If you’re worried about student loan debt, what it means for graduating seniors and for the future of our nation, congratulations. That means you’re paying attention. Now that Americans owe over $1 trillion in student debt, more than they owe on their credit cards, many people are beginning to see that our country’s current way of paying for college cannot be sustained.

Unfortunately, as I mentioned in this space last week, our leaders are not taking the problem seriously. For all the suave coolness President Obama displayed during his “Slow Jam” on student loan debt, his call to keep the interest rate on federally subsidized Stafford loans at the current 3.4 percent will not have much of an impact. It’s a distraction from the looming crisis.

Here’s the problem, folks: In America right now, an entire generation is mortgaging its future. And the chances that they’ll ever succeed in paying off that debt are growing ever slimmer. As tuitions continue to increase, the job market stagnates and median wages—especially for the young—trend downwards, we are now trapping millions of young people in a cycle of high debt and low opportunity from which some will never escape.

There is a better way.

I call it the National Service Corps. The idea is simple: In exchange for a few years of service to their country, young people would receive significant financial assistance to pay for college.

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The idea is not new, of course. After World War II, the G.I. Bill sent millions of returning soldiers to college and technical school. Some veterans even had their entire tuition paid to attend the top Ivy League schools. The result: A generation of highly-experienced young people, trained in business, engineering and science, led our nation into the longest period of sustained economic growth the world has ever known.

The situation we face now is not so different from what we faced in 1944, when the G.I. Bill was first passed.

Then as now, America faced a new technological era that swept away millions of jobs that were never coming back (think Dustbowl farmers replaced by tractors then; bank tellers replaced by smartphones now).

Then as now, newly ascendant world powers threaten to overtake our leads in education and scientific research.

Then as now, a generation of young people faces the prospect of systemic unemployment and shaky economic futures.

What’s also true is that young Americans are just as ready to serve their country in 2012 as they were in 1944. And now more than ever, America must invest to give its young people the skills they need to lead us into the future.

The basics of a National Service Corps haven’t changed much since the G.I. Bill, or since I first wrote about the idea as an aide working in Congress in 1969. If you give service to your country, then your country will help you go to college. Young people who choose to participate could choose to serve in the military, or they could do civilian projects in education, community service and infrastructure building, similar to the work done now by Peace Corps and AmeriCorps volunteers.

Americorps, in fact, was created by the Clinton administration and expanded dramatically under Bush 43. Given the fact that it is a federal program, it is of course complicated: It is part of the Corporation for National and Community Service, which also oversees related programs that you probably haven’t heard of, like the Senior Corps and Learn and Serve America. AmeriCorps itself has three divisions, which incorporate things like the Vista program, which is the domestic version of the Peace Corps, and has been around since 1965. Although experience can widely vary, most members of AmeriCorps earn a stipend of about $5,000 a year which can be used to offset existing student loans, certain health benefits and living expenses while they’re enrolled in the program. While the program has cachet and is good as far as it goes, $5,000 a year for college in the U.S. doesn’t go very far.

[Related Article: The Other Student Loan Slow Jam: Is It Time for a National Service Corps?]

The time has come for the re-creation of AmeriCorps, and the rethinking of the government role in borrowing for education. Specifically, the country needs to address three major problems:

1. While it’s certainly true that the 21st-century demands education beyond high school level, the notion that everyone should get some kind of a liberal arts education, however much it appeals to our nobler instincts, is ultimately counterproductive. Thus new or revamped programs need to create incentives so that people who should be getting skills-based vocational training do not instead study English.
2. Part of the reason for the inflation of tuition is the easy availability of borrowed money, just as a flood of mortgage money certainly contributed to the housing bubble. The existing skein of federally-backed loans and grants under Title IV of the Higher Education Act must be streamlined, and real standards for both borrowers and eligible institutions must be developed. There have been some steps in this direction recently, at least in terms of new regulations applying to for-profit schools, but they do not go far enough.
3. We need to reorganize all of the efforts combined within the Corporation for National and Community Service, so that the culture of borrowing tuition money is replaced with the idea of working for it. Obviously, there is no practicable way of allowing every student to work for the government in order to pay for tuition, but the creation of a National Service Corps will have a meaningful impact on the problem, in connection with the other reforms outlined above.

There are many questions that need answering. Should the program pay for college entirely? Or, should there be a cap of, say, $15,000, above which students can find loans if they choose to attend a more expensive college?

