Student Debt Crisis

By Mark Engler

To the teacher:

With college increasingly expensive, millions of Americans must take out student loans to pay for higher education. In today's economy, many college graduates are now having trouble paying back these loans. Last year, student loan debt in America surpassed credit card debt, with the nation's total student debt load exceeding $830 billion. Solutions to this crisis are hard to find. However, Occupy Wall Street protests have shined a light on the mounting problem -- and on some new proposals for addressing it.

This lesson is divided into two student readings. The first reading compares the scope of the present student debt crisis with the past and discusses what has changed. The second reading explores some proposals for dealing with the student debt crisis. Discussion questions aimed at getting students to think critically about the student debt problem and its possible solutions follow each reading.

Student Reading 1:
Student Debt, A Growing Problem

Stay in school and get good grades so that you can get into college. Go to college so you can get a good job. Get a good job and you will enjoy a life of economic security. For decades, some version of this narrative has been presented to almost all students in American high schools. Yet, today, a burgeoning student debt crisis is calling these promises into question.

In recent years, the cost of college tuition has increased significantly. Most students must take out loans to afford it. In fact, in August 2010 the total amount of student loan debt owed by Americans reached an all-time high of $830 billion dollars, surpassing total credit card debt, which stood at $826 billion dollars. Meanwhile, as a result of the global economic recession, many college grads haven't found the good jobs they expected to find after earning their college degree. The combination of a steadily increasing debt burden with an already unstable economy and unusually high unemployment has resulted in a full-fledged student debt crisis.

This year, students are expected to take out more than $1 trillion in loans, according to a report from the Federal Reserve Bank of New York. As Tamar Lewin of the New York Times reported on November 2, 2011:

Students who graduated from college in 2010 with student loans owed an average of $25,250, up 5 percent from the previous year, according to a report scheduled for release Thursday. The average debt--once again the highest on record--came as the class of 2010 faced an unemployment rate for new college graduates of 9.1 percent, the highest in recent years, according to the report by the Project on Student Debt, which pointed out that unemployment rates for those without college degrees were still higher.

Matthew Reed, the report's author, said that some people had expected the jump "to be even higher because of the economic downturn," but that larger grants had helped "at least partially offset lower family incomes and higher tuitions while the class of 2010 was in school." About two-thirds of the class of 2010 graduated with student debt. (The debts examined in the report do not include loans taken out by parents.)

The report is based on data from more than 1,000 colleges, representing half of all public and private nonprofit four-year schools. The average amount of debt would be even higher if the report included profit-making schools, where almost all students take out loans and, according to federal data, borrow about 45 percent more than students at nonprofits. (http://www.nytimes.com/2011/11/03/education/average-student-loan-debt-grew-by-5-percent-in-2010.html?_r=1&pagewanted=print)

The cost of college has been increasing steadily in recent years. Yet growth in average family incomes has fallen behind. As Annalyn Censky wrote for CNN.com on June 13, 2011:

The crux of the problem: Tuition and fees at public universities, according to the College Board, have surged almost 130% over the last 20 years--while middle class incomes have stagnated.

Tuition: In 1988, the average tuition and fees for a four-year public university rang in at about $2,800, adjusted for inflation. By 2008, that number had climbed about 130% to roughly $6,500 a year--and that doesn't include books or room and board.

Income: If incomes had kept up with surging college costs, the typical American would be earning $77,000 a year. But in reality, it's nowhere near that. (http://money.cnn.com/2011/06/13/news/economy/college_tuition_middle_class/index.htm)

The trend of increasing costs that Censky cites is even more severe at private universities, which in some cases charge more than $50,000 in tuition per year. Twenty years ago, it was conceivable that a student could pay off a large portion of his or her college tuition by working a part-time job while attending school. With current college costs, that is no longer a realistic option. Other sources of funding, while limited, are available. For instance, the federal government offers need-based Pell grants that provide students with up to $5,550 in aid. However, conservative members of the House of Representatives have put those grants on the table for cutting as part of their push to reduce the federal budget.

More and more graduates are unable to repay their loans and are going into default. As Lewin reported in the New York Times on September 12:

The share of federal student loan defaults rose sharply last year, especially at for-profit colleges and universities, where 15 percent of borrowers defaulted in the first two years of repayment, up from 11.6 percent the previous year.

According to Department of Education data released Monday, 8.8 percent of borrowers over all defaulted in the fiscal year that ended last Sept. 30, the latest figures available, up from 7 percent the previous year.

At public institutions, the rate was 7.2 percent, up from 6 percent, and at not-for-profit private institutions, it was 4.6 percent, up from 4 percent.

"Borrowers are struggling in this economy," said James Kvaal, deputy under secretary of education. "We see a strong relationship between student default rates and unemployment rates."
(http://www.nytimes.com/2011/09/13/education/13loans.html?pagewanted=print)

Some graduates feeling the burden of large student debts have dubbed themselves "debt slaves," saying that they could be stuck paying off debt for decades. They, and many others, are calling on lawmakers to address the growing crisis of student debt.

