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Generation Debt: “I Think About My Student Loans and Cry”
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Photo: Nina Berman

Generation Debt: “I Think About My Student Loans and Cry”

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The United States is among the few developed countries that do not offer free postsecondary education. It’s 2018 and Americans are more burdened by student loan debt than ever. Over the last decade, college-loan balances in the United States have jumped more than $833 billion to reach an all-time high of $1.5 trillion spread out among about 45 million borrowers (more than 70% of bachelor’s degree recipients). The scale of outstanding student loans and an increasing share of borrow­ers who fail to repay have made many Americans aware that student debt is a challenge for society and for individual borrowers. For recent graduates, their student loan debt may very well shape the rest of their lives. In the meantime, repaying those student loans can be a significant hurdle, not only for graduates but the economy as a whole.

Americans hit this milestone during the first quarter of 2018, according to Federal Reserve data. Student loan debt is a reality for more than 1 in 4 American adults. A college education is now the second leading form of debt in the U.S. — right after purchasing a home. That’s about $620 billion more than the total U.S. credit card debt. The value of a college degree has never been higher — at least in financial terms.

Generation Debt: “I Think About My Student Loans and Cry”

Before delving into the details, it is best to give an overall snapshot of the current student loan debt situation. Here are a few statistics that will give you a better idea of where the nation stands with its second leading form of debt:

As of 1Q 2018, Federal Reserve & New York Federal Reserve

Student loans can come from the federal government which are relatively easy to get and carry reasonable interest rates or from private sources such as a bank or financial institution. The standard repayment timetable for federal loans is 10 years, but a study from the OneWisconsin Institute finds that it actually takes four-year degree holders an average of 19.7 years to pay off their loans. Today, the overwhelming majority of outstanding student loan debt is owed to the federal government. The remaining 19% is owed to private banks.

The Institute for College Access and Success

That money is not only owed by young people fresh out of college, but also by borrowers who have been out of school for a decade or more. The average college debt among student loan borrowers in America is $32,731, according to the Federal Reserve (an increase of approximately 20% from 2015-2016). Most borrowers have between $25,000 and $50,000 outstanding in student loan debt, more than 2 million student loan borrowers have a student loan debt greater than $100,000. But more than 600,000 borrowers in the country are over $200,000 in student debt, and that number may continue to increase.

One of the possible reasons of such an immense growth of student loan debt is the rise in the costs associated with higher education — tuition, fees, housing, and books – have grown much faster than family incomes. In 1971 when the College Board first started monitoring prices at public and private universities the average cost of one year at a public university was $1,410 ($8,450 in 2017 dollars). That was 15.6% of the median household income of $9,027 and manageable for many families without going into debt. Today the picture is very different, with the average cost of one year at a public university equal to $20,770 (35.2% of the median household income of $59,039). With the money that borrowers have when they graduate borrowers could put a down payment on a home, purchase a new car or bootstrap their own business.

Another key cause for the increase in student debt is that more Americans are going to college than ever before — and they need to.

2016 IPUMS-USA, University of Minnesota

Experts predict that the future job market will require a significant increase in skilled workers. According to the Georgetown Center on Education and the Workforce, by 2020, 65% of all jobs in the American economy will require education beyond high school. The earnings premium for degree holders has grown steadily over the past several decades, and college graduates are more likely to become homeowners, according to the Federal Reserve Bank of New York. However, evidence suggests otherwise. The Federal Reserve Board of Washington, D.C. found that an increase in student debt has led to a decrease in home ownership. A study from NerdWallet predicts that students who graduated from college in 2015 will have to delay retirement until the age of 75, in part because of the increasing burden of student debt.

Let’s take a look at what politicians have done about the roaring student debt amount.

Barack Obama (2009-2017)

August 22, 2013. Buffalo, NY:

“Michelle and I, we're only where we are today because scholarships and student loans gave us a shot at a great education. And even though we got good jobs, we barely finished paying it off just before I was elected to the U.S. Senate. ...I mean, I was in my 40s when we finished paying off our debt.”

Calling an education “the single best investment you can make in your future,” Obama extended the four-year-old Pay As You Earn initiative, which has lowered monthly payments for students who borrowed federal student loans for the first time between 2008 and 2011.

In 2010, President Obama signed into law the Health Care and Education Reconciliation Act, and ushered in a new era of student loan repayment and student loan forgiveness options. And while it isn’t the official name, the act has been labeled by many Americans as the Obama Student Loan Forgiveness Program, which transformed nearly the entire student loan landscape.

