By Darryl Holliday

With a combination of rising tuition, a recession, high levels of unemployment and unprecedented loan debt, it’s hard to know for certain if the country is experiencing a transitory crisis or another potentially catastrophic bubble. Many experts and higher education faculty members familiar with student loan debt think the latter.

As overall student debt is set to top $1 trillion, graduates with federal and private loans may find themselves in financial peril before the ink on their new degree dries. As for Columbia, with its 7.4 percent default rate—one of the highest rates in the city among colleges of the same type—graduates in the arts may find themselves particularly encumbered.

“I think ‘bubble’ might be an accurate term,” said Mark Kelly, vice president of Student Affairs. “If you look at the cost of American higher education relative to the cost of living and compare [that] to housing costs, the cost of higher education [has] far outstripped [them]. And then you add to that diminishing employment prospects—these are seismic issues for American society.”

Worries that an impending crisis will affect recent graduates for the rest of their lives are becoming more commonplace even as the future of the economy remains uncertain; and while the history of loan debt goes back more than 50 years, the system is still far from fine-tuned.

In a way, financial aid wasn’t originally meant for everyone. While the program was designed to be open to all students seeking a higher education degree, the emphasis was on low-income students—those in need of assistance.

“It means that a high school senior anywhere in this great land of ours can apply to any college or any university in any of the 50 states and not be turned away because his family is poor,” said President Lyndon B. Johnson at the 1965 signing ceremony of the Higher Education Act, which authorized precursors to the Pell Grant and Stafford Loan Program.

However, recent studies, including “Drowning in Debt: The Emerging Student Loan Crisis” from independent group Education Sector, show not only that student debt is rapidly increasing, but that the distribution of financial aid to students of middle- and upper-income families is nearly equal to, and in some cases exceeds, aid provided to the lowest income quartile.

This trend is part of a cycle that includes an increase aid access for students—primarily middle-class and wealthy students—who are already able to pay.

“It’s just gotten completely out of hand,” said Andrew Gillen, research director at the Center for College Affordability and Productivity. “One-third of all unsubsidized loan dollars [goes] to students [whose families] make more than $100,000 per year. These are basically not recognized as need-based programs anymore.”

This cycle, fueled by federal subsidies, has resulted in a broader base of students taking out loans for larger amounts of money in order to pay for rising tuitions—eventually leading higher education institutions to further increase tuitions and students to take out bigger loans, according to Gillen.

In his 2008 study, “A Tuition Bubble? Lessons from the Housing Bubble,” Gillen argues that lax lending standards and artificially low interest rates for student loans exacerbate tuition increases because they increase the ability of too many students to pay—further encouraging schools to raise their tuition more than they otherwise would.

During the last 15 years, following a national trend of tuition hikes, Columbia has raised its tuition by 150 percent and its fees by 422 percent, largely due to the addition of student resources such as the health center and student counseling services, both of which, Kelly said, were essentially self-imposed taxes via the Student Government Association.

Though Columbia has seen a decrease in loans of 4 percent and an increase in grants of 21 percent since last year, according to Kelly, the college is working at the margins of a larger problem. Less loan debt is great for students, but rising tuition remains the largest contributor to rising debt.

“I would argue [that] this is the most important and challenging issue facing American higher education,” Kelly said, noting that burgeoning student loans paired with crumbling public support for higher education is having a dangerous effect on students and their families.

With the addition of rising residence hall costs, tuition and fees, the “net cost” to students—the cost that all students pay regardless of whether they receive aid—has also been largely on the rise, according to a 2011 report from College Board, an education advocacy and policy center. (All colleges and universities participating in federal student aid programs are required by Congress to post net cost as of Oct. 29.)

Costs appear to be generally on the rise when it comes to college these days, but according to Amy Laitinen, senior policy analyst for Education Sector, the elephant in the room is really affordability.

“We’re not talking about ways of making college more affordable,” Laitinen said.

According to a report from The Project on Student Debt released this month, Illinois graduates from the class of 2010 averaged nearly $24,000 in debt—making the state 20th out of the 50 states in debt rate.

Coupled with an average national unemployment rate of 20.4 percent for 20–24-year-olds and 62 percent of Illinois students leaving college with debt, prospects for recent graduates seem dim.

It’s led many around the country to wonder if the high cost of college offers a higher return on the investment.

“Right now, the lowest rate of employment is—without question—college grads,” Kelly said. “It’s sort of the American conundrum right now—the choices are pretty tough.”

The question is whether this generation of recent grads will be lost in the shuffle before the economy recovers and educational reform takes place.

“The New Lost Generation” will conclude next week with, a look at possible solutions to the mounting student debt crisis. See this week’s commentary for further information.