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Blair Horner: Dealing With College Student Debt

We’ve hit summer’s midway point and for many New Yorkers it’s time to plan for the opening of college at the end of next month.  In addition to buying bedding, books and clothes, the big issue is how to pay for college tuition and fees.

And the answer for many Americans is to take out loans.

For decades, the nation has systematically slashed funding for public colleges.  In New York for example, state policies have reduced support by $1.7 billion.  During that same period of time, states – including New York – have hiked public college tuitions to cover the reductions in public spending.

Since wages have remained largely stagnant for many Americans, increased tuition costs have led families to take out loans to cover the cost of attending college.  As a result, student debt has soared.

Nationwide, college student debt has skyrocketed, quadrupling from just $240 billion in 2003 to more than $1 trillion today.  In New York State, roughly 60 percent of college grads now leave school with an average of $25,500 in student loans.

College debt is now the largest debt in America – exceeding all other forms of consumer borrowing.

Here in New York, tuition costs at the State University have roughly doubled from academic year 2002-03 as compared to the upcoming academic year.  As a result, more students are in debt.

The lifetime cost of a loan is not just the amount borrowed, but included interest on that debt.  As a result, predictions are that the $1 trillion in outstanding student loan debt will lead to total lifetime wealth loss of $4 trillion for indebted households, not even accounting for the heavy impact of defaults.  Also, student debt levels vary widely by both race and family income of graduates; thus, for low-income and minority borrowers, the lifetime cost of student loans will likely be an even greater burden than for more affluent families.

The financial pictures for college graduates from both indebted and debt-free households are significantly better than an average American household, thus showing that – at least generally speaking – a college degree is still a worthwhile investment.

Yet, those college debts will still be a financial drag on college graduates, and the nation’s economy as a whole.  Money tied up in paying off trillions of dollars in college loans is money that will not be spent on other purchases – cars, homes, other consumer products, or savings for retirement.

Clearly, public policies should minimize the public burden of this multi-trillion dollar debt.  For those in debt now, public policies should help keep those debt costs manageable; for future college students, policies should be enacted to lower tuition and other costs.

Last month the President issued an executive order to expand the federal government’s student loan forgiveness program.  The President’s order is designed to ensure that more students who borrowed federal direct loans be allowed to cap their loan payments at 10 percent of their monthly incomes.  Federal law currently allows most students to do this already. The President's order will extend this ability to students who borrowed before October 2007 or those who have not borrowed since October 2011.

The Administration says this action will help up to 5 million more borrowers, although it will not be available until December 2015.

Unfortunately, the President’s plan is limited and is only an executive order.  Thus, future Administrations can easily repeal the measure.

At the state level, little has been done to curb the cost of college.  Public college tuition costs have continued to rise.

Public policies must be enacted to make college more – not less – affordable.  Congress should strengthen and enact the President’s plan.  In New York, the governor and state lawmakers should be looking for ways to freeze, if not reduce, public college tuition as well as expand financial aid programs to ease the financial burdens for students of modest means.

In a democracy, not only is college important to the nation’s economic well-being, but to its civic health as well.

Blair Horner is the Legislative Director of the New York Public Interest Research Group.

The views expressed by commentators are solely those of the authors. They do not necessarily reflect the views of this station or its management.

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