WASHINGTON - The federal student loan program seemed like a great idea back in 1965: Borrow to go to college now, pay it back later when you have a job.
But many borrowers these days are close to flunking out, tripped up by painful real-life lessons in math and economics.
Surging above $1 trillion, US student loan debt has surpassed credit card and auto loan debt. This debt explosion jeopardizes the fragile recovery, increases the burden on taxpayers, and possibly sets the stage for a new economic crisis.
With a still-wobbly jobs market, these loans are increasingly hard to pay off. Unable to find work, many students have returned to school, further driving up their indebtedness.
Average student loan debt recently topped $25,000, up 25 percent in 10 years. And the mushrooming debt has direct implications for taxpayers, since 8 in 10 of these loans are government-issued or guaranteed.
President Obama has offered a raft of proposals aimed at fine-tuning the system and making repayments easier. Yet the predicament of debt-burdened former students has failed to generate much notice in the GOP presidential campaign. Instead, the candidates are dismissive of government student loan programs in general and Obama’s proposals in particular.
Rick Santorum went so far as to label Obama “a snob’’ for urging all Americans to try to obtain some form of post-high-school education.
Mitt Romney denounces what he calls a “government takeover’’ of the program. Newt Gingrich calls student loans a “Ponzi scheme’’ under which students spend the borrowed money now, but will “have to pay off the national debt’’ later in life as taxpayers. And Ron Paul wants to abolish the program entirely.
Lifting student debt higher is the escalating cost of attending schools.
Mark Zandi, chief economist at Moody’s Analytics, argues that government loans and subsidies are not particularly cost-effective for taxpayers because “universities and colleges just raise their tuition. It doesn’t improve affordability and it doesn’t make it easier to go to college.’’
It’s not just young adults who are saddled.
“Parents and the federal government shoulder a substantial part of the postsecondary education bill,’’ said a new report by the Federal Reserve Bank of New York. And some borrowers are baby boomers, near or at retirement age. The Fed found that Americans 60 and older still owe about $36 billion in loans.
Overall, nearly 3 in 10 of all student loans have past-due balances of 30 days or more, the report said.
Complicating the picture further: Like child support and income taxes, student loans usually can’t be discharged or reduced in bankruptcy proceedings. This restriction was extended in 2005 to include student loans made by banks and other private financial institutions.
“This could very well be the next debt bomb for the US economy,’’ said William Brewer of the National Association of Consumer Bankruptcy Attorneys.
“We’re seeing huge defaults on student loans and people driven into financial difficulties because of them,’’ Brewer said.
A report by his group noted that missing just one student loan payment puts a borrower in delinquent status. After nine months, the borrower is in default. Once a default occurs, the full amount of the loan is due immediately. For those with federal student loans, the government has vast collection powers, including the ability to garnishee wages and to seize tax refunds.
Nigel Gault, chief US economist at IHS Global Insight, said the student loan crisis may not torpedo the financial sector as the mortgage meltdown nearly did in 2008, but it could slam taxpayers and the housing market.
“When kids do graduate, the most daunting challenge can be the cost of college,’’ Obama said in his State of the Union address, asking Congress to extend a temporary cut - due to expire in July - in federal student-loan rates. The reduced federal rate is now 3.4 percent. It the cuts aren’t extended, it will rise to 6.8 percent.
Still, Obama said: “We can’t just keep subsidizing skyrocketing tuition. We’ll run out of money.’’