Skip to main content
Part of complete coverage from

The looming crisis of student loan debt

By William J. Bennett, CNN Contributor
December 6, 2012 -- Updated 1355 GMT (2155 HKT)
STORY HIGHLIGHTS
  • William Bennett: A college degree seems synonymous with debt and underemployment
  • Bennett: Student loan debt is reaching bubble-bursting levels
  • He says the government is not helping by flooding higher education with more loans
  • Bennett: The bad lending policies are eerily similar to causes of the subprime mortgage crisis

Editor's note: William J. Bennett, a CNN contributor, is the author of "The Book of Man: Readings on the Path to Manhood." He was U.S. secretary of education from 1985 to 1988 and director of the Office of National Drug Control Policy under President George H.W. Bush.

(CNN) -- A college degree was once synonymous with academic excellence and workforce readiness. Today, it seems synonymous with debt and underemployment.

Last week, the Federal Reserve Bank of New York reported that student loan debt increased to $956 billion, more than auto loan debt or credit card debt. More worrisome, the student loan 90-day delinquency rate increased to 11% this past quarter and for the first time exceeds the "serious delinquency" rate for credit card debt.

Student loan debt is reaching bubble-bursting levels. By comparison, in October 2007, the start of the subprime mortgage crisis, 16% of subprime mortgages were 90 days delinquent, according to Federal Reserve Chairman Ben Bernanke. By January 2008 it accelerated to 21%. If the economy heads off the fast-approaching fiscal cliff and tax rates spike for lower- and middle-class Americans, it may accelerate student loan defaults to crisis levels. The big banks got their taxpayer bailout; taxpayers may soon be on the hook for another.

William Bennett
William Bennett

Even if the markets manage to avoid another debt crisis, the mountain of student loan debt is already taking its toll on a weak economy.

Become a fan of CNNOpinion
Stay up to date on the latest opinion, analysis and conversations through social media. Join us at Facebook/CNNOpinion and follow us @CNNOpinion on Twitter. We welcome your ideas and comments.



In September, Pew Research Center reported that a record one-in-five households owe student loan debt. The average student loan debt in 2011 was $23,300.

Unlike credit card debt or automobile loans, student loans are virtually impossible to liquidate, even after declaring bankruptcy. So 20- and 30-year-olds buried under student loan debt are forced to put off other purchases crucial to the health of the economy, like buying a car or home or investing in the markets. Many are moving back in with their parents and delaying marriage and starting a family, two of the most vital building blocks to a healthy and prosperous economy. Valuable human capital is withering before it can even set its roots.

The problem now rests in the hands, and wallets, of taxpayers. In 2010, the federal government consolidated its power in the student loan industry so it could eliminate private middlemen and directly issue and guarantee loans. By 2011-12, the federal government issued 93% of all student loans.

By nature, student loans are inherently risky. Students have hardly any credit worthiness. But the government is making a bad situation even worse. Federal lenders are notoriously lax. For example, they don't distinguish between loans to students pursuing highly employable fields such as health and education, and students pursuing majors that have a high unemployment rate, like architecture and arts.

And yet, the federal government continues to flood the higher education market with more loans. In 2010, the Department of Education distributed $133 billion in student aid. In 2011, it was nearly $157 billion, a 17% increase. As I've said before, these increased subsidies have not curtailed student loan debt or tuition costs.

What's driving this debt crisis is a vicious cycle of bad lending policies eerily similar to the causes of the subprime mortgage crisis. Over the past 50 years, it has become conventional wisdom that everyone should go to college. High school guidance counselors and college admissions offices preach it, parents believe it and politicians cater to it. With near-universal demand and parents willing to pay or borrow almost anything to get their son or daughter through college, colleges and universities can drive up their prices.

When tuition prices rise, the government subsidizes the difference by increasing federal loans. But these easy loans, many of which are increasingly going to middle-class students, only increase the price ceiling that colleges can charge, thus completing, or starting, the cycle.

Of course, these aren't the only problems in today's higher education financial crisis. Many colleges and universities are failing at their most basic responsibility: education. Students are graduating ill-equipped for the needs of the modern workforce. More than half of all college graduates in 2010-11 were unemployed or dramatically underemployed. Many employers rate college graduates today as unprepared or only somewhat prepared for the job.

Reform is needed at many levels. Money-hungry institutions should be subject to more accountability and transparency; uninformed consumers should be aware of the alternatives to four-year colleges like trade and technical schools; and irresponsible federal lending needs to be reined in.

But above all, American society at large must stop pushing the notion that everyone should, or deserves, to go to a four-year college. It took a recession and massive taxpayer bailout for Americans to realize that not everyone should, or deserves, to own a home. We can't afford to learn this lesson the hard way again.

