“Unlike mortgages, student loans are very difficult to walk away from,” researcher notes

Increasing numbers of college and university students are taking on record amounts of debt and then defaulting on their student loans, according to a report released this week by the Federal Reserve Bank of San Francisco.

The 2010 default rate for California was 7.8 percent, slightly below the national average, because a larger portion of California students attends public rather than private schools, which are more expensive. Also, fewer students in the state are taking on debt to attend for-profit vocational schools.

The default rates could create even more personal economic upheaval than the housing market bust three years ago, according to Laura Choi, a senior research associate at the Federal Reserve Bank of San Francisco, who wrote the report.

When students fail to repay their loans, Choi said, the federal government can garnish their wages. Parents who co-signed on their children’s student loans can also be held liable, their wages garnished and credit ratings ruined.

The default rate was much higher two decades ago when it was easier for students to walk away from unpaid loans. In 1992, the national default rate on student loans was 22 percent, according to the U.S. Department of Education, but back then the government did not have the authority to garnish wages to collect.

Students have good reason to be concerned about their rising debt burden, according to Choi. They may not be able to find jobs that pay enough to allow them to meet their obligations.

“There’s a mindset that a college degree will lead to a better job and a higher salary, but we’re seeing that with unemployment around 9 percent, that’s not the case all the time,” Choi said in an interview.

In recent weeks, skyrocketing tuition and the rising burden of student debt has fed a new round of protests across the University of California and California State University systems.

Occupy encampments have sprung up at campuses across the state. Last month, angry protesters disrupted a meeting of the UC Board of Regents in San Francisco, driving all but one of the regents from the room.

Violent clashes erupted outside the November meeting of the California State University Trustees in Long Beach, and on Dec. 1, the CSU trustees canceled a committee meeting, citing concerns that a similar protest would take place.

Undergraduate in-state tuition at the University of California and California State University campuses has more than doubled in the last five years — to $13,200 at UC schools and $7,017 at CSU schools.

Inside the student center at San Francisco State University, many of the students cramming for their final exams worried they wouldn’t be able to pay back their loans.

“It’s crazy, you just hope that the economy will get better,” said Tom Nguyen, 22, who this year transferred from City College of San Francisco to work toward a bachelor’s degree in civil engineering.

Nguyen said he currently carries $5,000 in student loan debt, but anticipates that amount will rise to at least $15,000 by the time he graduates.

Octavio Alvarez, 31, who carries $20,000 in student loan debt, said he was “not looking forward to” graduating with a master’s degree in teaching English as a second language, because state and local budget cuts had eliminated many job opportunities for beginning teachers.

Alvarez said he was considering pursuing a second master’s degree, this one in Chinese. Going back to school would mean incurring more debt but would also allow Alvarez to put off paying back the loans on his first master’s.

“People often decide to go back to school and start a new career when the economy gets bad, but this recession has gone on so long that the job market is weak even when they graduate,” said Anne Stuhldreher, a senior fellow at the New America Foundation, a nonpartisan public policy institute.

Stuhldreher said she worried that increased publicity around rising student debt and loan default would cause high school graduates to think twice about going to college, harming their long-term earning potential.

She said the numbers showed parents need to start saving earlier for college, and praised a recent effort by the city of San Francisco, which is creating a savings account for every kindergartener in its public school system and depositing $50 to get the savings going.

Despite the debt and the bad job market, some San Francisco State students remained optimistic.

In an interview, Michael Daniel, a 21-year-old English major, said he had already taken on $15,000 in debt and expected to incur $25,000 by the time he graduates in a year and a half.

“I think it’s absolutely worth it,” Daniel said. “I’m not sure what the future holds, but I’m getting a more open mind. I’m meeting a lot of different types of people and broadening my horizons.”

“That’s what an education is for,” he said.