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The Student-Loan Debt Crisis

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Nov-02-18 New Assignment: Opposing View

qz.com

qz.com

$1.5 trillion of student loan debt has transformed the American dream

By Ephrat Livni

Forget the white picket fence. Forget the house and family. Forget taking a job for love rather than money. Retirement? Keep dreaming.

A decade after the great recession, the new American dream is strikingly minimalist. Today, many Americans in their 20s, 30s, and 40s consider themselves lucky so long as they have a job that allows them to make their student loan payments. For the 44 million who bet on themselves, borrowed money to study, and currently owe on those loans, their decisions and ambitions are shaped by the burden of early debt.

The burgeoning student loan crisis in the US

The value of an education can’t be quantified. Perhaps it’s priceless. But the cost of going to school certainly can be calculated, and the figures are staggering.

A four-year stint at a private American university today—for example Harvard, Stanford, or Yale—costs more than a quarter million dollars, including tuition, lodging, and books. Public universities may be more affordable, but the outlay for an education still requires funding assistance. University of California schools, for example, costs about $12,500 a year just for tuition and fees for a full-time state resident. Assuming students stay close to home and commute, that still amounts to $50,000 for an undergraduate degree.

Given the prohibitive pricing, many students have to borrow this money. Those who complete a bachelor’s degree owe, on average nationally, $30,500, according to data from the Department of Education. People who go on to graduate school can owe much more, and of course, each student’s debt burden depends on which institution they attend, their parents’ finances, and whether families can take on debt in their stead. Nationwide, borrowers collectively owe $1.5 trillion in student-loan debt.

It’s a sum so astronomical that education researchers characterize this as a time of crisis—one that will only worsen without governmental and institutional intervention. In January of this year, Judith Scott-Clayton of Columbia University’s Teachers College wrote in a Brookings Institute report that “the looming student loan default rise is worse than we thought.” Based on the most recent trends, it seems likely that by 2023, about 40% of borrowers may default on their student loans, amounting to about $560 billion in unpaid debt.

At the same time, we’re only just beginning to understand the lasting effects of student debt. Because the typical life of a student loan is 10 years, conventional wisdom has long held that education debt isn’t really a burden for people in their mid-30s and beyond. Not anymore.

Part of the reason why student-loan debt stretches on can be traced to forbearances and deferments. When graduates go through a period of unemployment, or go back to school, they can hold off paying their loans. That can extend repayment periods by years, as interest accrues dramatically on large sums.

Another contributing factor: Universities hoping to secure federal student aid funds must demonstrate that students can repay their debt and will not default within the first three years after graduation. As a result, they may encourage students to defer or forbear payment to protect institutional interests, without necessarily warning young people of the severe financial consequences this may lead to. TheGovernment Accountability Office (pdf) in 2017 called for greater scrutiny of schools, writing:

GAO identified examples when forbearance was encouraged over other potentially more beneficial options for helping borrowers avoid default, such as repayment plans that base monthly payments on income…GAO found [school] consultants provided inaccurate or incomplete information to borrowers about their repayment options in some instances. A typical borrower with $30,000 in loans who spends the first 3 years of repayment in forbearance would pay an additional $6,742 in interest, a 17% increase.

GAO’s analysis of Department of Education data found that 68% of borrowers who began repaying their loans in 2013 had loans in forbearance for some portion of the first three years, and 20% of these were in forbearance for 18 months or more. Those in long-term forbearance defaulted more often in the fourth year of repayment, once schools stopped being accountable for defaults. So the forbearances just delayed defaults, rather than preventing them.

Other students may have trouble paying down student loans if, after tapping out federal funds, they borrow from private lenders, which often have higher interest rates. Kaitlyn Cawley explains in Bustle that she finished graduate school with $95,000 in student loan debt, including a $24,000 variable-rate loan that started at 9.4% interest and now stands at 11%, brokered by the US private lender Sallie Mae. She makes her loan payments, but she’s not making a dent in her debt. “Yes, I’ve paid more than $18,000 to my original $24,000 student loan,” she writes, “and, yes, only $171 worth of my back-breaking monthly payments…even manage to skim the original amount.”

