Student Loan Debt: Too Big To Fix?
(Story by CJ McKinney) By the end of 2013, US Student loan debt totaled $1.08 trillion dollars.
US Department of Education statistics reveal that about 40 million Americans are currently carrying some form of student debt. That’s more than the population of Canada and over 200 other countries.
US college grads are leaving school with more than a diploma. All too many are headed into the future with a crippling load of debt from the student loans that paid for their education. And in spite of an array of new restructuring and forgiveness options, financial experts worry that it’s far too late to contain the behemoth.
A recent US Department of Labor study found that on average, today’s graduates from a traditional four year college leaves school about $10,000 in debt. For elite schools and long term professional programs like medicine and law, those numbers are much higher, creating a burden of debt that in many cases would take the borrower’s entire working life to pay off – assuming steady employment at the top of the career ladder.
How Did College Get So Expensive?
Time was, a college education was just for the elite. But after World War II, the GI Bill of Rights put college within the reach of servicemen who would probably never have had that opportunity without it.
The bill was a huge success, and with considerable backing from the government, public universities popped up in every state. The democratization of higher education had begun. It would continue with the Higher Education Act of 1965, which opened more access for women and minorities.
Because of the demand, the government stepped up its support in the form of grants, loans and other forms of financial aid in partnership with individual schools. Student aid was expected – and students could make up the difference by working their way through school with jobs and internships.
As college became accessible to nearly everybody, the value of a college degree changed too. In pre-war days, a high school diploma was all a person needed to get a job, But two decades later, a college degree had become the key to getting a decent job – and a high school diploma, for many people, wasn’t worth much more than the paper it was printed on.
Private Lending Invades Education
Around 1970, things changed. The economy was struggling, and college costs began to climb. Federal grants, once the main source of college funding for lower income students, began to decline. That’s when private lenders stepped in, allowing families to borrow money for college under a variety of programs that combined federal support with private loans.
As those private loans began to overtake the basic federal funding programs, college fees began to skyrocket in institutions around the country, with jumps of over 75 percent in a year hitting students and their families in some areas.
The increases weren’t limited to traditional four-year schools, either. Students in community colleges, vocational and tech schools and other kinds of specialized training programs also saw a drastic jump in fees. And while grant funding remained available for some of those students, most relied on some combination of grants and federal and private loans to get through school.
Private Loans and For Profit Schools
The scramble to get money to acquire the degree that would open doors to a stable future leaves students vulnerable to a host of abuses. Although students at nearly all income levels end up mired in debt, many of the hardest hit are lower income students who may be the first of their family to attend college at all.
Lenders’ predatory practices extend to student loans too, and a number of inexperienced students and their families end up accepting dangerously high loan amounts, bad terms and high interest rates. What’s more, the relatively recent proliferation of for-profit schools creates conditions that put students at risk.
Private, for profit colleges, many of them dedicated to a particular field of study such as information technology or health sciences, and many of them online, encourage students to take out loans to pay for school. But the dropout rate for these schools is high, leaving the school richer, and the ex-student stuck with the loan and no degree to show for it.
Students in high-end professional programs can also end up in trouble, since they may end up calling on several different kinds of loans to pay for years and years in medical, law or other long term studies. They leave school in debt to the tune of hundreds of thousands of dollars – and if a job isn’t waiting in their chosen field, filling the gap can put life plans indefinitely on hold.
The Ripple Effect of Student Loan Debt
The impact of all this ripples far beyond struggling students themselves. Indebted students end up unable or unwilling to take on other kinds of “good debt” such as home mortgages that keeps the economy humming. A sluggish job outlook means they may not be able to earn a salary capable of paying off the debt.
That leaves graduates with difficult choices. Student loan debt is different from other kinds of debt. It can’t be discharged in a bankruptcy. And if family members have cosigned those loans to help their student, they can end up liable for the balance if the student dies or is incapacitated.
Assistance Comes With Strings Attached
Over seven million student loan holders are in default – once again, more than the population of a small country. To address the situation, a number of assistance programs have been created, offering options from restructuring and consolidating loans for lower payments to outright forgiveness of the loan under certain circumstances.
But even forgiveness of a loan comes with strings attached. Most loans, federal or private, can be restructured or consolidated based on factors like a student’s actual income and employment outlook. To have a loan forgiven, though, a student must be working in specific fields such as public service, full time – and have been paying on the loan for periods of ten years or more.
Forgiveness can trap students come tax time too. Loans forgiven for people in public service professions like teaching or social work are free of any tax liability. But other loan holders may find themselves with a taxable “income” from the forgiven loan.
These measures acknowledge the enormity of the student loan debt problem – and the impact it has on borrowers, their families and the economy as a whole. But as college costs continue to escalate and a college education remains the ticket to a secure future, student loan assistance may simply be a band-aid on the injured elephant in the room. (Featured image: Flickr/donkeyhotey)
Atteberry, Emily. “Student Loan Forgiveness: What You Don’t Know (But Should).” USA Today. usatoday.com. 6 Dec 2013
“How the Cost of College Went From Affordable to Sky-High.” National Public Radio. npr.org. 18 Mar 2014.
McCarthy, Kyle. “10 Fun Facts About the Student Debt Crisis.” Huffington Post. The Blog. huffingtonpost.com. 22 Jan 2014.
“Public Service Loan Forgiveness.” Federal Student Aid. Department of Education. StudentAid.ed.gov. Accessed 14 Aug 2014.
“Tax Liability for Student Loan Forgiveness.” FinAid. Finaid.org. Accessed 14 Aug 2014