In January 2015 President Barack Obama proposed 2 free years of community college. “Put simply, what I’d like to do is to see the first two years of community college free for everybody who is willing to work for it,” Obama said. “We know that the surest path to the middle class is some form of higher education.”

U.S. Presidential Elections (2016)            

In August 2015 Hillary Clinton unveiled her response to America’s crushing $1.4tn student loans crisis. “It’s time to show some tough love to colleges and universities that let significant numbers of our students drop out and fall behind year after year,” Clinton said. Her proposal, which was estimated to cost about $350bn over 10 years, would have provided grants to US states that were going to make their public four-year institutions affordable enough that students did not have to take out loans to attend. The plan also included refinancing options for students already saddled with massive debt. “There’s something wrong when students and their families have to go deeply into debt to be able to get the education and skills they need in order to make the best of their own lives,” Clinton told an audience at an Iowa community college in April 2015, as her campaign was just beginning. Clinton called the plan the center of her campaign.

Twitter/Hillary Clinton

Twitter/parent trap queen

Bernie Sanders took Clinton’s proposal one step further by offering free tuition. A week before he announced he was running for president, Sanders proposed a bill that would eliminate tuition at four-year public colleges and universities. The bill was estimated at $70bn a year — two-thirds of which would be covered by the federal government and one-third of which would be covered by the states. One of the students, Caleb-Michael Files, $42,000 in debt, called Sanders “the only hope.”

“Public colleges and universities tuition-free? Damn right! That is exactly what we should be doing,” he said at the Brooklyn Democratic debate. To which Hillary Clinton replied: “If somebody promises you something for free, read the fine print.” But actually, the only thing that matters is what Donald Trump thinks on that point.

debt.com

Some considerable changes to student loan forgiveness programs have already been made by President Trump but most people don't know it. Most of them take effect for future loan borrowers and not for those who are in a repayment plan or student loan forgiveness plan right now. These are changes that have already gone into effect — they are the law.

Tax Free Death and Disability Student Loan Discharge
The Trump tax plan, known as the Tax Cuts and Jobs Act, eliminated the taxability of student loan discharge on people who get it for Death or Total and Permanent Disability. That means, student loans discharged on death or disability will no longer trouble you (or your family). It's necessary to point out that any loans discharged in 2017 will still face taxes because this provision only went into effect on January 1, 2018. You can read more about disability discharge here.

Reddit.com

Tuition and Fees Deduction Eliminated

The tuition and fees deduction has been eliminated under the Tax Cuts and Jobs Act. Before the end of 2016 when it expired it was an extender that allowed taxpayers to reduce their taxable income by up to $4,000.

Trump has also made lots of proposals concerning student loans, but none of them are the law right now. Here are the most important:

Eliminate Most Repayment Plans in Favor of a Single Income-Driven Repayment Plan

President Trump has proposed the elimination of all the income-driven repayment plans (IBR, PAYE, RePAYE, ICR) and replace them with a single income-driven repayment plan. The new plan would cap borrower's monthly payment at 12.5% of their discretionary income and provide for student loan forgiveness at 15 years for undergraduate borrowers, and 30 years for graduate borrowers. Some borrowers will benefit by seeing their income driven repayment amount drop to 12.5%, while others will lose by seeing it rise from 10%. Also, the repayment term of 15 years could benefit a lot of undergraduate borrowers, but the 30 year graduate term is longer than all existing plans today.

Allow Student Loans to Be Discharged In Bankruptcy

This proposal comes from the Department of Education, which announced that it was seeking comments on how to determine “undue hardship” to allow student loans to be discharged in bankruptcy.

Reddit.com

Before 1998, student loans could be discharged in bankruptcy after the seventh year of repayment but then they were prohibited from being discharged in bankruptcy except in cases of “undue hardship”. However, Congress never defined what undue hardship meant, and so the courts have taken it upon themselves to decide — and it's not always uniform.

Elimination of the Student Loan Interest Deduction

In the Tax Cuts and Jobs Act, Trump originally proposed eliminating the student loan interest deduction. The student loan interest deduction provides up to $2,500 in deduction of the interest you paid on a student loan. While this is a handy savings, it does phase out at relatively low income levels.

“No money. No future. No opportunity.” Students Also Have Something to Say

The overwhelming majority of students in debt talk about the same things they have to do to avoid the necessity of paying off the debt in full... “Debt means regularly fantasizing about floods, explosions, and comets – anything that will wipe your slate clean,” writes Stephanie Georgopulos. Actually, there are only several paths former students can follow: continue to stay in debt with permanently increasing interest rates, lower their standard of living by selling off things, move back to their hometown or... take their own lives. In fact, much depends on the age of the borrower: the younger they are, the more radical ways are chosen for fixing the situation. But either way, they are all considering the same topic: whether or not getting the diploma was worth the difficulties they have to overcome.