Should all volunteers join the National Service Corps at age 18, right after high school? Or should they be allowed to choose whether to participate during college or even after college, depending on their financial and educational needs?

Should all National Service Corps volunteers serve two years? Or should civilian volunteers serve for three years while military volunteers—who put their lives on the line—serve only two?

Answering these questions and probably even discussing this idea will be a challenge. To be large enough to solve the problems of looming college debt and structural unemployment, a National Service Corps could cost billions of dollars a year. In the current political environment, arguing for any new or expanded program, especially one as large and important as this one, might be viewed as a risk few politicians are in the mood to take.

We must not allow what amounts to political cowardice to stop us. We cannot accept the United States as a waning world power, simply because we are too myopic to invest in our own future. We cannot accept generations of young people drowning in a sea of debt and underemployment. We cannot accept politicians who distract us with silly—but cool—gimmicks, however well intentioned. It’s time to act.

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Image: Rennett Stowe, via Flickr

This week the experts from Credit.com contributed to a wide range of publications on subjects including taxes, identity theft, credit scores, credit cards and debt. Check out the hits…

A tax refund check can lead to a lot of temptation among cash strapped college students. Many find this monetary bump as “found” money, but Emily Driscoll of Fox Business urges people to think of these payments for what they really are, money already earned. She asked our credit and debt expert Gerri Detweiler how students could best utilize this money. Always the pragmatist, Gerri responded that refund money is best used to pay down debt. While this may not by the most exciting choice for some students, the benefits they reap in the long run will make it their best bet. @Gerridetweiler @FoxBizMoney101 @FoxBusiness

Credit.com credit analyst, Beverly Harzog was asked her opinion about prepaid cards from Blake Ellis at CNN Money for her story 5 Things to Know About Prepaid Cards. Beverly suggests holding out on getting a prepaid card unless it’s your only option. With fees and rates higher than standard credit and debit cards, she says she only recommends this type of card for those who can’t get a bank account. @BeverlyHarzog @CNNMoney

It’s actually not frowned upon to have a high limit of available credit; in fact, if you manage it correctly, more credit is a great way to raise one’s credit score over time. Since some of the rewards cards are giving out better bonuses than ever, opening credit accounts may pay off in the short term as well. Karen Blumenthal at The Wall Street Journal asked Beverly her thoughts, to which she replied that the deals are great and may be getting even sweeter come summer. This may be the time for you to think about opening a new card! @WSJ @KarenBlu

In the last year or more, many consumers have made conscientious efforts to reduce their reliance on credit cards and increase the timeliness of their payments, leading instances of delinquency and default to slip to at or near all-time historic lows.

But lenders will likely see their net charge-off rates slip for one more quarter before expanding again by the end of the year, finishing 2012 with higher rates of defaulted accounts than they began with, according to the latest report from analysis firm Fitch Ratings, entitled “Credit Cards: Asset Quality Review.” At the end of the first quarter, the net charge-off rate observed by the nation’s seven largest credit card lenders stood at 4.02 percent, down from 4.2 percent at the end of 2011, and 6.39 percent in the first quarter of that year.

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Further, charge-offs are well below the five-year average of 6.51 percent observed between 2007 and 2011, the report said. And because of trends in 30-day credit card delinquencies, which itself is well below the five-year average, it’s likely that the current charge-off rate will decline once again in the second quarter of this year.

However, the trend may soon reverse because consumers are once again feeling better about their finances in general, the report said. Portfolio contraction among major lenders more or less held steady in the first quarter of the year, and smaller card issuers actually saw more consumers opening new accounts.

As a consequence of this trend, which may also be the result of expanding credit standards that are allowing subprime borrowers to once again access lines of credit they were unable to tap just a year ago, it’s likely that defaults will begin expanding once again, trending back toward historical averages from the current levels. Many had long projected that there must be a logical point at which charge-offs bottomed out, and we could soon see that point.

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Millions of accounts were written off by lenders as uncollectable during and immediately following the recent recession as card issuers tried to shield themselves from significant loan losses as a result of consumers who could no longer afford to pay their bills. However, the improving economy has emboldened most major lenders to once again extend credit to those who previously defaulted on their accounts.

Memo to the class of 2012: Your life may be about to get very hard. Graduates will leave campus to discover the worst job market in more than a decade, according to a recent report by the Associated Press.