For all these reasons, just one decade to pay down school debt now seems pretty short, based on data from the US Department of Education (pdf). Just 38% of borrowers who’d begun their undergraduate educations in the 1995-1996 academic year had fully paid off their student debt 20 years later; and only 20% of borrowers who’d begun paying back their debt in the 2003-2004 school year had successfully paid of their loans after 12 years (table 5, page 19). Not only that, defaults can happen years after graduation—not only in the first few post-college years when graduates are looking for work or earning relatively low wages because of inexperience.

How student loans affect adult decisions

Borrowing for education means deferring other major purchases, like a home. Indeed, a 2017 Federal Reserve study (pdf) reported that greater student loan debt causes people to delay decisions about marriage and children. Student debt lowers the probability of enrollment in a graduate or professional degree program and reduces borrowers’ willingness to work in low-paid public interest jobs. It increases the likelihood of living with parents and delays or reduces the chances of owning a home.

Basically, borrowing a lot of money for school influences almost every major decision people make in adulthood—in part because the debt impacts credit ratings and makes young borrowers unattractive to lenders, and in part because borrowers are worried about, or at least mindful of, their financial obligations. Moreover, the Federal Reserve study notes that student-loan borrowers face multiple obstacles. Beyond being burdened by outstanding credit, they have trouble saving money for a down payment on a home, not to mention satisfying a lender’s debt-to-income ratio.

All this is bad news not just for individuals, but for the US economy as a whole. Last year, the Federal Reserve Bank of New York published a report that examined the link between rising tuition, swelling education debt, and diminished homeownership among millennials. Researchers found that 11-35% of the decrease in homeownership among 28-30 year olds between the years 2007 and 2015 was attributable to tuition hikes and greater debt. “The results suggest that states that increase college costs for current student cohorts can expect to see…weaker spending and wealth accumulation among young consumers in the years to come,” they write.

Meanwhile, at a congressional hearing in March, Federal Reserve Chairman Jerome Powell warned policymakers that rising default rates will impact the national economy, apart from influencing the economic lives of individuals. “As this goes on and as student loans continue to grow and become larger and larger, then it absolutely could hold back growth,” he testified. Powell suggested that policymakers consider allowing student loan debt to be discharged in bankruptcy, like credit card debt, say. But for now, no such option exists.

Powell’s not entirely sour on education debt. He believes “investing in yourself” is smart. However, the investment, like any other, comes with risks.

Free tuition for all?

The burgeoning student-debt crisis has become increasingly difficult to ignore. Now some political and educational institutions in the US are making efforts to address it.

At Harvard University, for example, students whose parents make less than $65,000 annually now qualify for free tuition. Princeton University offers free tuition, room and board for students whose families make less than $54,000, and free tuition for families earning less than $120,000. Brown University waives tuition, room and board for families making less than $60,000, as does Columbia University. Last year, New York governor Andrew Cuomo introduced the nation’s first program to provide tuition-free college at the state’s public colleges and universities for students from families making up to $125,000 a year.

And laudably, New York University Medical School just announced that its $55,000 annual tuition will be waived for all new and current students in the interest of advancing the medical profession, while challenging other schools to follow suit. “This decision recognizes a moral imperative that must be addressed, as institutions place an increasing debt burden on young people who aspire to become physicians,” dean Robert Grossman said in a statement.

Oddly the announcement was met with derision by Jordan Weissmann at Slate. “While it’s hard to fault a school for offering its students a free education, this dramatic gesture is, at best, a well-intentioned waste—an expensive, unnecessary subsidy for elite medical grads who already stand to make a killing one day as anesthesiologists and orthopedic surgeons,” he writes.

