grads

Perhaps you are a student or perhaps your child is a student. It has probably not escaped you that college tuition is expensive and many students have large student loans to pay back. According to Mark Kantrowitz of Edvisors, “the average class of 2015 graduate with student-loan debt will have to pay back a little more than $35,000, according to an analysis of government data.” In 1993 that figure was $5000. If the economy were booming and jobs were plentiful that figure would not seem so large, “With a good, well-paying job I can handle this monthly student loan payment.” I have acquaintances who think that college tuition is as expensive as when we went to college in the 1970’s. It isn’t. Tuition has increased at an exponential rate while income has not kept pace. Tuition rates increased 225% over the last three decades. There are many, many places to read about the disparity between current average income and current average tuition. This is not going to be an article about that. This is going to be about, me, convincing you, that the student debt problem is not, ‘someone else’s problem’.

The student debt problem is OUR problem. It is America’s problem from the corporate executives trying to hire qualified people to the businesses trying to increase sales to the parent on Social Security to the student working at a minimum wage job instead of the job in their field of study.

$1.3 trillion! That is how much is owed in student loans. Not all students are paying their loans- they are in default. Eight million students are in default, their credit reports have been decimated. That affects you. It makes borrowing and lending money difficult and more expensive. Banks don’t just accept defaults. They make up the loss elsewhere, in charges to you and me. “If we don’t stop the trend,” Rohit Chopra, the Consumer Financial Protection Bureau’s Student Loan Ombudsman warn(s), “I think there may be a student debt domino effect, where it is impacting sectors from first-time homeownership to retirement security, to even whether people decide to attend medical school. All of these decisions are shaped by student debt, and we can’t forget that.”

According to http://realestateconsulting.com: “The Impact of Student Loans on Home Buying: Every $250 per month in student debt reduces a household’s home purchasing power by $44,000. Most households paying $750+ per month in student loans are priced out of the market. Only those in the highest-earning brackets can afford to purchase a home.” That affects you. Not just your neighbor or your co-workers kid. It affects the value of your home and your ability to sell it because if there aren’t enough buyers, well, who will buy your home? “Student debt is a crushing blow to borrowers, and it has dampened the economic prospects for not only themselves, but the American economy as a whole.” Richard Long (Moyers and Company)

That’s just real estate. Consider also what goes into a home. Large purchases, furniture, appliances, the need for repairs, the energy needed to run a home, the everyday grocery items and products that go into homes, the lap top or TV or cable service and even clothing in the closets. If 50% of your income is being paid on a student loan you can’t afford those things. You also can’t afford to go to the movies. You can’t afford to go to dinner. You can’t afford a new car or even a used car. What does your company sell? Would you like more customers? Customers need disposable income. Student with huge student debt don’t have disposable income. This is why it is OUR problem.

Looks bleak doesn’t it? It doesn’t have to be. There are many qualified, active people who are trying to change this. I hope to convince you to consider what they have to say and the suggestions they have. The beauty and marvel of the US and of humans is our ability to overcome adversity.

Elizabeth Warren is championing the cause and I think she has good reasons and makes a strong case for why we need to address this issue. “In America today, a young person needs more education after high school just to have a chance to make it in the middle class.” AND “Homeowners refinance their loans when interest rates go down. Businesses refinance their loans. But right now, there's no way for students to be able to do that. I've proposed that we reduce the interest rate on the outstanding loan debt to the same rate Republicans and Democrats came together last year to set a new interest rate on new loans [3.86 percent]. For millions of borrowers, that would cut interest rates in half or more. Unfortunately, the federal government can't just reduce the interest rate. It has already built those expected profits into the budget. So we propose stitching up tax loopholes that are available only to millionaires and billionaires, and requiring them to pay taxes at the same rate most American families pay. That would more than pay for the cost of reducing the interest rate on student loans.” Elizabeth addresses the reasons for reducing the student’s debt and has a plan to make it happen.

Robert Reich political economist, professor, author, and political commentator views college as necessary, not just for the individual, but for our country and economy. “You see, a college education isn't just a private investment. It's also a public good. This nation can't be competitive globally, nor can we have a vibrant and responsible democracy, without a large number of well-educated people. So here’s an idea that might allow more students to pursue their real interests when they graduate: Make repayment of government-subsidized loans depend on how much money they earn. Say everyone has to pay ten percent of their income for the first ten years of their full-time work. And then the loans are considered paid off. So it's not just you who are burdened by these trends.”

John T Harvey, Forbes, Professor of Economics at Texas Christian University agrees: “What this means is that we are spawning a generation whose debt loads are already so high that they will be forced to forego the consumption necessary to create demand and employment for the rest of us–and consumers are the true job creators. We need them to spend the money that makes entrepreneurial activity profitable, but what sort of expenditures can we expect from a recent graduate who already faces the equivalent of a house payment?! There is already evidence that this is having an impact (Young Student Loan Borrowers Retreat from Housing and Auto Markets). This is bad news for all of us.”

According to Mandi Woodruff of Yahoo news, “We have a pretty solid idea of what Hilary Clinton might have in store. In the battle between lenders and borrowers, Clinton has historically been on team borrower, she vocally supported income-based repayment, decreasing overall tuition costs, making it easier to finance federal student loan debt, and developing more work-study programs. She proposed the Student Borrower Bill of Rights, which would have made it easier for cash-strapped student borrowers to pay back their loans, have their loans refinanced, qualify for income-based loan payments, and discharge student debt in bankruptcy.  She threw her weight behind the College Cost Reduction and Access Act shortly after. The act, which passed, not only expanded the Pell Grant program but gave graduates the ability to apply for income-based repayment loans and loan forgiveness for those who chose careers in public service.  

Some groups are calling for complete elimination of student debt. This may be more challenging. An organization called Campaigning for America’s Future is calling for a Debt Jubilee. This is based on the words inscribed on the Liberty Bell – “Proclaim liberty throughout the land, and to all the inhabitants thereof” – are from the Book of Leviticus and refer to a Biblical “Year of Jubilee,” when all debts were periodically forgiven by the nation’s rulers. Debt Jubilee that will forgive all $1.3 trillion in American student loan debt. Here’s how it can work: Most student loan debt (approximately 86 percent) is held by the federal government. That means it is actually owned by the very people who owe the debt. That debt can be forgiven by government action. The remainder is held by private lenders and will be the subject of future proposals.

Many people’s first reaction will be: We can’t afford it. While we will provide more detail on the funding process soon, the answer is a simple one: Yes, we can.

First, let’s reflect on our priorities. The Jubilee would cost less than the 2001 tax cuts – which primarily benefited the wealthiest among us – and is only slightly more than the 10-year cost of offshore tax loopholes for corporate America. For another perspective, a study published 18 months ago showed that the costs of the war in Iraq had already exceeded $2 trillion.

We realize that a “student debt jubilee” will cost money. But it will also stimulate economic growth, by injecting more money into the overall economy, and that growth will provide more tax revenue for the government. There will also be a major expansionary effect, as young Americans liberated from debt are able to buy homes, start businesses and pursue their dreams. And in the future our economy will benefit from a better-educated population.”

However, Ms. Warren, Mr. Reich, Mr. Harvey and Ms. Clinton’s ideas are probably more realistic and are similar to the ideas of The Institute for College Access & Success (TICAS). You can access their site and more detailed ideas here: http://ticas.org/initiative/student-debt-policy-agenda. Some of their ideas are:

I hope that I have given you things to consider and inspired you to consider how can and why we need to improve the plight this generation of students. I hope that we can all agree that resolving this problem would benefit us all. There are solutions. It’s possible.

Deborah Baron

Deborah Baron

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