In a little more than 10 years, the total amount of student loan debt in this country has doubled to more than $1 trillion. In the not too-distant-future, student loan debt will eclipse the amount of money Americans owe on their cars and credit cards.
On both television and at the University of North Carolina this week, President Obama made the case for keeping rates on student loans low. "The interest rates will double unless Congress acts by July 1," the president said.
On Friday, Congress did act, with a Republican bill that will keep interest rates on federal student loans at 3.4 percent. To finance it, Republicans would strip $6 billion from a program within the health care law — so President Obama says he'll veto it.
Even if the interest rates are kept low, the bigger program remains: What to do about the soaring costs of college and the related debt obligations that 40 million Americans now carry?
Americans like Josh Tisonyai, a 25-year-old recent graduate from Ohio State University. He owes $26,000 in student debt, which is around the average for college grads.
"I feel bad, I'm 25 [and] I'm still living with my mom," Tisonyai says. "I'm just trying to be optimistic, because I know a lot of other people are in my shoes too."
Many graduates are either jobless or underemployed like Tisonyai. He earns $600 a month working at a local radio station and as a substitute teacher, but his monthly loan payment is $450.
One problem some economists are pointing out is that students like Tisonyai and others saddled with debt, are unlikely to do things that benefit the overall economy anytime soon. That, in turn, could hurt long-term growth in the U.S.
Hurting By Helping
The U.S. is at the point now where students are leaving college with both a degree and also thousands of dollars in crushing debt, but NPR's education correspondent Claudio Sanchez says this didn't happen overnight — in fact, it's been a 30-year process.
In trying to help students go to college, the federal government shifted away from grants toward loans, he says.
The surge in college enrollment, mostly of low-income minority students, has created a higher demand for the kind of aid the government provides. The grants many of those students are eligible for, Pell Grants, for instance, don't cover nearly as much as they used to, Sanchez says. Students are then forced to take out more loans — subsidized and unsubsidized as well as private and federal — to fund their education.
States have also, on average, cut higher education funding for public institutions by 24 percent, effectively increasing the cost of tuition. That cost is often passed on to the student, again creating a higher necessity for loans and aid to get a degree.
In the current economy, that degree still might not guarantee a job. The loan debt, however, is here to stay, Sanchez says.
"You have to pay this back," he says. "The government will come after you; they will garnish your wages, they will take your Social Security money ... you are in debt in perpetuity."
One solution was introduced last month by Rep. Hansen Clarke, a Democrat from Michigan. His plan, the Student Loan Forgiveness Act, has a simple, 10/10 formula: pay 10 percent of your salary toward those loans for 10 years and then, it will be forgiven. An immediate concern is the effect on taxpayers, but Clarke tells weekends on All Things Considered host Guy Raz that taxpayers are already on the hook.
"Right now, we're already paying the cost by not having jobs that could be created by our college graduates who are saddled with all of this debt," Clarke says.
To pay for it, Clarke says just a fraction of the money saved from the troop drawdowns in Iraq and Afghanistan could be redirected to help forgive the loans, money he says taxpayers are already spending.
"That's really in our nation's best interest," he says. "When people are not in debt, when they're being productive, that's how this country will become stronger."
Or, Helping By Not Helping At All
Not everyone agrees that keeping loan rates low is a good thing. According to Lindsey Burke, who writes about education for the conservative Heritage Foundation, the best way to check the skyrocketing costs of higher education would be to stop subsidizing student loans with lower interest rates.
She tells NPR's Raz that subsidized aid feeds a vicious cycle: The government gives out more money for college, so colleges charge more money to attend.
"We need to think about ways to ultimately reduce the college cost problem," Burke says. "We need to start moving toward more online learning options [and] really kind of pushing that bubble."
The idea isn't necessarily to make college loans more difficult to get, Burke says, but to get Washington out of the lending game so that decisions are made based on what the market dictates and the risk of students, rather than politics.
GUY RAZ, HOST:
It's WEEKENDS on ALL THINGS CONSIDERED from NPR News. I'm Guy Raz.
In a little more than 10 years, the total amount of student loan debt in this country has doubled: more than a trillion dollars today. And in the not-too-distant future, student loan debt will eclipse the amount of money Americans owe on both their cars and credit cards combined. How do we get there, and how do we get out? That's our cover story today.
(SOUNDBITE OF CHEERING)
PRESIDENT BARACK OBAMA: Thank you.
RAZ: This week, President Obama went to the University of North Carolina.
OBAMA: Hello, North Carolina.
RAZ: He was there to make the case for keeping interest rates on student loans low.
OBAMA: The interest rates will double unless Congress acts by July 1st.
