US – New York Dara Zucker claims to be trapped. Since receiving a psychology degree from Carthage College in Kenosha, Wisconsin, in 2016, the 28-year-old has been making monthly payments on her student loans, but her balance has only risen.
In reference to the $39,000 she still owes on her $35,000 loan, she told Al Jazeera, “I feel locked in my life.”
And Zucker is not alone; according to the Federal Reserve Bank of St. Louis, Americans have the greatest level of student debt in the world with about $1.75 trillion in student loan debt, up from $481 billion in 2006.
Borrowers, decision-makers, and economists all concur that something must be done to address the nation’s growing student loan debt crisis, but they disagree on the specifics.
The Trump administration stopped student loan interest at the start of the COVID-19 outbreak and later withheld loan payments as lockdowns led to widespread layoffs and company closures. President Joe Biden has repeatedly extended that moratorium while running on a platform to “immediately eliminate a minimum of $10,000 of student debt per person.”
The payment freeze, however, runs out at the end of August, and if Biden doesn’t renew it, 45.4 million borrowers of student loans will be required to start making monthly loan payments on September 1. In the US, the average monthly payment for student loans is $393.
At the background check business where she works as a business development representative, Zucker just received a promotion and raise. She claims that she used the payment pause to assist her elderly parents in buying groceries. However, the pay increase also implies that when payments resume, her salary-dependent, monthly student loan payment would double to $220.
She expressed her gratitude for her position and pay in an interview. However, while being able to pay my bills, I still am unable to live my life as an adult by getting married or purchasing a home.
“The overall picture”
The Education Data Initiative research team discovered that between 2010 and 2020, tuition at public four-year universities in the United States increased by 31.4%. In several other nations, including as Germany, Iceland, and Sweden, tuition is either fixed or entirely free. According to the National Center for Education Statistics, the average cost of a year of college at a four-year US university is $35,551, which includes tuition, fees, on-campus living, books, supplies, and other charges.
Depending on the cost of attendance and the family’s capacity to pay tuition and fees, the colleges to which a student applies determine the amount of financial help for which they are qualified. The student may be qualified for work study, subsidized loans, and government awards. The remaining expenses can subsequently be paid for by the student by submitting a loan application.
The majority of loans are given out by the federal government, with the remaining 7% being given out by the private sector. Whether or not they graduated from college, borrowers must then start paying payments six months after leaving.
According to a number of economists Al Jazeera spoke with, colleges and the larger higher education sector need to do a better job of educating students about the debt they are taking on and what it will be like to enroll in different repayment plans after graduation.
For instance, the income-driven repayment program in which Zucker is enrolled enables borrowers to make payments in accordance with their salaries, but it also extends the loan’s term and accrues additional interest.
A prominent economist with the New York-based research company Moody’s, Cristian deRitis, stated, “I think we’ve put young people in an extremely bad position.” Many young people either don’t understand the full implications of taking on this responsibility or have unrealistic expectations of earning six-figure salaries right out of college.
According to a recent survey, college students in the US think their first job will pay them about $103,880. However, college graduates’ average beginning pay is $55,260.
The Federal Reserve Bank of New York claims that Americans are becoming more and more reliant on credit cards to get by, collecting $46 billion in the second quarter of 2022, the biggest percentage increase in credit card balances year over year since 1999. In the meantime, as the country’s inflation rate climbs, households have started to spend down the extra money they accrued during the pandemic, according to Goldman Sachs.
DeRitis predicted that some types of delinquencies would increase quickly. “Many of the people who hit the pause button during the student loan moratorium were already in a bad situation when they did so, and they will most certainly return to delinquency.”
The debt does not simply vanish.
Zucker told Al Jazeera that she voted for Biden because she thought he would forgive some of her student loans, and she wants the president to go above and beyond.
She continued, “He could also cancel all student loan interest and suspend it on those accounts that are currently making payments, then take the total amount paid by all of these students, including myself, and subtract it from their initial loan sum.
93 percent of all student loans are currently originated and serviced by the federal government, according to analytics company MeasureOne. This indicates that the loans are held by American taxpayers and that the US government is the main provider of student loans. Therefore, the expense of loan default or forgiveness is transferred to the federal taxpayer.
Lindsey M. Burke, director of the Center for Education Idea at the Heritage Foundation, a conservative think tank in Washington, DC, claims that student loan forgiveness is a problematic policy for a number of reasons.
Burke remarked, “During the pandemic, everyone suffered.” “This concept that we’re going to grant them loan forgiveness when so many others did considerably worse, it’s just political,” says the author of the study. “College graduate degree holders were least likely to be unemployed and most likely to be able to work from home.”
Burke explained that the debt does not magically vanish. She stated that student loan forgiveness may result in higher taxes or more inflation for American taxpayers, as well as potentially higher costs in the future. In the chance that their loans might one day be erased, she said, the present crop of students “will take on more debt than they would have or attend more costly universities.”
Sabrina Calazans, outreach coordinator of The Student Debt Crisis Center (SDCC), a non-profit organization based in Los Angeles, California, which is advocating for at least $50,000 in student debt cancellation per borrower, disagreed with such claims.
According to Calazans, forgiving $10,000 right now would bring instant relief to millions of Americans. “We’re not requesting assistance. Some people have paid off their balance in full, but due to the interest that is accruing, they will never be able to do so.
Public versus private
More can be done, according to Moody’s deRitis, to lessen the impact of loan availability.
“One could argue that the US government ought to impose limits and refrain from lending amounts above a particular threshold. Let’s assume you get to borrow up to $30,000, or you choose to enroll in a less expensive university or take on more work, he told Al Jazeera.
Burke of the Heritage Foundation asserted that the private financing market would be better able to differentiate interest rates based on a student’s intended major, credit standing, availability of a cosigner, and high school performance.
The federal government, acting as the lender, “can’t and really shouldn’t” consider many solutions that the private market could, according to her. “We want the private sector to give signals to students about the effectiveness of what they want to study and about which disciplines would provide them with a good job moving forward,” says the organization.
However, Calazans of the SDCC warned that low-income individuals would be excluded from higher education if the private sector uses credit ratings and co-signers to determine loan eligibility. Additionally, it would make it more challenging for persons without credit, such as young people, immigrants, and other people not included in the financial system, to borrow money for education. Additionally, struggling borrowers may find it more challenging because private student loans do not offer nearly the same consumer safeguards, repayment plans, or solutions for defaulted debtors.
I have loans from the federal government as well as from private lenders, including one with a 13 percent interest rate. Instead of privatizing loans, she continued, “we need to adjust the interest rates for the current payment schedule and the larger student loan system.
Your student loans follow you everywhere,
Young people in the US who wish to enhance their education confront challenging options, according to Calazans.
They claim, “I’m not going to college because I don’t want to incur thousands of dollars in debt and then not be able to afford to buy a house or do anything else down the road. And those that borrowed claim that because of their high debt-to-income ratios, they are unable to purchase a home or support their children’s future investments. So it truly does turn into this loop.
The psychology graduate Zucker claimed that it did not take her long to realize one crucial fact: Student loan debt in the US is unlike any other debt.
“I believe that many erroneously claim that if student loans are forgiven, then mortgages and medical expenses must also be paid in full. No, you don’t get it, I reply. It’s not the same, she declared.
“You declare bankruptcy, but your college loans follow you.”
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