For recent high school students, the joys of June graduations fill the air combined with the anticipation (for many) of attending college in the fall. However, once the rays on these jubilant days dim, these same students will face clouds of economic uncertainly in four years that many recent college students must now confront.
I’m referring to the staggering college debt issue that so many of our young people face and which is becoming an obstacle to our nation's shared economic prosperity. Student debt is becoming a crushing burden both on an individual scale and increasingly its damage on the national level. We have urged students to attend college at almost any cost, and that’s exactly what many have done. These young men and women are accepting loans that can leave them in debt for 10, 15 or even more years. Imagine leaving college at 21, and at 35, you’re still paying off that student loan. For too many of us, this isn't hard to imagine at all.
One potential solution to this issue would be the expansion of the Pay as You Earn Repayment Plan. This would lower borrowers’ monthly payments and open the door to debt forgiveness. Here in our state, legislative leaders like Senate President Steve Sweeney, Assemblywoman Celeste Riley and Assemblyman Joe Cryan have sounded the alarm on this crisis. To understand why President Barack Obama and legislative leaders from all across the nation have championed this action, we have to understand the magnitude of the student debt problem.
The numbers are sobering:
- Today’s student loan debt stands at $1.2 trillion (up from $400 billion in March 2004), according to the Wall Street Journal.
- It also noted that the average student loan amount for undergraduates in the class of 2014 is $33,000 (up from $18,600 in 2004).
- About 41 million borrowers have student debt, either from private or government sources, according to one estimate.
This problem has another dark side with respect to personal decisions students must make. This crippling level of indebtedness forces students to delay or eliminate other important personal choices to meet their financial obligations. But what’s critical for all of us to understand is that what students owe, how much they owe and how long their repayment period is, has an impact on us all.
Anyone who has ever sat in on an economics class (in college, of course) will recall that self-interest is one of the driving forces of an economy and the personal economic choices we make on a daily basis. When we require students to chain themselves to unreasonable, long-term debt, we feel their pain. And that pain isn’t just emotional. This choking debt translates into college graduates going out less. That means they go out less frequently to buy pizza, they might forgo buying a new car for work and, worst of all, either they significantly delay or eliminate the most tangible of American dreams: buying a home. You do not have to be Adam Smith to understand this trickle-down effect. The less they contribute to the economy, the more we all feel it.
By refinancing interest payments for college graduates with debt, we will allow them to have more disposable income, which will over time boost overall consumer spending and add a fresh stimulus to our economy. An April 2014 preliminary staff report from the Federal Reserve Bank of New York addressed this issue and concluded, “Educational debt is now the second largest liability on household balance sheets, after mortgages. Nearly one third of the borrowers in repayment are delinquent on student debt, a fact masked by the large numbers of borrowers who are in either deferment or grace periods. … It appears that the higher burden of student loans and the associated high delinquency rate negatively affect borrowers’ home purchases, other debt payments and access to credit.”
We have spent decades urging young people to attend a college. Virtually every study I’ve read indicates that someone with a college degree will, over a career, out-earn someone with less education. Frankly, I still believe in the value of a college education. I believe that education is the great equalizer in our society. One that allows those of humble beginnings, like myself and countless others, to achieve a better station in life through hard work and opportunity. Sadly, unless we come to grips with this issue, we will be pricing this component of the American Dream out of the hands of those who need it the most.
What I think we need to do, however, is support Ideas like the Pay as You Earn Repayment Plan or other innovative solutions in this area. It’s good for students because it gives them some financial breathing space, and it’s good for the economy because it adds educated consumers to the marketplace. That's my take. What do you think?