America's Student Debt Now!
June 11, 2009 - 4:42pm ET
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Attending the “Degrees of College Debt” panel at the America’s Future Now! conference last week, it was astonishing to hear dozens of graduates describe the mountains of debt they are climbing; $10,000! $50,000! $120,000 of debt! attendees shouted, when asked by the panel how much debt they had. The experiences shared in the session are not unusual. They are faced by graduates across America. Sadly, a diploma has become a financial albatross, rather than a ticket to a better financial future.
Certainly, young people today are facing an unprecedented challenge to pay for schooling — a result of skyrocketing tuition and the boom in private lending. As Tamara Draut of Demos noted, “graduates are entering today’s battered job market with an average student loan debt of close to $20,000 — but that’s only an average.” One-fourth of all students borrow $25,000 or more.
The nation’s “student debt clock” is over $580 billion and ticks higher as I write. Those billions in debt threaten the economic mobility and security of an entire generation. Carmen Berkley of the U.S. Students Association described jarringly how one in five students dropout of college — never completing a degree and leaving with the debt accumulated while in school. Add to that, the estimated 1.7 to 3.2 million qualified students that will skip college over the next decade because of the cost.
Delinquency on repayments is on the rise too, with graduates defaulting at a rate not seen in more than a decade — only accelerated by recession. That’s no shock however, when most private student loans carry a crushing interest rate of 10 to 14 percent. As Rev. Jesse Jackson of the Rainbow Push Coalition explained, attending college today is “guaranteed debt without a guaranteed job.”
Beyond jeopardizing a graduate’s future, college affordability threatens America's future. American global competitiveness has dropped. Older generations of Americans ranked number one in the world in college achievement, today the U.S. ranks nearly last among OECD countries.
Obama Administration Providing Some Relief
Robert Shireman of the U.S. Department of Education explained the steps moving forward by the Obama administration to address college affordability:
- Income-based repayment – In effect July 1, 2009, this program provides a new payment option for federal student loan borrowers with repayment based on income and family size, with debt forgiveness after 25 years of payment.
- Pell grant increases – Obama’s FY 2010 budget increases the Pell grant maximum to $5500 this fall; thereafter, Pell will be indexed to the consumer price index plus 1 percent to adjust for inflation.
- Eliminating bank subsides – By ending the Federal Family Education Loan program that excessively subsidizes banks, in favor of the government's Direct Loan program, the move will save $47 billion over five years. The Obama budget then redirects the savings to students.
- “American Opportunity” tax credit - Partially refundable, it provides middle and working class families additional help for postsecondary education costs with a maximum credit of $2,500 a year.
Recent steps taken by the Obama administration should be applauded, however, progressives must demand and push for more: restoring the Pell grant to cover the majority of tuition and fees like it has in the past; reinvestment in higher education — including community colleges — to cap tuition rates and improve quality; lastly, lower interest rates and greater bankruptcy protections to ensure higher education is no longer a huge financial risk.
.A good guide to the Income-Based Repayment program by the Project on Student Debt.
Action alerts and info: Campaign for College Affordability
Campaign for America’s Future and U.S. Public Interest Research Group, “Obama's Budget: Supporting Students, Not Banks" report.
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