New York, USA – Dara Zucker said she was stuck. The 28-year-old has been making monthly student loan payments since earning a psychology degree from Carthage College in Wisconsin, Kenosha, in 2016, but her balance has only grown.
“I felt like my life was in trouble,” she told Al Jazeera, who also owed $35,000 on a $35,000 loan.
Zach isn’t alone — Americans owe nearly $1.75 trillion in student loan debt, up from $481 billion in 2006. Federal Reserve Bank of St. Louisthe highest level of student debt in the world.
As the country’s student loan debt crisis deepens, borrowers, policymakers and economists agree that something must be done — but what exactly needs to be done is still up for debate.
At the beginning of the COVID-19 pandemic, the Trump administration halted interest on student loans and later suspended loan payments as the lockdowns led to mass layoffs and business closures.President Joe Biden, who campaign promise “Immediately cancel student debt of at least $10,000 per person,” repeatedly extended pause.
However, the payment freeze expires at the end of August, and unless Biden extends it, 45.4 million student loan borrowers are expected to resume monthly loan payments on Sept. 1. The average monthly student loan payment in the US is $393.
Zach said she used the payment hold to help disabled parents buy groceries, and she just got a promotion and a raise at a background check company where she worked as a business development representative. But the raise also means that when payments resume, her monthly student loan payments that depend on her salary will double to $220.
“I’m grateful for my job and my salary,” she said in an interview. “But the fact that I can make my payments and still not be able to live an adult life by buying a house or having a wedding – I just can’t do those things.”
U.S. Tuition at Public Four-Year Universities climb The Education Data Initiative research group found 31.4% between 2010 and 2020. Tuition fees are either fixed or completely free in many other countries, such as Germany, Iceland and Sweden. The average college cost for a year at a four-year college in the United States is $35,551, including tuition, fees, on-campus housing, books, supplies, and other expenses. National Center for Education Statistics.
University to which the student applies Decide How much financial aid they are eligible for depends on the cost of attendance and the family’s ability to pay tuition and fees. Students may be eligible for federal grants, subsidized loans, and work-study programs. Students can then apply for a loan to cover the remaining costs.
The federal government made most of the loans, with the private sector making the remaining 7%. Borrowers are then required to start making payments six months after leaving college, whether they graduate or not.
Several economists interviewed by Al Jazeera said universities and the higher education industry as a whole needed to better inform students about the debt they took on and their entry into various types of repayment plans after graduation.
E.g, Income-driven repayment plan Zucker is registered in it, allowing borrowers to make payments based on their salary, but it also extends loan terms and adds additional interest.
“I think we’re putting young people in a very difficult situation,” said Christian Deritis, chief economist at New York-based research firm Moody’s. “‘A lot of young people don’t fully understand what it really means to carry that burden, or they dream of a six-figure salary right out of college.”
One A recent study It was found that American college students thought their first job would make about $103,880. However, the average starting salary for college graduates is $55,260.
according to Federal Reserve Bank of New YorkAmericans are getting dependent To make ends meet, credit card balances of $46 billion accumulated in the second quarter of 2022, the largest year-over-year percentage increase in credit card balances since 1999.At the same time, households have started to drain the excess funds they have accumulated during the pandemic, according to data from Goldman Sachs as the nation Inflation soars.
“I expect some default rates to rise very quickly,” deRitis said. “Many people who were already in trouble when they pressed the pause button during a student loan suspension are likely to default again.”
‘Debt doesn’t just disappear’
Zach, who said she supports Biden because she believes he will cancel some of her college debt, told Al Jazeera she wants the president to deliver on that promise and then some.
“He should also cancel all student loan interest and suspend interest on all current payment accounts, and then deduct the total amount paid by all these students, including me, from their initial loan balances,” she said.
According to an analyst firm MeasureOne, the federal government currently originates and services 93% of all student loans. This means that the U.S. government is the primary lender of student loans, and the loans are held by U.S. taxpayers. So when the loan defaults or is forgiven, that fee is passed on to federal taxpayers.
Student loan forgiveness is a problematic policy for a number of reasons, said Lindsey M Burke, director of the Center for Education Policy at the Heritage Foundation, a conservative think tank in Washington, D.C.
“Everyone is suffering during the pandemic,” Burke said. “People with a college degree are the least likely to be unemployed and most likely to work from home, so the idea that we’re going to give them loan forgiveness when many others are worse off is just political.”
Debt not only disappeared, Burke said. For U.S. taxpayers, student loan forgiveness could mean higher taxes or higher inflation, she argued, adding that it could also translate into higher costs down the road. “Current students will take on more debt than they do or go to more expensive college in the hope that their loans will be forgiven in the future,” she said.
But those arguments were rejected by Sabrina Calazans, outreach coordinator at the Student Debt Crisis Center (SDCC), a Los Angeles, Calif.-based NGO that is lobbying each borrower to cancel at least $50,000 in student debt.
“Forgiving $10,000 now will provide immediate relief to millions of Americans,” Karazance told Al Jazeera. “We’re not asking for alms. Some people have paid their balances in full, but they’ll never be able to pay them back because of accrued interest.”
private and public
Moody’s deRitis said more could be done to ease the way loans are made available.
“You could argue that maybe the US government should limit rather than lend beyond a certain amount. Let’s say you can borrow up to $30,000, or decide to go to a lower-cost school or take an extra job,” he told Al Jazeera.
The Heritage Foundation’s Burke believes the private loan market would be better at differentiating rates based on what students want to major in, their credit, whether they have a co-guarantor and how well they did in high school.
“There are a lot of measures that the private market can consider that the federal government as a lender cannot and really shouldn’t consider,” she said. “We want the private sector to signal to students the effectiveness of what they plan to study and which areas will serve them well. Provides solid career development.”
But SDCC’s Calazans said low-income people could be denied higher education if the private sector used credit ratings and co-signers to assess loan eligibility. It will also make it difficult for borrowers without credit, such as 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 plans or options available to defaulting borrowers, making it more difficult for struggling borrowers. “As my own borrower, I have federal and private loans, and I have a private loan with a 13% interest rate. We need to make interest rate adjustments to current payment plans and the broader student loan system rather than taking the loan private change,” she added.
“Your student loans, they’re with you”
Young Americans who want to continue their education face tough choices, Karazance said.
“They said, ‘I don’t want to go to college because I don’t want to take on thousands of dollars in debt, and I don’t want to buy a house or do anything else.’ People who borrow money say, ‘My debt-to-income ratio is so high that I can’t buy a house or help My kids are investing in their future”. So it really becomes this ugly cycle.”
Zach, a psychology graduate, said she quickly understood one very important thing: Student loans are unlike any other debt in the United States.
“I think people blur the lines and say, ‘Oh, well, if we’re going to forgive student loans, then we need to do this or that with mortgages and medical bills.’ I said, no, you don’t get it. It’s not One thing,” she said.
“You file for bankruptcy, your student loans: they’re with you.”