From childhood, students are told that the path to success relies upon their receipt of a college diploma. On April 24, 2012, in a speech at the University of North Carolina Chapel Hill, President Obama echoed these sentiments, saying: “higher education is the single most important investment you can make in your life,” and that “in today’s economy, there is no greater predictor of success than a good education … higher education is the clearest path into the middle class.” The president is right. According to a September 2013 jobs report, people with college degrees had a 5.2 percent unemployment rate, compared to high-school diploma holders, who had a 10.3 percent unemployment rate. According to these facts alone, not having a diploma doubles your risk of not having a job.
But as the cost of college tuition has skyrocketed and the amount of financial aid has stagnated, students have increasingly found themselves having to take on student loans in order to attend school. Twelve million students, which is 60 percent of all undergraduates, borrow each year to help cover the costs of their education. In 2011, the average graduate graduated with a diploma—and $23,800 in loans.
But poor employment prospects (even for students with a college degree), slow job growth in the recession, and the desire to gain more skills for a specialized career has led many students to seek shelter within graduate school, rather than risk fighting through a sluggish job market with a, now regretted, degree in Romance Languages. And for students in graduate school the debt burden is even worse. The average law school student graduates with $125,000 in debt; the average med school student has $166,750 in debt. A March 25 study conducted by the New America Foundation suggests that that increasing cost of graduate education across the academic spectrum, not only in high-cost professions such as medicine and law, accounts for the dramatic increases in student borrowing between 2004 and 2012. For example, in 2004, the median level of indebtedness for a Masters of Arts graduate was $38,000. In 2012, the median level of indebtedness (adjusted for inflation) was $59,000.
Across the board, students are taking on more and more debt to finance their education. According to the New York Federal Reserve, the amount of outstanding student loan debt has quintupled in the past 10 years from $250 billion to around $1 trillion, with a growing proportion of that figure being from graduate school loans.
Even more frightening, default rates are at a record high. Students who choose not to finish their degree, who want to work in the public sector, who can’t find work, who can’t find high-enough paying work, or who suffer from a serious illness, find themselves in situations where they absolutely cannot make their payments. And student loans are infamous for being non-dischargeable in bankruptcy, unlike mortgages, credit card debt, and medical bills (which means that even if you declare bankruptcy, when you get your financial house in order, you’ll return to being harassed, called, and hustled to make your student loan payments). Since banks know that they will be repaid, and since colleges know that banks will lend to students, the cost of education is rising, and the elasticity of demand for a college education is low, because anyone who wants to go to college can find the loans to pay for it. The average 17-year-old prospective college student has no idea what it means to be several tens of thousands of dollars in debt, and schools, banks, and even parents aren’t doing a good enough job in sheltering or protecting them from predatory lending practices that do not have the students’ best interests at heart.
Here’s the good thing: in 2007, the federal government embarked on two new plans to help alleviate the financial burden of student loan debt. The first is called income based repayment, or IBR, which allows students to pay no more than 10 percent of their income (above a basic living allowance at 150 percent of the poverty line) towards their student loans. This reduces month-to-month student loan payments, allowing individuals to put funding towards other goals—purchasing a house, participating in the economy, or saving for a child’s education. The second is called public service loan forgiveness, or PSLF. PSLF allows an individual who works in public service (the government, a teacher, or a 501c(3) non-profit employee) to have the remaining balance of their federal direct student loans forgiven after 120 monthly payments, or 10 years of work.
What these programs have successfully enabled students to do is pursue higher education in a field of their choice. This is making it possible for a low-paid teacher to gain valuable training to make her classroom the best possible classroom; for an aspiring public defender to be able to afford the high costs of law school; for a physician policy-maker to actually be able to help to fix the broken medical system, not just specialize in brain surgery in order to pay down their student loan payments. These programs make it possible for people who want to do public service work to afford the training they need to excel in their job. It is a promise that for people who demonstrate long-term commitment to service, the government will make it possible to continue in that field unburdened by debt.
I value that plan, and I value that President Obama (who, by the way, didn’t pay off his student loan debt from Harvard Law School until 2004, when he was elected to the U.S. Senate) has promoted these programs. In a speech delivered on Jan. 27, 2010, the President said, “In the United States of America, no one should go broke because they chose to go to college.
Here’s what is really, really frustrating, though. President Obama’s 2015 budget, which will soon go before Congress, includes several provisions to these programs that could ruin the futures of anyone who was counting on public service loan forgiveness. The proposed budget plans to cap loan forgiveness at $57,500. For people with debt loads above $57,500, borrowers would need to make payments for 25 years. Additionally, married borrowers would have their payments calculated based on combined household gross income, hurting married couples and providing graduate students a possible disincentive to move forward in their personal lives. The proposal would relieve the debt burden on the federal government, which currently backs 80 percent of student loans. It also has been called a way to temper the ever-increasing prices in higher education, by giving less interference with the theoretical perfect supply and demand model. If colleges and graduate schools know that the government will only repay $57,500 of student loans, market pressures may incentivize them to lower their prices.
Whether or not the proposal benefits student borrowers (I believe it ultimately does not), The proposal is particularly worrisome because it does not include any mention of grandfathering current borrowers in, so the tens of thousands of people who went to get a Masters in Education, a J.D., or an M.D. in 2007 or 2008—counting on their ability to work in public service—would have the carpet pulled out from under them. And without any forgiveness programs available, Americans will be forced to not get an advanced degree, unless they can guarantee a high-paying job. In a very real sense, this leaves public interest work in the hands of only the extremely wealthy, who can rely on parents, trust funds, or connections to fund their expensive degrees. This in turn creates unequal access to government positions, which can have very real policy consequences.
Here’s what we should take away from these events: One, if you’ve been banking on PSLF or IBR as a means of affording graduate school, think again—and beware of any institution (Georgetown Law is an excellent example) that relies on these programs instead of giving out their own financial aid.
Two, and most importantly, students need to become more active and more vocal about the burden that student loans have become. Students are being actively taken advantage of by both banks and higher education institutions, and the financial burden that these loans are creating is keeping our generation from actively participating in the economy, from pursuing starting a family, from buying houses, and from being happy. With most federal attention on the baby boomers, policy will not reflect our interests and our needs unless we make a concentrated effort to vocalize our own problems.
If you think that the government should grandfather in all qualifying students under PSLF, think about signing this petition. And if you’re thinking about taking on student loans to fund your education, think long and hard about what it means to have debt—and how you can get out of it. Don’t let yourself be a victim—and don’t be afraid to speak up and advocate for our generation’s best interest.
