The Impact Of Student Loan Debt

By Gabriella Landeros

Like many college students, I am about to graduate from college. and one of the biggest concerns we all share is loans. How do the banks/government expect us to pay back money we don’t have, especially when jobs are so scarce? Should we take the risk in hoping to find a job after graduation or attend graduate school?

All the debt that accumulates during a college student’s experience creates a new mode of thinking where instead of taking a break after college, we decide to pursue all the education we can now, and suffer later. This approach is guided by the hopes that the future job after graduate school will be enough to help pay back the amass amount of loans.

Although loans are commonly needed to help afford college tuition, debt possessed by students has reached an extreme height.

According to a 2009 briefing report entitled, “Drowning in debt: the emerging student loan crisis,” authored by Kevin Carey and Erin Dillon, “If [loan debt] continues, the consequences will be severe: reduced access to higher education, diminished life choices, and increasing rates of catastrophic loan default.”

“Surging above $1 trillion, U.S. student loan debt has surpassed credit card and auto-loan debt. This debt explosion jeopardizes the fragile recovery, increases the burden on taxpayers and possibly sets the stage for a new economic crisis,” wrote the Associated Press‘ Tom Raum. This causes many implications for taxpayers because “8 in 10 of of the loans are government based,” Raum added.

Education plays a vital role in everyone’s lives, and the program President Lyndon Johnson created in 1965 to help fund college education has been altered so many times that there is now an array of public, government, and private loans.

According to The Economist, “The result is a shifting, difficult landscape only barely understood even by insiders. For students, the task is that much larger. They must choose between an array of products, including subsidized and unsubsidized ‘Stafford’ loans (named after a Republican senator) via the William D. Ford loan programme (named for a Michigan congressman), loans directly from the government, ‘Plus’ loans (for parents of dependent children) and ‘Perkins’ loans (named after a congressman from Kentucky), plus an array of private options.”

President Obama has offered many proposals to fix the system and make loan repayments easier. According to John Hechinger from Bloomberg, the administration has “proposed requiring that debt collectors let student-loan borrowers make payments based on what they can afford, rather than on the size of their debt.” Although this is some progress, college tuition still continues rising, faster than the rate of inflation. Not only is skyrocketing tuition burdening students, but the overall economy, as well.

“Student loan debt recently topped $25,000, up 25 percent in 10 years” wrote Raum.

“Universities and colleges just raise their tuition. It doesn’t improve affordability and it doesn’t make it easier to go to college” said Mark Zandi, chief economist at Moody’s Analytics. He added, “of course, it’s very hard on the kids who have gone through this, because they’re on the hook. And they’re not going to be able to get off the hook.”

Student loan debt is not just something that impacts the 20-to-30-something crowd. According to government research, “Americans 60 and older still owe about $36 billion in student loans.” This fact complicates the situation even more because unlike other debts, student loans can’t be dismissed or lowered in bankruptcy proceedings.

William Brewer, president of the National Association of Consumer Bankruptcy Attorneys summed it up by saying, “This could very well be the next debt bomb for the U.S. economy.”

Because of these continued onset difficulties, there is an abundance of people forced into financial problems.

In a report by Brewer’s group (National Association of Consumer Bankruptcy Attorneys), “Missing just one student loan payment puts a borrower in delinquent status. After nine months, the borrower is in default. Once a default occurs, the full amount of the loan is due immediately. For those with federal student loans, the government has vast collection powers, including the ability to garnish a borrower’s wages and to seize tax refunds and Social Security and other federal benefit payments.”

When this occurs, “debts are going to be transferred from the borrower to the taxpayer” said Nigel Gault, chief U.S. economist at IHS Global Insight. This will then cause more economic turmoil for housing in the U.S. since young adults are usually the ones buying first-time homes. If they don’t have money to pay the mortgage, economic downfall will continue in the U.S. until something drastic gets done.

Obama stressed the interest rate of student loans in his State of the Union Address, “At a time when Americans owe more tuition debt that credit card debt, this Congress needs to stop the interest rates on student loans from doubling in July.”

The president said he wanted Congress to “Extend the tuition tax credit we started that saves millions of middle-class families thousands of dollars, and give more young people the chance to earn their way through college by doubling the number of work-study jobs in the next five years.”

“We can’t just keep subsidizing skyrocketing tuition; we’ll run out of money. States also need to do their part, by making higher education a higher priority in their budgets. And colleges and universities have to do their part by working to keep costs down,” Obama added.

According to Pat Garofalo from Think Progress, “Unless Congress acts, the interest rate on federal student loans will double this summer from 3.4 percent to 6.8 percent.”

This has given way to a predictable clash between Democrats and Republicans over what to do.

“Obama’s administration has called for Congress to prevent the increase of interest rate, while House Republicans are claiming that spending $6 billion to prevent the interest rate increase would require cuts to other higher education programs,” added Garofalo.

“So let me put colleges and universities on notice: If you can’t stop tuition from going up, the funding you get from taxpayers will go down. Higher education can’t be a luxury- it is an economic imperative that every family in America should be able to afford” added Obama.

Two sides to this situation, but the bottom line is that student loan debt exceeding $1 trillion is having a negative trickle-down effect upon the economy, causing families to suffer. Doubling the interest rates would only make things more severe.

Let’s not put down education, let’s embrace it.

Read the original article on the Talk Radio News Service site.