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PEP Jul-Aug 2015
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Chris Maisano
The student debt crisis - solutions before disaster

The student loan bubble keeps getting bigger and bigger.

Earlier this year, the Federal Reserve Bank of New York released a report showing that total outstanding student loan debt in the U.S. reached an astonishing $1.16 trillion dollars by the end of 2014. Yes, you read that right - that's trillion, with a T.

Student loans are the second-largest category of household debt in the country, behind only mortgages. Americans collectively owe more in student debt than they do in either auto loans or credit cards. Many borrowers have difficulty making their student loan repayments on time and in full, making it difficult for younger workers to establish strong credit scores and form their own households. This hurts more than just college graduates and their families. By acting as a drag on the overall economy, student loan debt hurts workers at all educational levels.

What drives this massive increase in student loan debt? The single biggest factor is a long-term decline in funding for public colleges and universities like SUNY and CUNY. According to a recent study by the think tank Demos, between 1990 and 2010 real funding per public full-time enrolled student declined by over 26 percent. At the same time, tuition and fees at four-year public colleges and universities rose by 112.5 percent while the price of public two-year colleges increased by 71 percent.

Because household incomes have stagnated over the previous two decades, students and their families have been compelled to turn to student loans to cover these costs. According to the U.S. Department of Education, 45 percent of graduates in the 1992-1993 academic year borrowed money from federal or private sources. Today, at least two-thirds of college graduates enter the workforce in debt.

Although college-educated workers tend, on average, to earn higher incomes than their less-educated counterparts, young college-educated workers have not escaped the pressures of wage stagnation. In the last decade, the average annual earnings of workers ages 25 to 34 with bachelor's degrees fell by 15 percent. New graduates, meanwhile, saw their as the average debt load increase by 24 percent.

Unlike most other forms of personal debt, student loans cannot be discharged through the standard bankruptcy process. In the event of default on a private or federal student loan, borrowers face a range of invasive measures: wage garnishment, the interception of tax refunds or lottery winnings, and the withholding of future Social Security payments.

Members struggling with student loan debt should learn more about the Public Service Loan Forgiveness (PSLF) plan. Under this program, many types of full-time public service employees can get their loans forgiven after 120 monthly payments. Fortunately, the U.S. Department of Education also offers a number of income-driven repayment plans that can make it easier for PSLF participants to make their payments on time and in full (see https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/public-service for details; also the DC 37 website has information at http://www.dc37.net/benefits/health/pdf/Student_Loans_2014.pdf).

Ultimately, the student loan crisis will only be solved by restoring funding for public higher education and making college debt-free. Vermont Senator Bernie Sanders recently proposed legislation that would eliminate tuition at public colleges and universities by taxing Wall Street financial transactions.

Of course, there is no chance that Congress would pass such a bill in this current political environment. But this proposal could serve as the focal point of a movement to end the "debt-for-diploma" system once and for all.

Many other wealthy countries provide low- or no-cost public higher education to their young people, so there is no reason why the richest country in the world cannot do the same. It's not a question of resources - it's a question of priorities.

Chris Maisano is the Research Librarian for the DC 37 Research and Negotiations Department.

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