The United States' combined student loan debt is $1.3 trillion, and getting bigger.
Except for the lucky few who were born Kardashians, became Vine stars, or parlayed a viral Tumblr presence into a book deal, young people are poor. That might be a blanket statement, but it's not an exaggeration. Household income among the 25-34 age group peaked in 2000 at around $60,000 and has declined by 11 percent since. And while wages have remained low, rents are at an all-time high in most major cities; 21 percent of New Yorkers, for instance, spend 50 percent or more of their paychecks on keeping a roof over their heads. Young people can't afford these rents, but most of them can't afford to buy a house, either. And then there's the bogeyman that no twentysomething wants to confront but lurks hungrily in our inboxes every month anyway: student loans.
The United States' collective student loan debt was up to $1.3 trillion as of last summer, and it's set to double by 2025. Paying off the kind of large loan that many millennials have had to take on to finance their educations would be challenging in normal circumstances, but with flat wages it can be a near impossibility. Many struggle just to make their interest payments. The worst-case long-term scenario is that their debt will scare them away from taking out credit cards and building up a good FICO score, which will in turn prevent them from purchasing houses. Rents stay high, wages stay low, and money that might have gone into a retirement account or paid down a mortgage has over the years gone to paying for a degree.
"In the traditional middle-class dream, wealth comes from your home and retirement savings," said Nick Clements, who was the head of credit card businesses at Citibank and Barclays before starting his own finance blog. "The longer you wait to start building these assets, the poorer you will be."
Clement, who has spent most of his career trying to get people into debt, could not (or wouldn't) speculate about the long-term effects of the student loan crisis. But whatever those consequences will be, reducing student debt should be a top priority for anyone who cares about lifting young people into the middle class.
So how do we do that? In an effort to find out, I spoke with experts about actionable solutions to the student loan debt crisis—and was surprised to find that we weren't completely hopeless.
Not all student debt is created equal because not all schools are created equal, and for-profit universities have historically stood out as the worst of the lot. These institutions often promise useful degrees that will lead to jobs, then charge high fees while rarely giving students a path to prosperity.
The government went after these places in the late 80s. That's when the Department of Education started calculating something called the cohort default rate for colleges. Basically, it's the rate at which borrowers from each institution default between one and two years after graduation—if the number was above 30 percent, that school would no longer qualify for federal funding. The goal was to identify the worst, most predatory colleges, some of which would even go so far as to grab people out of welfare lines and sign them up for loans.
That government effort worked, but today there are many options to put off paying back loans. People can defer for two years and then default later, thereby not contributing to their alma mater's cohort default rate. To combat this loophole, in September the Education Department also started including the number of people who had never paid off any of their loans' principal into the statistic. The results were startling and depressing: Not only were the no-good for-profit schools using tactics to hide their graduates' default rates, there were lots of more "mainstream" schools, like Georgia State and the University of South Florida, with hordes of graduates who either weren't paying off their loans or couldn't do anything but attempt to handle interest payments.
One obvious solution is to make paying off existing student loans easier by lowering interest rates on them. Elizabeth Warren, who was one of the country's foremost experts on debt before she became a senator, proposed a bill doing just that in 2015, but it was predictably blocked by GOP, as have her previous student loan reform efforts.
So let's turn away from Congressional efforts—where nothing major is likely to happen when it comes to student loans—and look at the presidential race. The GOP candidates, who don't exactly make a point of appealing to young college-educated people, have been silent on the issue, but Democrats like Hillary Clinton and Bernie Sanders have lined up around the idea of "debt-free college."
This sounds extremely nice if you're a young person or the parent of a young person about to head off to school. Sanders has said that schools should be "tuition-free," meaning (duh) state universities wouldn't charge students. Clinton's plan is less radical and would involve giving federal money to states that provide at least some path to graduating without borrowing. Though public universities are run by states, the federal government could provide funds for higher education, increase Pell Grants, and reduce additional expenses for students by pushing for more textbooks to be open-source and available online.
This notion has gotten so much momentum that "debt-free college" has been endorsed by 100 members of Congress, as well as legislators from Iowa, New Hampshire, South Carolina, Ohio, Wisconsin, Hawaii, Massachusetts, Illinois, Missouri, and South Dakota, according to Marissa Barrow of the Progressive Change Campaign Committee (PCCC), a PAC that helped make the term part of the political lexicon this year.
As a twentysomething with her own hefty student loans, this sounded like a great idea—if it didn't help me, it would help the next generation of students be less broke as they entered the workforce. But there are objections to the proposal that go beyond the knee-jerk anti–big government opinions you'd expect.
Kevin Carey, who directs the education program at the DC-based think tank New America, challenged a debt-free college bill that Sanders proposal this past June in an article for the Chronicle of Higher Education.His argument was that, as written, the bill would have so many stipulations that it would essentially redefine higher education. It would require a certain amount of professors be tenured, and mandate that federal money couldn't be used to build things like stadiums. Colleges would get money, but in return they would have to submit to a fairly rigid federal bureaucracy that could do more harm than good. Both Clinton and Sanders are generally much vaguer about their proposals on their respective campaign websites, but Carey's article shows how complicated putting those ideas into practice would be.
Carey's own idea for reform is more market-based—he wants to make education more competitive, thus forcing colleges to cut costs. In a 2012 article in The New Republic, he pointed to a pair of Stanford professors teaching a non-credited artificial intelligence course. He said that in the future, people wanting to take those classes should be able to pay for them with federal aid money, and in turn, colleges should be required to accept credits from any class that was paid for with federal aid. The idea is that colleges are spending a lot of money on fancy student unions or rock-climbing walls or unnecessary administration, and they need to be nudged into becoming leaner and more efficient.
Carey's ideas aren't going to be implemented in 2016 any more than Warren's reforms will suddenly start attracting Republican support. But there's hope in the fact that every Democratic presidential candidate has embraced reforming higher education, and the issue has become what health care was to the 2008 race. So long story short, the answer to how we might solve this crisis next year and help make young people less poor going forward is by voting.
"I think both [Sanders's and Clinton's] plans are admirable in the way they put college affordability front and center on the domestic policy agenda. It sends a signal that we can't just let things keep going and getting worse," Carey said in an interview. "Just the fact that they're arguing about whose plan is better and taking out ads on attacking each other on the issue is a good thing. For a long time, K12 education was the election-year issue and higher education was an afterthought; clearly that's changed."
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