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The student loan burden is reaching crisis proportions. Young Americans are being saddled with unsustainable debts. A New York Federal Reserve Bank study found that a stunning 43 percent of 25-year-olds had student loan debts in 2012. Debt now averages over $25,000 for graduates of four-year colleges.
Student loan debt now is about $1 trillion. The only kind of household debt that continued to rise through the recession, student loans now exceed credit card debt and rank second only to mortgages. The percentage of borrowers who are more than 90 days delinquent has risen to 17 percent, up from 10 percent in 2004.
These are the young people who’ve done everything we told them to do. They worked hard, stayed out of trouble, got admitted to college and sacrificed to succeed. Then they graduated, burdened with staggering debt, into the worst economic crisis since the Great Depression. Many can’t find jobs; those who do often end up with low-wage and part-time work and debts they can’t repay.
Student debt is itself a huge obstacle to the recovery. Unless their parents have money, young Americans who achieve the most can’t begin to save for a down payment on a home, start a business or save for retirement.
This crisis stems from the successful conservative efforts to starve government. Cash-strapped state governments cut the contributions made to public colleges and universities. The cost of college was slowly privatized, with more and more left to the student. Those with affluent parents had no problem; those with working parents had to take on debt.
Now the crisis is coming to a head. The sequester and other budget cuts are forcing further cutbacks. Cuts in Parent PLUS loans — the subsidized loans parents can take to help pay for their children’s education — hit thousands of students. When President Obama speaks at Morehouse University on May 19, he will address a historically black college that was forced to lay off employees after over 160 students dropped out when Parent PLUS loans were denied.
Now, on July 1, student loan rates are scheduled to double to 6.8 percent if the Congress does not act. This will price millions more out of the education they have earned — and that the country needs them to get.
This is truly destructive. Everyone agrees that educating the next generation is vital if the U.S. is to remain a high-wage country with a broad middle class. Everyone understands that college and/or advanced training are the essential passports to the middle class. Yet more and more students are watching as the cost of college — and of debt — essentially locks them out.
It’s time for a change of course. In her first piece of legislation, newly elected Sen. Elizabeth Warren (D-Mass.) has called for allowing students to borrow at the same rate that the government loans money to the big banks through the Federal Reserve discount window — 0.75 percent. Warren explains: “In effect, the American taxpayer is investing in those banks. We should make the same kind of investment in our young people who are trying to get an education.”
Warren’s reduced rates would last for a year, so the plan is only a stopgap measure. Those students who can afford to borrow only through federal loans can reduce their monthly payments based on their income. Those who borrowed during the recession can quality for income-based payments and, if they meet those payments, have their loans forgiven after 20 years (10 if they hold public service jobs).
But relief can’t be limited to the few, or for brief periods. We should return to a system that makes advanced education or technical training affordable to all who merit it. That requires funding a public university and training system with low tuition and affordable costs. If we decide to educate only the sons and daughters of the affluent, we will condemn this country to continued decline.