Follow us on Twitter @CNNOpinion

Join us on Facebook/CNNOpinion

The opinions in this commentary are solely those of William J. Bennett.

ADVERTISEMENT
Part of complete coverage on
September 22, 2014 -- Updated 1259 GMT (2059 HKT)
You could be forgiven for thinking no one cares -- or even should care, right now -- about climate change, writes CNN's John Sutter. But you'd be mistaken.
September 21, 2014 -- Updated 2132 GMT (0532 HKT)
David Gergen says the White House's war against ISIS is getting off to a rough start and needs to be set right
September 22, 2014 -- Updated 1300 GMT (2100 HKT)
John Sutter boarded a leaky oyster boat in Connecticut with a captain who can't swim as he set off to get world leaders to act on climate change
September 22, 2014 -- Updated 1917 GMT (0317 HKT)
Ruben Navarrette says making rude use of the Mexican flag on Mexican independence day in a concert in Mexico was extremely tasteless, but not an international incident.
September 22, 2014 -- Updated 1359 GMT (2159 HKT)
Michael Dunn is going to stand trial again after a jury was unable to reach a verdict; Mark O'Mara hopes for a fair trial.
September 22, 2014 -- Updated 2315 GMT (0715 HKT)
Is ballet dying? CNN spoke with Isabella Boylston, a principal dancer at the American Ballet Theatre, about the future of the art form.
September 19, 2014 -- Updated 2147 GMT (0547 HKT)
Sally Kohn says it's time we take climate change as seriously as we do warfare in the Middle East
September 22, 2014 -- Updated 1927 GMT (0327 HKT)
Laurence Steinberg says the high obesity rate among young children is worrisome for a host of reasons
September 19, 2014 -- Updated 1302 GMT (2102 HKT)
Dean Obeidallah says an Oklahoma state representative's hateful remarks were rightfully condemned by religious leaders..
September 19, 2014 -- Updated 1922 GMT (0322 HKT)
No matter how much planning has gone into U.S. military plans to counter the Islamic State in Iraq and Syria, the Arab public isn't convinced that anything will change, says Geneive Abdo
September 19, 2014 -- Updated 1544 GMT (2344 HKT)
President Obama's strategy for destroying ISIS seems to depend on a volley of air strikes. That won't be enough, says Haider Mullick.
September 19, 2014 -- Updated 1303 GMT (2103 HKT)
Paul Begala says Hillary Clinton has plenty of good reasons not to jump into the 2016 race now
September 19, 2014 -- Updated 1501 GMT (2301 HKT)
Scotland decided to trust its 16-year-olds to vote in the biggest question in its history. Americans, in contrast, don't even trust theirs to help pick the county sheriff. Who's right?
September 19, 2014 -- Updated 0157 GMT (0957 HKT)
Ruben Navarrette says spanking is an acceptable form of disciplining a child, as long as you follow the rules.
September 19, 2014 -- Updated 1547 GMT (2347 HKT)
Frida Ghitis says the foiled Australian plot shows ISIS is working diligently to taunt the U.S. and its allies.
September 19, 2014 -- Updated 1958 GMT (0358 HKT)
Young U.S. voters by and large just do not see the midterm elections offering legitimate choices because, in their eyes, Congress has proven to be largely ineffectual, and worse uncaring, argues John Della Volpe
September 19, 2014 -- Updated 0158 GMT (0958 HKT)
Steven Holmes says spanking, a practice that is ingrained in our culture, accomplishes nothing positive and causes harm.
September 18, 2014 -- Updated 1831 GMT (0231 HKT)
Sally Kohn says America tried "Cowboy Adventurism" as a foreign policy strategy; it failed. So why try it again?
September 18, 2014 -- Updated 1427 GMT (2227 HKT)
Van Jones says the video of John Crawford III, who was shot by a police officer in Walmart, should be released.
September 18, 2014 -- Updated 1448 GMT (2248 HKT)
NASA will need to embrace new entrants and promote a lot more competition in future, argues Newt Gingrich.
September 16, 2014 -- Updated 2315 GMT (0715 HKT)
If U.S. wants to see real change in Iraq and Syria, it will have to empower moderate forces, says Fouad Siniora.
September 18, 2014 -- Updated 0034 GMT (0834 HKT)
Mark O'Mara says there are basic rules to follow when interacting with law enforcement: respect their authority.
September 16, 2014 -- Updated 1305 GMT (2105 HKT)
LZ Granderson says Congress has rebuked the NFL on domestic violence issue, but why not a federal judge?
September 16, 2014 -- Updated 1149 GMT (1949 HKT)
Mel Robbins says the only person you can legally hit in the United States is a child. That's wrong.
September 15, 2014 -- Updated 1723 GMT (0123 HKT)
Eric Liu says seeing many friends fight so hard for same-sex marriage rights made him appreciate marriage.
ADVERTISEMENT