‘Here, we live as simply as we ever did: we raise a garden and we cook nearly all our meals.’ mambo/Alamy

“Debt finished my big-city dreams. Now, I live in a trailer in rural Virginia,” says Brook Bolen for the Guardian project “My life in the red” collecting the stories from american students about their after-graduate lives with debts. “... I knew early on that college was my way out of the indelible poverty that clung to my family… I have three things most of my relatives lack: a BA, very nearly an MA and serious student loan debt”.

 “My degree affords no movement, no opportunity, nothing. I am not in poverty, but I am still drowning in debt and I can't really adjust my lifestyle lower to pay it off faster. I can't possibly live the comfortable (not even fabulous!) life that I was told I'd be able to. I can afford my life now, but kids? No way. A house? Ha. Retirement? Jeez. I don't know what to do. So yeah. I think about my student loans and cry,” one Reddit user shares her experience.

Financial constraints intervene even in family relations. Robert Pendry felt relieved after his grandmother’s death: “From a purely financial standpoint, my grandmother’s death is probably the best thing that has happened to me in my adult life. After her death, my grandmother’s finances, assets and properties were entrusted to my mother. She liquidated nearly all of it, deciding that the best way of putting it to use was by helping me repay my student loan debt...I shudder to think of how my situation would be were it not for my grandmother’s “contribution”.

Meanwhile, not only young people are affected by their debts. Americans in their 40s, 50s and 60s also staying in the red having, in addition, much less time to repay their loans and try to save for their other big financial goal – retirement. Most people believe retirement to be a bit like an extended vacation: golfing, fishing, traveling to visit the grandchildren or places you’ve always yearned to see and sitting around while discussing the latest news with a group of like-minded friends.

No way. Not in the U.S. Nowhere in those scenarios is there any mention of writing a monthly check to pay off a student loan. Senior citizens are ending up retiring while still owing substantial sums in federal student loans. Over the ten years from 2005 to 2015, it is Americans over the age of 60 who have seen their student loan debt grow at the fastest rate of any demographic group, according to data from the Federal Reserve Bank of New York.

Here is the data as of 2017.

Generation Debt: “I Think About My Student Loans and Cry”

Jeff Cutler, a 42-year-old software engineer from New York managed to pay off his student loans and does not blame college administrators for the current situation. “I’m very concerned that the government is not working, or our politicians,” he said. “They have some ideas that have been fed to them over the years that they double down on, they triple down on. And so it’s really not addressing the concerns of average Americans.”

Student loan debts may sometimes turn into somewhat of a ticking time bomb and have an immense impact on the future generations. This is the case of Christina Thomas, 40, whose student loan debt is still taking its toll on her — and on her children, too. Her 18-year-old daughter went into the military as a way to gain life experience without incurring debt and her son, at 14, is preparing to decide on a major for college. Christina Thomas and her son have agreed that he will only be allowed to major in fields that guarantee employment after graduation, such as computing or engineering. “I would have done it different if I had had an awareness [about student loans],” Thomas says of her decisions about her own education.

studentdebtcrisis.org

Is the ‘student loan’ financial bubble going to burst? It will continue to be a challenge for many Americans. Janney Capital Markets managing director Guy Lebas called student loan debt “one of the greater risks to the consumer economy” over the next five to 10 years. Bloomberg economist Richard Yamarone called student loans “the next subprime crisis” and warned that the high default rate on student loans threatens the economy.

So what does this all mean? Who has the responsibility to alleviate this huge issue the United States is currently facing? College tuition continues increasing at a rapid rate of 6-7% on average and wages are only rising at an annual rate of 2-3% on a good year. “... As a nation we must decide if it is time to address this serious issue or continue to pretend that it does not exist. It is our responsibility to educate our future generation who has not yet accumulated large amounts of student debt instead of providing the Taj Mahal of amenities to attract students and their families. To continue down this path could be looked upon as naïve and could surely be the cause of a future crisis to our economy,” this is how Katelyn Williams, one of the students of Bryant University in Rhode Island puts the question.

So many debtors, so many various approaches to fix the situation. Some struggle to make ends meet holding down several jobs and forfeiting their retirement savings, others choose to sell their bodies. There are also some who refuse to combat poverty and take their own lives. Is it a question of morality? No one knows. But this kind of American dream smells bad.

Author: Christine Petrova