Some students are lucky enough to live and go to college in a state that wants to keep them there. Florida's Bright Future Scholarships and Georgia's HOPE Scholarships are perhaps the best known of these programs, but similar programs exist across the country, including states with historically poor education systems like Arkansas and Mississippi.

These programs pick up some or all of the cost of tuition at any public university in the state for students meeting certain criteria including grades, volunteerism, and/or test scores. However, these programs are merit-based, ignoring some college students who need student loans to afford college even while paying for students who probably can afford it.

Scholarships and grants make up another way for college students to secure education funding. While the level of federal grants, including Pell Grants, is not as high as federally backed loans, they are directed towards students who cannot afford a college education.

University-based scholarships also make college more affordable for some students, but these are not always based on need. The increased competition for top students has encouraged many universities to increase merit-based aid to secure the enrollment of these more attractive students. Paradoxically, the schools with the best ability to fund students are also generally the ones whose student body needs less help to afford their tuition.

Many students do not have the family resources, the good luck to live in a state with generous educational assistance, or the high academic abilities to receive funding through any of these paths. Some attempt to work during college to offset their educational costs, but very few jobs will pay $20,000 a year to an 18-year old who wants to work part time.

Accounting for Student Loans

The growth of student loans, driven by increased enrollment, increased cost of an education, and the increased propensity of creditors to grant them because of government securitization, is often front page news, but it is difficult to determine just how much student lending is out there.

Student loans inhabit a unique place in consumer credit. Usually, student loans are quite large, but at the same time have no physical collateral like a mortgage (or even a car loan). Student loans are generally the second largest debt that someone incurs behind a mortgage, but many (although not all) take on this debt at the young age of 18. Even with a parent's co-signature, the students are usually beholden to the debt when they graduate.

Ten million students in 2008 were willing to yoke themselves to an average total debt of over $20,000 at the age of 22 (or 23, or 24) regardless of their ability to begin repayment within 6 months of graduation.

That amount, $20,000 over a roughly four year college career, has grown steadily for the past 20 years. It has increased at a rate that far outpaced any measure of inflation, but is similar to the growth in consumer credit during the same period, which is around 9% a year. It has more than tripled in 15 years, for an average yearly increase of around 7.6%, a pace that is strikingly close to average increases in tuition across the country.

Using less standardized, but still solid data from the American Council on Education, the level of student loan debt per graduate grew from $6,449 in 1993, to $15,375 in 2000, to $21,000 in 2008.

These numbers do not tell the whole story, however. While the level of federally subsidized loans and grants are pretty well known, the level of private student loans is more difficult to document. Private loans make up about 23% of the total student loan market. Sallie Mae makes both types of loans; its private loan portfolio is about half the size of its federal loan portfolio. However, Sallie Mae makes student loans at about 9% interest, 5% more than federally backed loans.

Accounting for private loans is also tricky because many, although not all, private loans were guaranteed by the federal government. In addition, private lenders might be more aggressive in pursuing payments from borrowers because the borrower has fewer options for repayment.

Another factor that hides the real level of student loan debt is credit card use. As the number of college students with credit cards increases, so does their level of credit card debt. At least some of these students are using these credit cards to pay educational expenses, but these charges (estimated at roughly an average $1,000 a year for students who use credit cards for educational costs) are not being included in most student loan estimations. If they were, then $25,000 for a four-year education would be closer to the mark. This debt, of course, comes with higher interest rates and a lack of subsidies.

Burdens and Benefits

The question of whether student debt levels are excessive has been on the public policy agenda for three decades. Between 1976 and 1980, the volume of federally guaranteed student loans more than tripled, and serious talk of "overburdening a generation" arose in the public media.

However, just how overburdened that generation became is difficult to ascertain. Unlike my college friend, members of that generation are not always open about their student loan problems or the long-term effects—both positive and negative—of a university education funded through loans.

A 2000 National Post Secondary Student Aid study found that an estimated 39% of student borrowers are graduating with "unmanageable debt," which is defined as debt in excess of 8% of borrowers' gross monthly income. In addition, 55% of African-American student borrowers and 58% of Hispanic student borrowers graduated with similar unmanageable debt burdens. While these populations have historically made less than whites, their college educations cost the same.

