The biggest financial issue facing young Americans today is not the decline of manufacturing jobs or the housing collapse, but mounting student debt. To tackle this issue, VICE hosted a roundtable discussion, moderated by VICE founder Shane Smith, with President Barack Obama and five students who discussed the challenges surrounding student debt and the pursuit of higher education in America.
The conversation took place on Tuesday, March 10, after the president unveiled his new student loan reform plan, called the Student Aid Bill of Rights, to a crowd of students at the Georgia Institute of Technology. All five of the students who participated in the discussion — two are still in high school and three are in college — are currently trying to find ways to pay for their undergraduate degrees.
Lauren Milner, a student at Georgia Tech, explained that she is relying on a combination of a federal Pell Grant, three scholarships, and loans from her parents' retirement fund to pay for her education. Even with this arrangement, Milner said she is going to be saddled with significant debt once she graduates.
"I found out this summer that I've reached my student loan limit," she told Obama. "So, I'm going to have some debt to pay off afterwards, for sure."
But even for students eligible for merit-based scholarships, such as D'Ariel Myrick, who has a Presidential Scholarship, the cost of college is still astronomical. "With the cost of living, room and board, tuition and extra fees, [the Presidential Scholarship is] almost not putting a dent in the financial piece of what I need," Myrick said. "It's kind of like scholarships don't matter."
Part of how Obama plans to tackle this issue is through better education of young people about the realities of debt before they take out massive loans that will likely burden them for decades to come. Or as Obama put it, "know before you owe."
Milner agreed that this would have been helpful when she was at the beginning of the process of applying for college.
"I thought I understood how the loans were going to work when I started [college]," she said. "They said you won't have to start paying off your loans until after school, and I get emails quarterly that update me on what my loan status is and it's talking about the interest that's accruing every day."
"It's a little scary to look at," she added.
Milner is not alone in the frequently overwhelming process of figuring out how to pay for college. Obama himself only finished off paying his student loans in 2004, just before he was elected as a senator.
Some 40 million other Americans are currently saddled with student debt, which adds up to a collective $1.3 trillion in loans. This is more than auto and credit card loans combined, and is only second to mortgage loans in the country.
Student debt is likely only going to continue to rise. In 2005, the average student loan debt was $17,233, which has increased a whopping 58 percent to $27,253 in 2012, according to a 2013 study by FICO. Other numbers provided by the New York Federal Reserve show that student debt jumped an average of 14 percent a year, from $364 billion in 2004 to $966 billion in 2012.
The increasing size of student debt also means more people are failing to pay it back, at what is getting to dangerously high levels. According to the same FICO study, the delinquency rate of student loans jumped more than 22 percent in 2005, from 12.4 percent, to more than 15 percent in 2010. More than seven million people are currently in default.
A core factor contributing to the mounting student debt bubble is that the government has severely cut back on funding for public education, even while the cost of college continues to soar. According to the Economist, public funding for universities fell by 27 percent between 2007 and 2012, while tuition fees rose by 20 percent.
Despite the dismal figures, Obama and the students at the table all agreed that some form of college education — either a two or four-year degree — is essential in order to have a shot in today's economy. The president pointed out that there is a difference in about $28,000 a year of annual salary between someone who has a college diploma and someone who does not. Unemployment is also significantly lower for those with a college degree than those who only graduated from high school — 4 percent versus 8 percent, according to the White House. So in the end, despite the debt, a college education is still the best investment around.
Although a college education has always been the best way to ensure a relatively secure future, the way in which Americans pay for it has shifted dramatically from previous generations. The federal loan program was initially designed as a way to supplement the cost of higher education, and when combined with other minor loans, it was feasible to pay off college in a few years without being chained to debt for decades. Now, however, banks see interest from student loans as a way to make money and those looking to go to college have no other choice but to sign up for them.
Smith asked Obama about this very issue during Tuesday's roundtable discussion.
"America used to fund education a lot more, and now we have a system where the government actually makes money off the federal loans," he said. "How do we get back to funding education, and off the money that in many cases has already been spent?"
Obama responded by saying that cutting back on funding public higher education is only going to hurt the competitiveness of states in the long run.
"Governors and state legislatures have to understand that probably the most competitive advantage they have is the quality of their work force," he said. "So you are defeating yourself if you are cutting back on education spending and support for higher education."
An uneducated workforce not only hurts personal economic survival at home, he added, but it reduces the competitiveness of the United States economy in the international market as well — a problem this country has not had to face in decades.
Americans have more student debt than any other country in the world, and the US is one of the only developed countries that does not provide universal — or at least heavily subsidized — higher education. Obama said that there is a decision to be made about higher education in America.
"It comes down to the choices that we make as a society," Obama said. "Do we think this is important enough that we want to make that investment? I think that we should."