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Too Much Student Debt? Blame Your Parents

Education is an important asset that's valuable at the right price, but not at any price.
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I graduated from college in 1988 with about $11,000 in student-loan debt, which is slightly less, when adjusted for inflation, than the $27,000 that the typical indebted student owes today. The monthly payments seemed onerous at first, but as time went on they become manageable. While paying back my loans, I got married, bought a house, had kids and got divorced. By the time I made the final payment, 15 years after I graduated, I barely noticed the monthly debit from my checking account.

The total amount of student-loan debt in the United States has now risen above $1 trillion -- more than the total amount of credit card deb t-- and a small percentage of borrowers owe staggering sums well above $50,000. A recent front-page story in the New York Times declared that an entire generation has been "hobbled" by student debt.

Maybe so, but it's worth keeping in mind that for a couple of generations at least, recent grads have felt hobbled by debts they didn't think much about when they blithely signed up for the loans. I certainly did, and it didn't help that a recession set in shortly after I graduated, forcing me to juggle part-time work as a starter journalist with freelance jobs and restaurant work.

One big difference today, of course, is that the economy's chronically weak and the jobs that are supposed to help grads pay back their loans aren't really there. But there are a couple of less-acknowledged problems that have contributed to the debt binge that's now causing financial stress for millions of recent grads.

One contributing factor is parental abdication. Where were the parents when these kids were signing up for $50,000 or $100,000 in debt, so they could go to private schools that made them feel good, with no consideration of whether the cost would ever be worth it? The Times article, for instance, profiles one student who took on $120,000 in debt so she could major in marketing at a pricey private school in Ohio. Her father is a paramedic and her mother is a teacher, which suggests that they're not wealthy, but at least ought to be sensible. But would they rack up endless amounts of spending on their credit cards, with no plan for how to pay it back? Or buy a Mercedes on a Honda budget? If not, then why did they let their daughter get so far under water?

The press sometimes builds stories around egregious examples that don't represent the overall trend, but the Times accurately identifies a problem that some economists believe has gotten big enough to slow down the broader economy. About 10 percent of student borrowers owe more than $54,000, according to the New York Federal Reserve. Some of them will surely default. Overwhelming amounts of student debt are depressing demand for housing (since many swamped grads move back in with their parents), forcing young adults to marry later and even pushing down the rate of population growth, which bodes poorly for consumer demand and economic growth.

This comes during an era of overindulged kids who can presumably do no wrong, so their parents are inclined to say yes to everything, including, apparently, mountains of debt. Some struggling grads no doubt come from troubled homes where there's little parental involvement, and they may be the ones most taken advantage of by university boosters who make a degree from Precocity College sound magical. But college-bound kids, by definition, are America's privileged class, because somebody has instilled in them the value of education and guided them through the tests, admission procedures and other rigors it take to get into college, especially an expensive one. Parents who get their kids that far, but then flub the cost-benefit analysis -- or worse, let their kids make their own immature calculations -- don't really understand education. It's an important asset that's valuable at the right price, but not at any price.

The other factor is the horrible habit of living on borrowed money that has gripped America for the last decade or so. Those bubble years of easy money convinced millions of Americans that there is such a thing as a free lunch, that you can borrow to finance spending and somehow not end up insolvent. That fantasy evaporated with the housing bust that began in 2006 and still hasn't ended, and a lot of people have learned financial literacy the hard way, by losing their homes or ending up so far under water that their living standards will be depressed for years.

Yet many parents still seem to have passed the easy money mentality onto their kids. Most of this year's graduating seniors, after all, entered college in 2008, the year the economy quaked, and they've had four years to watch the credit bubble burst and change course, if necessary, to pare down their debt load and rationalize their finances. Yet we still hear woeful tales of grads who feel they were deceived about their prospects because nobody told them how suffocating all that debt would be. And who should have told them? Not guidance counselors, not admissions deans, but their parents.

To cope, many grads will move back home with their parents and sponge off them for a few years, adding to their parents' bills. Parents shouldn't complain. They're getting off easy compared to the kids they misdirected.

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