In 1988, Nellie Mae, a company similar to Sallie Mae, issued a report on its first qualitative survey of student borrowers in repayment. The study concluded that about one-third of the borrowers felt significantly burdened by their loans. However, an overwhelming majority of them also believed that student loans significantly increased their access to and choice among postsecondary institutions.

Now if my friend, who was lucky enough to graduate, defaults on his student loan, what can the creditor get out of him? There is no real direct connection between the thousands of dollars borrowed for education and a debtor's car or house, but federal and state law give student loan organizations as much legal support as possible to secure repayment.

In 2003, there were 5.6 million Americans in student loan defaults, roughly 5% of all Americans between the ages of 20 and 49. And those in default find themselves caught in the strange legal status of student loans.

First, it is nearly impossible to discharge a student loan debt in bankruptcy. This means that even if the bankrupt debtor's creditors agree to a repayment plan or to a part of his liquidated assets, these agreements almost never include the student loan creditor. Sometimes people declare bankruptcy just so they can continue to repay their student loans at the expense of the rest of their debts.

Second, unlike other non-collateralized loans, which credit card companies and banks must write off after nonpayment for seven years, student loan companies can come after unpaid accounts as long as the debtor lives. Student loans are almost never sold off to collection agencies designed to squeeze as much as possible before that seven year window runs out, because the clock never stops running.

Put more bluntly: in most states, two crimes have a statute of limitations of more than seven years. One is not paying student loans, the other is murder.

One way that the current administration is helping students is through a new repayment plan, called Income Based Repayment (IBR). The IBR plan allows students to pay a certain percentage of their current income, even if it is lower than the minimum payment, without penalty. Interest does not accrue on the unpaid principle, so this allows the debtor to keep making smaller payments without making his payments higher in the long run. If the debtor pays lower payments using the IBR formula (these forms must be redone at least every year) for 20 years, they will not owe any remaining debt. This time period is shorter for students who enter public service.

Future Students, Future Loans

As the approximately 18 million university students in the U.S. now return to the classroom for the 2010-2011 school year, they all assume—by and large correctly—that the benefits they will receive from attending college, be they economic, social, or cultural, will outweigh the costs. But those students might be paying those costs for years to come, mortgaging their futures in the process.

Americans across the political spectrum also believe, generally correctly, that higher education is the main way that most people can improve their lives. College administrators and testing agencies make sure that everyone knows that a college education is worth a cool million dollars over one's lifetime.

Of course, by relying on an economic accounting based on lifetime incomes, we run the risk of miscalculating what a college education really means. Personal growth and intellectual engagement cannot be quantified, and the benefits they grant to students are not directly related to their ability earn a larger paycheck.

At the same time, there is almost nowhere more fun and enriching for an 18-22 year old to spend his or her time than an American university. This, along with increasing college enrollments, show that the demand for a spot on a college roster is mostly independent of tuition price changes.

In the past few years, however, the growth of student loans and the collapse of the credit market have encouraged individual students and the American public to take a longer look at college funding systems and whether or not the cost is worth the price. They have examined how students fund their pricey college education, the student's ability to repay the loans, or why they choose loans at all. The new FDLP looks to address those concerns by putting the government, instead of independent and private creditors, as the agent between consumers (college students) and colleges.

If the student loan system is going to be reconfigured, certain realities need to be kept at the forefront. 1) College costs have expanded much more quickly than personal income. 2) The rules about collecting those loans heavily favor lenders. And 3) the billions of dollars made with government guarantees are largely kept by private corporations. Only by addressing all of these points will any new configuration of the student loan system work.

The new government plan is designed to help millions of students go to school and strengthen the citizenry of the United States, the original reason that the government began student loans 70 years ago. It also represents the latest attempt to pay for democratizing higher education and improving America's global competitiveness. By stepping into the student loan market, the federal government promises to serve as a benevolent agent to allow students to make the choice on funding higher education under the best terms possible.