Big college debt may not be best lesson to teach kids


You shouldn’t be faced with paying for your child’s education until the day you die, but that seems to be a growing reality as parents take on record amounts of debt so their children can go to college.

Parents now owe $71 billion for federal student loans taken out for their children. The amount borrowed by parents for their kids each year is five times what it was 20 years ago.

While those numbers are astounding, the scary details are that nearly half of the $71 billion is in deferment. Just because payments are on hold while students continue their education, doesn’t mean interest at nearly 8 percent a year isn’t swelling that debt.

As debt grows, so do default rates. The U.S. Department of Education reported a default rate of 1.8 percent in 2006, then 5.1 percent in 2010 and they estimate the nearly $11 billion parents borrowed from the feds in 2014 will be defaulted at a 10.2 percent rate.

So who repays that debt? We all do, meaning this is an issue regardless of your parental status.

Students loans are tracked closely, with high default rates leading institutions to lose loan eligibility. Diploma mills where students take on high debt and then can’t find jobs are eventually penalized.

Parent debt, however, is not tracked.

“It’s dangerous that the program is opaque about its likely future losses,” Deborah Lucas, a former chief economist for the Congressional Budget Office and now a professor of finance at Massachusetts Institute of Technology told Bloomberg Business. “That’s a situation that really needs to change given the magnitude of the potential losses in this program.”

As much as you may love your children, maybe a few years at a community college and graduating from a reasonably priced college will make more of a difference for all family members than four years at that $50,000-a-year private school.