But Weissmann fails to recognize what the school is trying to do. By making tuition free, NYU is making it easier for a range of students to seriously consider medical school. It’s also liberating those who seek to join the profession to consider what they might contribute to society—how they can become the kinds of doctors who put medicine first, not earnings, enabling them to take public interest and nonprofit work and to serve in rural communities. And it’s worth noting that the sky-high cost of medical school takes a toll even on doctors who theoretically earn a good living. Farzon A. Nahvi, an emergency medicine physician, recently noted in the New York Times, five years after graduating from medical school, “I cannot afford to buy a house, still ride my bicycle to work and continue to skimp on meals in order to cover more than $3,000 in monthly loan payments.”

The idea that students can easily manage astronomical debt—and that there’s always a ton of money to be made— is retrograde. Certainly the 44 million borrowers with outstanding debt understand what NYU is trying to do. Hopefully, more institutions will soon follow its lead.

This post originally stated that Sallie Mae was a government lender. It has been updated to note that Sallie Mae is a private lender.

Americans are drowning in student-loan debt. The U.S. should forgive all of it.

Jun. 19th, 2018

Politicians in both parties say getting a higher education is not only the ticket to the middle class but also that it is vital to America’s future prosperity. Yet they’ve created a system that prices college out of reach and forces children to take on growing levels of debt to pay the fare. That debt too often becomes a millstone on the young people it was intended to assist.

Student debt now totals about $1.5 trillion, more than credit card and auto loan debt. About 4 in 10 people who have attended college have taken out loans to help pay for it. These are the children of working- and middle-class families, not the affluent. As the price of college has skyrocketed nearly 400 percent over the past 30 years, the debt burden of those who take out loans has soared as well. The College Board reports that, in 2016, the average debt for those who took out loans to finish a bachelor’s degree was $28,400 — an inflation-adjusted increase of about 30 percent since 2001.

The onerous debts sabotage the ability of a college education to serve as an instrument of upward mobility for disadvantaged groups. The students from the poorest families are forced to take on the highest amount of debt. Women hold about two-thirds of all student loan debt in the United States, and since they still earn less than men make for comparable work, women pay their loans off more slowly, incurring higher interest payments. African Americans who tend to start off with fewer family resources fare worse than whites. And those with a larger debt burden often can’t begin saving for retirement or afford to buy a home, and they increasingly put off decisions about marriage and children.

The millennial generation has taken the hardest hit. About 75 percent have some form of debt, according to a recent survey. As a result, they save less than previous generations: Around 25 percent have no personal savings. Two-thirds say they would have difficulty paying an unexpected bill of $1,000. More than one-third say debt has forced them to put off buying a home, while 30 percent say they have put off saving for retirement, and 16 percent say they have put off having children. This comes at a time when some 94 percent of the new jobs created in the “recovery” are precarious — part time, short-term, on demand. This is a recipe for calamity.

Not surprisingly, a growing percentage of borrowers — now about 1 in 5 — are “severely behind” on their payments, incurring penalties and interest charges and hurting their credit. We are condemning those who tried the hardest to carry the largest burdens.

And it isn’t just millennials who are troubled. AARP, the nation’s largest seniors lobby, warns that the fastest-growing category of student-loan debtors are older than 60, with soaring numbers of retirees having their Social Security payment garnished to pay for student loans — mostly loans they took out for their children, but sometimes for themselves.

The reason for the debt crisis is clear: The cost of college has exploded in recent decades while median household-income growth has been relatively flat. Part of the cost increase is because state funding didn’t keep up with rising costs, so students and parents are expected to bear more of the expense. A big reason, though, is the obscene growth in administrative salaries and staffing at public colleges and universities, even as more and more of the teaching is done by impoverished adjuncts.

The debt burdens not only the debtors but also the entire economy by dampening consumer demand. The federal government guarantees more than 90 percent of all outstanding student debt. A recent paper by Scott Fullwiler, Stephanie Kelton, Catherine Ruetschlin and Marshall Steinbaum of the Levy Economics Institute found that if the government canceled the debt it owns and bought out the remaining private creditors, it would increase gross domestic product by between $86 billion and $108 billion per year over the next decade, adding between 1.2 million and 1.5 million jobs.

