New York, United States – Dara Zucker says she’s stuck. The 28-year-old has been making monthly payments on her student loans since graduating with a degree in psychology from Kenosha, Wisconsin’s Carthage College in 2016, but her balance has only grown.
“I feel stuck in my life,” she told Al Jazeera of the $39,000 she still owes on her $35,000 loan.
And Zucker isn’t alone — Americans owe nearly $1.75 trillion in student debt, up from $481 billion in 2006, according to the Federal Reserve Bank of St Louis. highest student in the world.
As the country’s student debt crisis worsens, borrowers, policymakers and economists agree that something needs to be done, but the exact steps to take remain up for debate.
At the start of the COVID-19 pandemic, the Trump administration halted interest on student loans and then suspended loan payments as lockdowns led to mass layoffs and business closures. President Joe Biden, who campaigned on a promise “to immediately cancel a minimum of $10,000 in student debt per person,” has repeatedly extended that moratorium.
However, the payment freeze expires at the end of August, and unless Biden extends it, 45.4 million student borrowers are expected to resume monthly loan payments on September 1. The average monthly student loan payment in the United States is $393.
Zucker, who says she used the break in payments to help her disabled parents get groceries, just got a promotion and a raise at the background check company where she works as a business development representative. But the increase also means his monthly salary-dependent student loan payment will double to $220 when payments resume.
“I’m grateful for my work and my salary,” she said in an interview. “But the fact that I can make my payments and still can’t live my adult life buying a house or having a wedding – I just can’t do those things.”
‘The Big Picture’
US tuition at four-year public universities rose 31.4% between 2010 and 2020, the Education Data Initiative research group found. In many other countries, tuition fees are either fixed or completely free, such as in Germany, Iceland and Sweden. A year of college at a four-year U.S. university costs an average of $35,551, including tuition, fees, on-campus housing, books, supplies, and other expenses, according to the National Center for Education. Statistics.
The colleges a student applies to determine the amount of financial aid they are eligible for, based on the cost of attendance and the family’s ability to contribute tuition and fees. The student may be eligible for federal scholarships, subsidized loans and work-study studies. The student can then apply for a loan to finance the rest of the costs.
The federal government distributes the majority of the loans, with the private sector lending the remaining 7%. Borrowers are then required to start making payments six months after leaving college, whether or not they have graduated.
Several economists interviewed by Al Jazeera said universities and the higher education sector as a whole need to better educate students about the debt they are taking on and what it is like to get into various types of debt programs. reimbursement after graduation.
For example, the income-based repayment plan that Zucker is enrolled in allows borrowers to make payments based on their salary, but it also lengthens the term of the loan and adds additional interest to the total.
“I think we’ve put young people in a very difficult position,” said Cristian deRitis, a leading economist at Moody’s, a New York-based research firm. “A lot of young people don’t have a big picture of what carrying that burden really means or they dream of earning six-figure salaries right out of college.”
A recent study found that American college students think they will earn about $103,880 in their first job. However, the average starting salary for college graduates is $55,260.
According to the Federal Reserve Bank of New York, Americans are increasingly reliant on credit cards to make ends meet, amassing $46 billion in the second quarter of 2022, the biggest percentage gain in credit card balances in the world. year on year since 1999. Meanwhile, households have begun to deplete the excess funds they hoarded during the pandemic, according to Goldman Sachs, as the national inflation rate soars.
“I would expect some delinquencies to go up pretty quickly,” deRitis said. “A lot of people who were already in a tough spot when they hit the pause button during the student loan moratorium will most likely go back to delinquent.”
“Debt doesn’t just go away”
Zucker, who said she backed Biden because she thought he would forgive some of his college debt, told Al Jazeera she wanted the president to keep that promise and then some.
“He should also cancel all student loan interest and suspend it on all current paying accounts, then take the total amount paid by all those students, including myself, and deduct it from their original loan balance,” she said.
According to analytics firm MeasureOne, the federal government currently issues and administers 93% of all student loans. This means that the US government is the primary lender of student loans and the loans are owned by the US taxpayer. Therefore, when loans are delinquent or cancelled, this cost is passed on to the federal taxpayer.
According to Lindsey M Burke, director of the Center for Education Policy at the Heritage Foundation, a conservative think tank in Washington, DC, student loan forgiveness is a problematic policy for a variety of reasons.
“Everyone has suffered during the pandemic,” Burke said. “College graduates were the least likely to be unemployed and the most likely to be able to work from home, so this idea that we’re going to give them loan forgiveness when so many others are doing well less well, it’s just politics.”
Debt doesn’t just disappear, Burke said. For American taxpayers, canceling student loans can mean higher taxes or more inflation, she argued, adding that it could also mean higher costs in the future. “The current class of students will go into more debt than they would or go to more expensive colleges in hopes that their loans can be forgiven in the future,” she said.
But those arguments were dismissed by Sabrina Calazans, outreach coordinator at the Student Debt Crisis Center (SDCC), a nongovernmental group based in Los Angeles, Calif., which is pushing for at least $50,000 in debt forgiveness. student per borrower.
“To forgive $10,000 right now would bring immediate relief to millions of Americans,” Calazans told Al Jazeera. “We don’t ask for alms. Some people have paid their balance in full, but they can never repay it because of the interest that accumulates.
Private versus public
Moody’s deRitis said more could be done to ease loan availability.
“You could say maybe the US government should restrict and not lend more than a certain amount. Let’s say you can borrow up to $30,000 or decide to go to a low-cost school or accept additional jobs,” he told Al Jazeera.
Burke of the Heritage Foundation argued that the private loan market would do a better job of differentiating interest rates based on what a student wants to major in, their creditworthiness, whether they have a co-signer, and their high school results.
“There are a lot of things the private market could consider that the federal government as a lender can’t and really shouldn’t,” she said. “We want the private sector to send signals to students about the effectiveness of what they plan to study and what areas would provide them with a solid career in the future.”
But SDCC’s Calazans said if the private sector uses credit scores and co-signers to assess loan eligibility, low-income people could be denied access to higher education. It would also make it harder for borrowers without credit, like young people, immigrants and others excluded from the banking system, to go to college.
Additionally, private student loans don’t have nearly the same consumer protections, repayment programs, or options available to borrowers in default, which makes it more difficult for borrowers in difficulty. “As a borrower myself, I have federal and private loans and I have a private loan with a 13% interest rate. We need to make interest rate changes to the current payment plan and the broader student loan system, not privatize loans,” she added.
‘Your student loans, they stay with you’
Calazans said young Americans who want to further their education face tough choices.
“They say, ‘I’m not going to college because I don’t want to go into thousands of dollars in debt and not be able to afford to buy a house or do anything afterwards. . And those who have borrowed say “my debt ratio is so high that I can’t buy a house or help my children invest in their future”. So it really becomes this ugly cycle.
Zucker, a psychology graduate, said it didn’t take long for her to realize one very important thing: student loans are like no other debt in the United States.
“I think people are blurring the line and saying, ‘Oh, well, if we’re canceling student loans, we have to do this or that with mortgages and medical bills. And I say no, you don’t understand. It’s not the same,” she said.
“You file for bankruptcy, your student loans: they stay with you.”