RAZ: Well, yesterday, Congress did act - a Republican bill that will keep interest rates on federal student loans at 3.4 percent. But to finance it, well, Republicans would strip $6 billion from a program within the health-care law. So President Obama says he will veto it. But even if those interest rates are kept low, the bigger problem remains: What to do about the soaring costs of college, and the related debt obligations that 40 million Americans now carry?
JOSH TISONYAI: My name is Josh Tisonyai, 25 years old. I just graduated last August from the Ohio State University.
RAZ: Josh owes $26,000 for that education. That's about the average for students who graduated in recent years. Half of those new graduates are either jobless or underemployed - including Josh. He earns about $600 a month working at a local radio station and as a substitute teacher, but his monthly loan payment: $450.
TISONYAI: I feel bad. I'm 25, still living with my mom, and she's helping me pay cellphone - or just other type of bills I have. But I'm just trying to be optimistic because I know a lot of other people are in my shoes, too.
RAZ: Including Emmanuel Teyes(ph).
EMMANUEL TEYES: I studied English literature at Northeastern University, and I graduated in 2008.
RAZ: He finished school $65,000 in the hole.
TEYES: I was the first generation of my family to go to college. I'm the first-generation American. There was just no way I had any kind of capital support for me to, you know, pay off what's the equivalent of a Lexus, right after college.
RAZ: And so how much of that loan has he paid so far?
TEYES: I think none of it. I think if anything, it just kept on growing.
RAZ: Emmanuel works. He's a legal assistant, and earns about $36,000 a year. Many of his loans came from private lenders who then resold those loans to others. And Emmanuel says when he tried to work with them, well...
TEYES: They were not seriously entertaining like, the possibility of getting their money at a slower rate, later on. They demanded too much money from me, which I just couldn't honor it.
RAZ: So he's currently in default, and he's hired a lawyer to try and help him consolidate.
TEYES: If you receive this great schooling, but yet you have to like, be in it suffering a lifetime of indentured servitude, you can't actually say that you benefited from that education.
RAZ: Now, why does it matter whether Emmanuel or Josh - who we heard from earlier - why does it matter whether they're settled with debt? Well, most economists - including Cris deRitis, from Moody's - argue that it means they're unlikely to do things that benefit the overall economy anytime soon, like buy houses or new cars, or start a family.
CRISTIAN DERITIS: There's been a lot of talk of making comparisons of the student loan debt bubble to the subprime mortgage bubble or to the housing bubble - it's not quite to that level. So I don't think this is a bubble that's going to burst and bring down the financial system. But it is something that is going to affect our long-run ability to grow.
RAZ: We asked NPR's education correspondent Claudio Sanchez how we got to the point where 22-year-olds are leaving college with both a degree and also, thousands of dollars in crushing debt.
CLAUDIO SANCHEZ, BYLINE: It's been a 30-year process, Guy. I mean, this is the story of how the federal government, in trying to help students go to college, shifted - big time - away from grants towards loans. Now, the fact that you have this surge - the biggest since 1968, in the last couple of years, in college enrollment - mostly of low-income, minority students, you now have a higher demand for the kind of aid that the federal government provides. The other story...
RAZ: And everybody can get it, by the way.
SANCHEZ: Right. Well, remember, the minority students - certainly, low-income minority students, in particular - are eligible for grants. I mean, but the grants that they're getting - Pell Grants, in particular - used to buy maybe two-thirds of a year's worth of a college education.
RAZ: And now?
SANCHEZ: Now, barely a third.
SANCHEZ: That forces them to take out a lot of loans. Some of those are subsidized, some of them are not; some of them are private; some of them are federal. And there's a good chunk of state aid as well.
RAZ: What effect, do you think, the increased rate of loans has had on the increased rate of college tuition?
SANCHEZ: There is a direct link to that. But clearly, higher education is - gets very defensive about that. They point to the fact that their budgets are being slashed left and right...
RAZ: Especially, obviously, the public institutions.
SANCHEZ: ...and that they have no choice but to pass on whatever cost they can't make up with state aid, to the student and student fees and student tuition. But you also have stories, of course, of schools that have invested heavily into stadiums, sports. I mean, the schools that tried to maintain the brand name, either for academics or athletics, often have little of an excuse to say, well, we could have saved students' money by not having to expand our facilities.
But again, that wears thin when you do realize that states have cut, on average in the last couple of years, 24 percent of higher education funding, and that has hit public institutions like a hurricane.
RAZ: California, case in point.