More importantly, if combined with making all public universities tuition-free, this country would ensure that no young person is condemned to debt for pursuing the higher education or technical training that virtually everyone agrees is vital to this nation’s future.

Does forgiving $1.5 trillion in student debt over 10 years cost too much money? Republicans clearly didn’t think “$1.5 trillion” sounded unreasonable when they forced through that amount in tax cuts to overwhelmingly benefit corporations and the wealthiest Americans. Somehow, “conservatives” think we can afford to lard the pockets of the wealthy but can’t rescue a generation drawn from working- and middle-class families burdened with education debts that many cannot afford to pay. That choice will surely not make America great again.

Read more from Katrina vanden Heuvel’s archive or follow her on Twitter.

America’s $1 trillion student debt problem heads into its sixth year

By Jillian Berman, Marketwatch|Apr. 26th, 2018

Students protest ballooning student loan debt outside Hunter College in New York City.

Getty Images

Student debt has been a $1 trillion problem for at least six years.

Six years ago, on April 25, 2012, activists took to the streets to mark the country’s outstanding student loan debt surpassing $1 trillion. And in the years since, many of the trends that pushed student debt levels to climb have persisted, and in some cases, they’ve gotten worse.

Focusing on the $1 trillion mark is somewhat “arbitrary,” given that it doesn’t change the debt burdens individuals are managing every day, said Mark Huelsman, a senior policy analyst at Demos, a left-leaning think tank. (Outstanding student debt reached $1 trillion during the second quarter of 2012, according to the Federal Reserve, which includes April.)

Still, Huelsman said these kinds of “big round numbers” can help galvanize people around the issue. “Rising student debt has really happened over a 20-year period,” he said.

A variety of trends are fueling that growth. At the same time that the cost of college has climbed — caused in part by state disinvestment in public higher education — a college degree has become more necessary to earn a decent living. That means that as more people are attending college, they’re increasingly relying on debt to finance their schooling, pushing the level of overall student debt up.

Sluggish wage growth and the rising cost of other necessities, such as child care, also mean that families have less money to rely on to pay for school. And once students leave college, those stagnant wages can make it difficult for them to pay down their debt effectively.

“There are broader issues in the economy that show up in the student debt figures,” Huelsman said. “But it’s also a set of deliberate policy choices that we’ve made at the federal or state level to not meet the rising demand with the investment that previous generations have received.”

There are indicators that if student debt continues to climb, it could have a major impact on the economy. For many borrowers — particularly those who graduate from a decent college — student loans are a manageable investment in their education. Still, levels of student loan delinquency remain persistently high.

That gives cause for concern, particularly given that federal student loans offer so many options for borrowers to stay current, Huelsman said. Borrower advocates have said high levels of student loan delinquency and default point to student loan companies hired by the government not doing enough to work in borrowers’ best interest.

“I often hear that the big numbers are not necessarily what we should worry about with regard to student debt, but at some point it has to matter,” Huelsman said.

DMU Timestamp: September 17, 2018 17:21

Added November 02, 2018 at 4:22pm by Emma Graham
Title: New Assignment: Opposing View

Forgiving All Student Loan Debt Would Be an Awful, Regressive Idea

Aug. 15th, 2016

I respect your passion, however …

An especially half-baked idea for dealing with America’s student debt burden has been bubbling up from the far reaches of the political left lately: Washington, a few well-meaning souls say, should just forgive all of the loans—wipe the slate clean. The Green Party’s Jill Stein is running for president on the promise that she’ll wave away every cent of outstanding federal education debt. And late last week, Bard College President Leon Botstein argued in Money that Hillary Clinton should vow to do the same, giving the concept at least a thin veneer of academic respectability.

