Cutting To The Bone : Student Loan Debt Is A Vicious Cycle
Students have less to spend as they struggle to repay loans.
Published: Thursday, May 24, 2012
Updated: Thursday, May 24, 2012 03:05
Here is a scary number: 1,000,000,000,000. That is the estimated dollar value of current student loan debt in America, an average of more than $25,000 per student.
Here is another scary number: 53.6. That is the percentage of recent college graduates who are either unemployed or underemployed, according to the Associated Press, meaning that they are likely struggling to repay those loans.
These numbers are, in part, both the cause and effect of the slow recovery from the recent economic recession. Unless something drastic is done, these numbers may get even scarier.
Experts, including Nobel Prizewinning economist Paul Krugman, have argued that the easiest way out of a recession is to put money in the hands of people who will spend it, therefore increasing the demand for products, creating jobs, giving more money to consumers and increasing tax revenue. The current plague of student loan debt is the exact opposite of this idea. Instead of creating a new wave of consumers eager to buy cars and homes and raise families and spend money, the current loan crisis has borne a generation of debt slaves who are not able to spend on the things that would actually stimulate the economy.
According to the Pew Research Center, economic difficulties including loan debt have caused 24 percent of young adults to move back in with their parents to save money. More than 20 percent have postponed either getting married or having a child, and 49 percent have taken a low-paying job outside their field of study just to pay their bills. But, most troubling are the 35 percent who have gone back to school hoping to increase their job opportunities and wait out the recession while accumulating additional debt they will then struggle to repay.
Krugman suggests that the national deficit is not nearly as urgent a problem as individual debt. He encourages increases in government spending to create jobs, including rehiring many of the public employees who were laid off due to spending cuts. However, most legislators in Washington refuse to approve any additional government spending and instead insist that cuts are the solution to the deficit problem. These cuts have led to increased tuition rates and decreased financial aid, increasing the necessity for student loans.
There is light on the horizon though. President Barack Obama has proposed an Income-Based Repayment Plan that would tie payment rates to income, with no one paying more than 10 percent of their monthly discretionary income. He also plans to reject a potential increase that would double the interest rate on student loans from 3.2 to 6.4 percent. The interest freeze alone would save the average student $1,000 per year. A plan from Rep. Hanson Clarke, D-Mich., would go even further, forgiving all remaining debt for anyone who has made 10 years of payments.
These are not perfect solutions, as lenders would take a big hit from loans that were not totally repaid. But, both Obama and Clarke believe that the benefits of freeing graduates from the burden of excessive debt would outweigh any negative effects. At the very least, it would make the future for college graduates a lot less scary.