SANCHEZ: That's ground zero for the mess that has been created. You have an economy that is sluggish; you have state funding that is not there for these higher institutions. And we are hammered every day that without a college education, your prospects are pretty poor.
It's a conflicting message, though, because at the same time that we're saying, you're not going to get anywhere without a college education; you go out onto the job market, and you find that a lot of people with really, pretty good degrees from really good schools are not finding a job.
RAZ: Can't get work, and they're saddled with this enormous debt.
SANCHEZ: That's right. And remember, that debt is here to stay. Unlike the home mortgage crisis, you essentially have to pay this back.
RAZ: You have to pay it back.
SANCHEZ: And the government will come after you. They will garnish your wages; they will take your Social Security money, if need be. You know, you're in debt in perpetuity.
RAZ: That's NPR's Claudio Sanchez. A year at a place like Ohio State is close to $10,000; at a private school, it's more like 50,000. And according to Lindsey Burke, who writes about education for the conservative Heritage Foundation, the best way to check those skyrocketing costs would be to stop subsidizing student loans with lower interest rates. She argues that subsidized aid feeds a vicious cycle. The government gives out more money for college, so colleges charge more money to attend.
LINDSEY BURKE: We have seen federal subsidies continue to increase at alarming rates. You look - just in recent history, from 1982, federal subsidies like Pell Grants, for instance, have increased 475 percent. We're seeing federal subsidies increase in tandem with costs.
And it makes sense because the more you increase federal subsidies, the more you give students this false sense of purchasing power; it allows universities to raise tuition on students, and then send students scrambling back for more federal aid. So we need to think about ways to ultimately reduce the college costs problem. We need to start moving toward more online learning options - really, kind of pushing that bubble.
RAZ: So your argument is, is that if we have more online learning, more - what are used to be called distance learning, the costs will go down, and that will eventually resolve the problem. That's already happening. So I don't understand how making loans more difficult to attain would ultimately have an impact either way.
BURKE: And it's not necessarily a matter of making loans more difficult to attain. And I think when we look at the ultimate cost to students - President Obama says that if we allow these interest rates to double, that will add about $1,000 to the cost of a loan. There are some experts who have costed that out, and say that an average student pays off a Stafford loan over the course of 12 years. So you're talking about a cost of ultimately about $83 a year, ultimately about $7 a month. And this is passing on an estimated $6 billion to taxpayers in order to keep the rates low.
So, you know, when you have Washington in this lending game, this is what you get. You really get these calculations based on politics; and not based on what the market will dictate, or the risk of the student.
RAZ: Do you support the idea that every American who wants to, should be able to go to college?
BURKE: I think that every American who thinks that it would be in their best interests would ultimately help them in their career path down the road - that wants to pursue that, should certainly have access and options. But whether or not President Obama's plan to have the highest proportion of college graduates in the world by 2020 - and that is the administration's stated goal - whether or not that is a good plan - pushing every student into college, regardless of what they want to do down the long run - I think that's questionable. And that could even be part of the reason we are where we are today; with so many students - with a trillion dollars in student loan debt.
RAZ: That's Lindsey Burke, from the Heritage Foundation. Last month, Michigan congressman Hansen Clarke, a Democrat, introduced the Student Loan Forgiveness Act. It has a simple 10/10 formula: pay 10 percent of your salary towards those loans for 10 years, and then it will all be forgiven. But won't that leave taxpayers on the hook?
REP. HANSEN CLARKE: First of all, if a borrower pays on their loans according to 10 years based on their income, they are likely not to have much loan debt left over. Second, right now, we're already paying the cost of not having the jobs that could be created by our college graduates who are saddled with all this debt. And the money that it would use to pay off the loans that are going to be forgiven - I'm just redirecting money that we, as taxpayers, are already spending in Iraq and Afghanistan. I'm just taking a fraction of the savings of drawing down our troops, to help forgive loans. I mean, that's really in our nation's best interest.
When people are not in debt, when they're being productive, that's how this country will become stronger. I mean, that's why this country became great in the first place. It attracted immigrants like my dad. My dad also, by the way, came to this country during the Great Depression, during the midst of the toughest economic time this country ever seen. But yet as an immigrant, he saw the U.S. as a place of opportunity. That's what it is.
So the cost of forgiving the student loans, that's a minor cost. Instead of spending that money in Iraq and Afghanistan, we'll be redirecting a fraction of the savings to help cover some of the student loan forgiveness.
RAZ: That's Michigan congressman Hansen Clarke. By the way, for-profit institutions are responsible for the largest share of student loan defaults. Just 9 percent of college students are enrolled at for-profit universities, but they account for 44 percent of all student defaults. Transcript provided by NPR, Copyright NPR.