For Discussion:

1. Do students have any questions about the reading? How might they be answered?

2. How is student debt different now than in the past?

3. How are student debt and unemployment interrelated? Do you know anyone who is currently unemployed and has student loan debt? How are they dealing with the situation?

4. Do you think it is fair to ask students to make financial sacrifices in exchange for the benefits of higher education, or do you think that college should be free? Explain your position.

Optional follow-up:

Recently, the Huffington Post published a series of blog posts from young people sharing their experiences with debt. Have students read some of these posts and reflect on them:

• What are some of the issues raised about student debt in these blog posts?
• How do these stories relate to experiences among your family and friends?
  

(http://www.huffingtonpost.com/2011/10/19/student-loan-debt-to-exce_n_1019727.html#s345536&title=Brittany_Baker_Allegheny)

Student Reading 2:
Some possible solutions to the student debt crisis

The Occupy Wall Street protests have shined a light on the student debt crisis, and raised the visibility of some proposals for addressing this problem.

Some protesters have advanced the proposal that student debt should simply be forgiven outright. More than 650,000 people have signed an online petition called "Forgive Student Debt to Stimulate the Economy," launched by Robert Applebaum, a Staten Island-based attorney, in early 2009. Applebaum and his supporters argue that banks received an enormous federal bailout, so why can't the government also help ordinary Americans with overwhelming student debt? They contend that such a policy would help the economy, enabling people to spend more of their money on consumer goods and helping retail businesses.

As the petition campaign's website explains:

The Wall Street financial institutions, auto manufacturers, insurance companies and countless other irresponsible actors have now received TRILLIONS of taxpayer dollars… to bail them out of their self-created mess. This, too, does nothing to stimulate the economy. It merely rewards bad behavior and does nothing to encourage institutional change. There is a better way..…

Instead of funneling billions, if not trillions of additional dollars to banks, financial institutions, insurance companies and other institutions of greed that are responsible for the current economic crisis, why not allow educated, hardworking, middle-class Americans to get something in return? After all, they're our tax dollars too!

Forgiving student loan debt would have an immediate stimulating effect on the economy. Responsible people who did nothing other than pursue a higher education would have hundreds, if not thousands of extra dollars per month to spend, fueling the economy now. Those extra dollars being pumped into the economy would have a multiplying effect, unlike many of the provisions of the new stimulus package. As a result, tax revenues would go up, the credit markets will unfreeze and jobs will be created. Consumer spending accounts for over two thirds of the entire U.S. economy and in recent months, consumer spending has declined at alarming, unprecedented rates. Therefore, it stands to reason that the fastest way to revive our ailing economy is to do something drastic to get consumers to spend.
(http://forgivestudentloandebt.com/content/proposal)

Some progressives have been calling for free public higher education for some time, based on similar reasoning: College-educated, debt-free workers are a boon to the economy. Proponents cite the original GI Bill, passed in 1944, which enabled 7.8 million returning World War II veterans to get a college education or technical training. According to a 1988 analysis by the Congressional Subcommittee on Education and Health, for every dollar invested in the GIs’ higher education, the government and economy received at least $6.90 in return (in higher tax revenues.

While nothing so radical as free higher education or forgiving student loans altogether is currently under consideration in Washington, DC, the combination of the skyrocketing debt burden and an upsurge in protest has motivated politicians to consider other possible solutions. In October, President Obama proposed a plan that would reroute Department of Education funds to help people who are struggling to make their loan payments. According to the Christian Science Monitor:

The plan, to be implemented by executive authority alone, allows some 1.6 million students to cap their loan payments at 10 percent of their discretionary income starting in 2012. It also forgives the balance of student loans after 20 years of payments. Current law allows students to limit loan payments to 15 percent of income, forgiving debt after 25 years of payments, though few students are aware of this option.

In a related move, the US Department of Education, which now administers all federal education loans, is giving borrowers the option of consolidating federal and private loans at reduced rates. (http://www.csmonitor.com/USA/Politics/2011/1025/Obama-s-student-loan-debt-relief-plan-Too-good-to-be-true)

Republican politicians in Congress have vowed to block the president's plan. Nevertheless, other student debt relief measures may be introduced into Congress in coming months. As long as protests that highlight the student debt crisis continue to grow, the issue is unlikely to disappear from political discussion.

For Discussion:

1. Do students have any questions about the reading? How might they be answered?

2. What have protesters proposed as a solution to the student debt crisis? How does this compare with President Obama's plan for addressing the issue?

3. Do you think that debt forgiveness for student loans is realistic? What would be some of the pros and cons?

4. Some are unsympathetic to the complaints of recent graduates about student loans. They argue that students should consider the responsibility of accepting a loan before taking the money and that they should be prepared to make greater financial sacrifices in order to pay off their debts. What do you think of this argument?

This lesson was written for TeachableMoment.Org by Mark Engler with research assistance by Eric Augenbraun.

We welcome your comments. Please email them to: lmcclure@morningsidecenter.org.

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