loan schemes as very friendly, they are quite unhelpful to students. Interest rates are very high - even 19% - repayment schedules are not the most cooperative for someone new to the job market, and even one the borrower goes bankrupt loan forgiveness can be difficult to obtain.

“They really are not a form of student aid,” says Lauren Asher of TICAS, a group that studies college affordability. “They’re an expensive form of credit.”

The federal government does have a loan agency with low interest rates, better repayment schedules and there is a better shot at debt cancellation if the former student goes into bankruptcy. If the federal loan is better than the private one, why do so many students opt for the former? The simple reason is that federal paperwork can be confused, but even more importantly there is simply a limited amount of federal loans to go around so may students have to settle for private loans.

The federal government should make it a priority to be the nation’s #1 student loan provider, to be able to provide loans for all prospective students. Students should not be made into some lucrative market for banks. An education is a noble endeavor where profiteering should not be a relevant matter. There is one arena where the government should be a more active player seeing through its next generation as they obtain their education to continue the economic engine that keeps America going.

Update: A nice happenstance. A day after I wrote this piece, President Obama announced a government plan to replace all private loans with state-provided ones. Someone at the White House must read Instablogs, ;).

Sources: Desperemus igitur.
College on credit.