Student loan debt could be next threat to economy
In recent years student loan debt has drastically increased and may become the new ‘mortgage-style’ threat.
“I do not have any student loan debt,” Becky Asami, a graduate student in geology, said. “I got my degree in 2007, and back then student tuition was really affordable.”
Before tuition reached an all-time high, Asami was able to pay all her student fees with a part-time job.
The fee for undergraduate students at Fresno State has more than tripled in the past eight years, leaving many students and their parents with no choice other than to take on loans.
Overall student debt outstanding in the United States increased 500 percent between 2000 and 2012 to a whopping $1 trillion. According to the 4,500-member National Association of Consumer Bankruptcy Attorneys (NACBA), college seniors who graduated with student loans in 2010 owed an average of $25,250.
Leaving school with a large debt affects not just students and their unwary parents who co-signed for the loans, but the housing market and the economy as a whole. Many recent graduates are struggling to find good-paying work making it much tougher for them to qualify to purchase homes.
“It’s pretty daunting,” Whitney Thompson, a Fresno State graduate student and teaching assistant, said. “It’s nerve-racking because after I’m done with school. You think, ‘Am I ever going to qualify for a mortgage when you have this big pile of debt?’”
Parents of the students who co-signed because their children were not old enough to get the loan on their own, are finding their buying power curtailed. Loans to parents for the college education of children have jumped 75 percent since the 2005-06 academic year. These parents have an average of $34,000 in student loans, and that figure rises to about $50,000 over a standard 10-year loan-repayment period. An estimated 17 percent of parents whose children graduated in 2010 took out loans — up from 5.6 percent in 1992-93.
The consumer protection laws covering student loans are very different than those that cover other debt. A borrower cannot discharge a student loan through bankruptcy, and Congress removed many consumer protections against harassment years ago.
But students and their parents may find some help from the newly created Consumer Financial Protection Bureau (CFPB).
“The CFPB is now the one-stop federal agency where all private student loan borrowers can ask questions, get information and file a complaint about this important market at our website,” said Richard Cordray, the CFPB director.
On Monday, thousands of students converged on the Capitol lawn in Sacramento to protest tuition raises and demand that state representatives increase funding for schools. They also protested the growing levels of student debt.
“That was one of our demands—complete forgiveness of student loans,” Asami, who was one of the leaders, said. “I have friends that are getting their bachelor’s degree now and they have 30 to 50 thousand dollars of student loans, so they are scared. They don’t know how they are going to pay and so they just keep deferring payments.”
A borrower can defer payments, but interest keeps building up and the debt just gets higher. Student debt has grown from 3 percent in 2000 to 7.5 percent in 2012. This means that recently graduating students aren’t able to buy big-ticket items that would help the general economy to recover.
“I can’t get a new car anytime soon and mine is not running very well now,” said Thompson.
Furthermore, graduates with a massive debt burden find themselves forced to narrow their job-search options. Many do not take entry-level positions in their fields of study because the pay would be too low to service their debts.
The protests in Sacramento are just part of growing movement by students to do something about the problem. At 2011’s Sundance Film Festival, “Default: The Student Loan Documentary,” was shown and then aired on PBS last November. The film humanizes the loan crisis, following several graduates in their struggles to pay back their loans.
In addition, a petition has been started at Studentloanjustice.org to return bankruptcy protection to all student loans.
That couldn’t come soon enough for Thompson and her husband.
“My husband went to CSU Fresno for his bachelor’s and CSU San Jose for his master’s, so he also has a lot of debt.” Thompson said. “So our debt together is quite significant.”
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