ADA, OHIO – Kelsey Griffith graduates on Sunday from Ohio Northern University. To start paying off her $120,000 in student debt, she is working two jobs and will soon move in with her parents. Her mother, who co-signed on the loans, is taking out a life insurance policy on her.
"If anything ever happened, God forbid, that is my debt also," said her mother, Marlene Griffith.
Griffith, 23, wouldn't seem a perfect financial fit for a college that costs nearly $50,000 a year. Her father, a paramedic, and mother, a preschool teacher, have modest incomes, and she has four sisters. But when she visited Ohio Northern, she was won over by faculty and admissions staff members who urge students to pursue their dreams.
"As an 18-year-old, it sounded like a good fit to me, and the school really sold it," said Griffith, a marketing major. "But when I graduate, I'm going to owe like $900 a month. No one told me that."
With more than $1 trillion in student loans outstanding in this country, crippling debt is no longer confined to dropouts or graduate students. Now, nearly everyone pursuing a bachelor's degree is borrowing. As prices soar, a college degree statistically remains a good lifetime investment, but it often comes with an unprecedented burden.
Ninety-four percent of students who earn a bachelor's degree borrow to pay for higher education — up from 45 percent in 1993, said a New York Times analysis. This includes loans from the federal government, private lenders and relatives. For all borrowers, the average debt in 2011 was $23,300, according to the Federal Reserve Bank of New York.
At Ohio Northern, recent graduates with bachelor's degrees are among the most indebted of any college in the country.
The current balance of federal student loans nationwide is $902 billion, with an additional $140 billion or so in private student loans.
"If one is not thinking about where this is headed over the next two or three years, you are just completely missing the warning signs," said Rajeev Date, deputy director of the Consumer Financial Protection Bureau, the federal watchdog created after the financial crisis.
He likened excessive student borrowing to risky mortgages. And as with the housing bubble before the economic collapse, the extraordinary growth in student loans has caught many by surprise. But its roots are in fact deep, and the cast of contributing characters — including college marketing officers, state lawmakers wielding budget axes and wide-eyed students and families — has been enabled by a basic economic dynamic: an insatiable demand for a college education, and plenty of easy-to-secure loans, primarily from the federal government.
Much like the mortgage brokers who promised pain-free borrowing just a few years back, many colleges don't offer warnings about debt in their brochures. Instead, reading from the same handbook as for-profit colleges, they urge students not to worry about the costs. That's because most students don't pay full price.
Even discounted, the price is beyond the means of many.
"I readily admit it," said E. Gordon Gee, the president of Ohio State University, who has also served as president of Vanderbilt and Brown. "… I do not think we have given significant thought to the impact of college costs on families."
Financial aid cuts easy targets
If any state is representative of the role government has played in the growth of student debt, Ohio makes a good candidate. While other states have made steeper cuts in recent years, Ohio has been chipping away at it far longer. It now ranks sixth from the bottom in financing per student, at $4,480.
In the late 1970s, higher education in Ohio accounted for 17 percent of the state's expenditures. Now it is 11 percent. By contrast, prisons were 4 percent of the state's budget in the late 1970s; now they account for 8 percent. Federal mandates and court orders have compelled lawmakers to spend more money on Medicaid and primary education, too.
Elected officials in both parties had figured out that colleges were one of the few parts of state government that could raise money on their own, said Donald E. Heller, dean of the College of Education at Michigan State University. If lawmakers cut state financing, the schools could make it up by raising tuition. "It lets legislators off the hook and makes universities look like the bad guy," he said.
The student loan crisis has spread from for-profit colleges to more traditional institutions, but the for-profit colleges continue to represent the worst of the problem. Students complain that they were misled about the costs and that their job prospects were exaggerated. Government reports and lawsuits have accused some for-profit colleges of outright fraud.
The result? Students at for-profit colleges are twice as likely as other students to default on their loans. Leaders of the for-profit industry defended themselves, saying they were providing higher education for lower-class students that traditional colleges had left behind.