As Congress debates whether to extend the current 3.4 percent interest rate on federal student loans or to let that rate expire and double to its previous level of 6.8 percent, there comes this news: Student loan debt this year will top $1 trillion, surpassing credit card debt and auto debt, according to the Federal Reserve. More than 15 percent of Americans who owe money on student loans are still paying them off at age 50. Americans 60 and older owe $36 million on student loans.
Unlike nearly all other debts, federal student loans cannot be discharged or shed in bankruptcy.
“You know, if you go to a liberal arts college and your family has reasonably decent means but not enough to qualify for really substantial financial aid, you can get up close to six figures if you work at it, though it’s unusual. The bottom line, though, is that graduates are not earning enough money to reasonably service their loans in many majors,” said Peter Morici, a professor of economics at the University of Maryland, during an appearance on the “Washington Journal” program on C-SPAN.
“You know there’s a great span across which graduates earn money. Some may only earn, say, $25,000 a year. It’s very difficult to service a $25,000 loan on that and pay rent, get an automobile, get to work, and so forth.”
More Owed Than Earned
Education funding Web sites FinAid.org and Fastweb.com report a typical graduate of an undergraduate program today leaves school owing nearly $29,000. Graduate students leave owing an average of $44,000. Many graduates enter the workforce earning less money per year than they owe on their student loans.
While President Obama has been advocating more government money for higher education, Morici says that’s the wrong approach, as many college graduates earn too little to make the cost of college worthwhile.
“We need more college graduates with specialized skills, but we probably don’t need as many as we have right now, and we’re requiring college and a diploma for many jobs that simply don’t need it, burdening people with too much debt, and also, frankly, herding a lot of people into my classroom that don’t want to be there,” Morici said.
Some Pushing Loan Forgiveness
Perhaps taking a cue from the federal mortgage loan forgiveness programs, a movement is growing for federal student loan forgiveness. Robert Applebaum is founder and executive director of ForgiveStudentLoanDebt.com.
“As education-related debt continues to soar and students are required to go further and further into the red, merely to obtain an education, Congress debates the narrow issue of student loan interest rates. Congress needs to widen their focus to find a way for graduates to satisfy their student loan debt through loan forgiveness programs,” he said in a statement.
Since 1980, average tuition for a four-year college education has increased 827 percent in nominal terms, according to Appelbaum. Since 1999, average student loan debt has increased more than 500 percent.
Rep. Hansen Clarke (D-MI) has introduced H.R. 4170, the Student Loan Forgiveness Act of 2012. The bill forgives loans for current borrowers who have paid the equivalent of 10 percent of their discretionary income for 10 years or who are expected to be able to do so in the future. It also maintains the current student loan interest rate of 3.4 percent and enables existing borrowers to convert many private loans into federal loans.
‘Degrees Were Vastly Mispriced’
In a recent Huffington Post column, Clarke stated he introduced the bill because students “are finding that their degrees, like homes at the height of the real estate bubble, were vastly mispriced assets that are now hard to finance. Yet, unlike the debt from a home bought in the boom years, it is impossible to walk away from the debt incurred by getting a degree.”
Others see such measures as another government effort to spread the consequences of private decisions across the public.
Syndicated newspaper columnist Cal Thomas expressed this in a May 5 columm: “If students and their parents choose expensive schools, they should accept the responsibility and cost accompanying that decision.”