Meanwhile, rising tuition, soaring student loan debt, and potentially serious problems with the government’s system of collecting unpaid student loan debt could make it particularly difficult for 2012 graduates to transition from school to work.

“Simply put, we’re failing kids coming out of college,” Andrew Sum, director of the Center for Labor Market Studies at Northeastern University, told the Associated Press.

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The problem is rising student loan debt on the one hand, and rising unemployment on the other. Only 53 percent of recent college graduates hold full-time jobs, according to a recent study by Rutgers University’s John J. Heldrich Center for Workforce Development.

Unlike in years past, when many graduates could expect to find work as bank tellers or low-level corporate employees, today many of those higher-paying, full-time jobs have been lost to corporate downsizing. What’s left are part-time jobs, things like tending bar or working in retail stores, which pay substantially less.

That’s part of the reason why the median wages for 2012 graduates will be at their lowest levels since 2000, Sum found. The two recessions of the 2000′s shed 8 million jobs from the economy, according to recent research by Northeastern’s Center for Labor Market Studies, and recent grads face some of the highest hurdles in competing for those jobs that remain.

“Part of this is due to the lack of quality jobs for those unfortunate enough to graduate during a recession of historic force,” according to the Heldrich Center study.

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But the need for a good-paying job after graduation is higher than ever, now that total student loan debt has topped $1 trillion, higher even than mortgage and credit card debt. As debt soars and incomes drop, more graduates find themselves unable to pay their college debts; $67 billion worth of college loans are now in default, according to reporting by Bloomberg.

That has led to increased scrutiny of the private companies used by the U.S. Department of Education to collect those bad debts. After allegations arose that private debt collectors often try to intimidate defaulted debtors into paying more than they can afford, the education department announced it would mandate changes that would require debt collectors to offer income-based repayment plans, Bloomberg reported.

Some consumer advocates believe the administration’s plans don’t go far enough to protect graduates. A report published this week by the National Consumer Law Center calls on the education department to pay private debt collectors based on the quality service they provide, replacing the current model that incentivizes contractors to collect as much money as they can.

The center also called on the administration to create a new system to field complaints of alleged abuse by school debt collectors.

“There is a balance between the need to collect student loans and the need to assist borrowers,” according to the center’s report. “At this point, the balance is tilted overwhelmingly in favor of high collections and collection agency profits.”

Most negative information can stay on your credit reports for no more than seven years, or ten years in the case of certain types of bankruptcy. Then why is an old collection account still appearing on a reader’s credit reports more than a decade after he stopped paying? Truth is, some debts can haunt you for years to come:

I stopped paying a credit card debt in the middle or end of 2000. In the fall of 2006 a collection agency bought the debt.   I was living in another state and did not realize that a judgment was passed until a year or so later.  It is now may 2012, and this is still on my credit report, more than 11 years later.  What about the 7 years from the date that payment stopped?

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This reader is correct in his basic understanding of how long collection accounts can be reported. Specifically, under the Fair Credit Reporting Act, collection accounts must be removed from credit reports seven years and 180 days after the consumer fell behind on payments on the original account that was later turned over to collections. That’s true whether the debt has been paid or not.

But in this case, it sounds like our reader is not talking about a collection account that’s on his credit report. He’s talking about a judgment, which is a different animal with its own reporting period. The collection agency took him to court, and since he didn’t respond, obtained a deficiency judgment against him. Here is what the Fair Credit Reporting Act says about how when judgments must be removed from credit reports:

Civil suits, civil judgments, and records of arrest that from date of entry, antedate the report by more than seven years or until the governing statute of limitations has expired, whichever is the longer period.

[Related Article: Collection Agency Out of Business, But Still on Credit Reports]

In plain English that means that a judgment can be reported for up to seven years from the date the judgment was entered by the court. But here is the kicker: if you don’t pay it off or settle it, it may be reported until the statute of limitations has expired. In most states, that’s ten to twenty years! And since unpaid judgments can often be renewed, theoretically at least, an unpaid judgment can remain on your credit reports indefinitely.

This very long reporting period is one good reason to settle up on a judgment. But there’s another good reason to pay it off. In most states, judgment creditors have collection powers than creditors without judgments don’t have. That may include the ability to garnish wages or seize property, such as bank accounts.

Like most debts, judgments can often be settled for less than the full balance. Our reader shouldn’t hesitate to negotiate if he can’t pay the full balance. Of course, if he does strike a deal, he should get it in writing before he pays.

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Image: Neil Conway, via Flickr