It’s easy to see why this notion would be politically appealing for a certain kind of lefty. Many young progressives are college graduates with student loans they would love to see disappear. If you’re a third-party candidate like Jill Stein, appealing to their self-interest is an obvious way to attract a few votes. Meanwhile, if you’re the president of an expensive private institution of higher education, like Botstein is, a temporary solution to college costs that doesn’t require any sacrifice from universities themselves is probably very appealing. And, hey, student debt is a crushing, generational crisis, right? Why not just eliminate it all?

Well, for one thing, it would be expensive—there are about $1.25 trillion of outstanding federal loans right now, which is more than a year’s worth of Social Security spending, or enough to fund the federal block grant for Temporary Assistance for Needy Families, aka welfare, for about 78 years. But more importantly, across-the-board student-loan forgiveness would be an incredibly regressive way of dealing with debt. And typically, trillion-dollar spending programs that disproportionately benefit relatively affluent college graduates aren’t high on progressives’ to-do lists. Or they shouldn’t be, anyway.

Before I get into the details, it’s worth noting just how poorly thought-out both Stein’s and Botstein’s proposals are. Stein has suggested that the Federal Reserve could use quantitative easing to forgive student loans—a bizarre notion that seems to have been inspired by her complete misunderstanding of what quantitative easing actually is. But that’s a bit less embarrassing than Botstein’s grand proposal to eliminate the current student lending program and replace it with one that forgives a borrower’s debt if he or she works in public service for a period of time. Had he done a little basic Googling, the man would have learned that such a program already exists: It’s called—get ready for it— the Public Service Loan Forgiveness Program, and it actually erases debt after 10 years, instead of the 20 Botstein suggests. I just pray that Bard’s financial aid office is a little more read up on the issue.

But leave aside Botstein’s lack of basic familiarity with student lending as it now exists. Ignore Stein’s odd ideas about how we might deploy somewhat arcane monetary-policy tools. The bigger, conceptual problem with mass student debt forgiveness is that it would spend a whole lot of money while doing a very poor job targeting the people who need help.

The most important thing to realize about student loans is that most borrowers don’t have too much trouble handling them. In 1999, the median borrower would have had to spend about 5 percent of his or her income after leaving school to pay back loans. By 2010 that number had only risen to 6 percent. In 2014, Beth Akers of the Brookings Institution observed that the average student loan payment wasn’t much more than what the typical household laid out each month on entertainment. And while default rates have gone up significantly since the financial crisis, the problem has been concentrated overwhelmingly among students who attended for-profit colleges, who are often lower-income minorities. Students who drop out are also more likely to fall behind on their payments. In general, these troubled borrowers actually have smaller loan balances than those who are current on their debts.

The flip side of that fact is that a disproportionate amount of student-loan debt is sitting in the hands of relatively few borrowers—particularly former graduate students, who often make very decent salaries. In 2013, the top 20 percent of borrowers was shouldering 61 percent of all outstanding student loan debt. The highest earning 20 percent of borrowers, meanwhile, was carrying 36 percent of outstanding debt.

None of this should be surprising. Chances are that if you borrowed a bunch to get an MBA, you’re about to earn much more than, say, a young woman who left a regional public college after a few semesters and is now having trouble managing the $5,000 worth of Stafford Loans she took out. Forgiving all student loan debt in one giant swoop would hand a five- or even six-figure windfall to all those well-educated professionals, and much less to the struggling dropouts. We’d be spending a lot for the benefit of comfortable graduates in order to give a little help to some hard-pressed middle-class Americans. Ergo, it’s regressive.

Of course, we haven’t even touched the fact that, should the government turn up a spare $1.25 trillion, there might be better uses for it than forgiving student loans. You have to pick priorities, and while Botstein tries to get around that by saying forgiving student debt would also act as an economic stimulus, there are other ways to give the economy a one-time, $1.25 trillion shot in the arm; you could, for instance, just cut a check to every American, whether or not they were fortunate enough to ever go to college. Last I checked, high school graduates could use a hand these days, too.

DMU Timestamp: November 02, 2018 17:13





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