For millions of Americans, having student loan debt is the economic equivalent of the deadly “ebola” virus. It is silently killing economic freedom and spending power for many, rendering graduates unable to move out of their parents’ basement or shed the stigma of a room-mate. The symptomatic maladies of living with student loan debts preclude the debtor from buying a house, getting a new car, starting a business or even getting married. Unless you are dead, your student loan debts will haunt you like a felony record. According to Anne Kats Smith (Kiplinger’s Personal Finance, November 2014), “Student loan debts in the US now stands at a scary $1.1 trillion, with a current rate of default approaching 15% for loans within three years of beginning repayment.” And that was in 2014. According to new data available for 2016, default on student loan debts has either remained steady or dropped depending on which article you read. Shahien Nasiripour from Bloomberg, reported that, “in 2016, more than 1.1 million Americans defaulted on a student loan obtained directly from the feds, translating to a default every 28 seconds.”
Why should you care about student loan debts? For starters, student loan debts are the only debts that are unforgivable. Meaning, unlike other debts ( mortgages, personal loans, etc.), you cannot discharge your student loan debts through bankruptcy. And even having non-student loan debts has now become a huge burden, and if you are considering filing for personal bankruptcy, the Bush administration made it literally impossible for you to meet the burdens required to be discharged of your debts. Of course George W. Bush is partly to blame for the predicament many student loan borrowers find themselves in today, but so too are the borrowers, banks and universities.
Under the George W. Bush administration, Congress added provisions to a 2005 law known as the Bankruptcy Reform Bill that, in part, made private student loans unforgivable. This 2005 law had its start in the 1970s when Congress passed a reform bill that limited a borrower’s ability to discharge their student loan debt in bankruptcy court. Not only did this law hurt students considering filing for bankruptcy to discharge their debts, but this law favored the banks over the borrowers and made it painfully impossible to start over financially.
Student Loan Reform
Under the Obama administration, income driven repayment plans were created to help borrowers pay their loans back. These repayment plans are tied to a borrower’s income and not to how much they owe. Although these plans were good intentioned, they nevertheless failed to fix or ease the larger issue of borrowers not being able to repay their student loan debts. A 20 year limit on repayments sounds like a reasonable plan, but to meet this burden you would have to pay 20 years of on time payments, and most people are just not financially secure to do so.
Gender & Student Loan Debts
When you measure by gender who has the most student loan debts, according to Jessica Dickler more women carry higher student loan debts than men (“Women carry bigger burden of student loan debt than men” CNBC, June 25, 2017). Ms. Dickler argues “in fact, 42 percent of women have more than $30,000 in college debt, compared with 27 percent of men.”
What we need is commonsense reform by eliminating compounding interest. Compound interest builds up so much over time that the cost of a $30,000 student loan balloons to $48,000 by the time you start making repayments on it. Since we all can’t afford to work in the sectors that offer student loan forgiveness, such as the public sector or the military, student loan debt reform is badly needed to save the economy from more financial turmoil. And also, since a college degree is required for most high paying jobs, it goes without reason that a healthy economy is a good thing for college graduates. Besides, a dearth of available jobs, the current, onerous structure of student loans simply shows high school graduates that getting a college education is not financially wise.
If we keep kicking the can down the road and not address the student loan debt crises, sooner rather than later, we all might end up paying more in the long-term for failing to fix the problem.