Student Debt Crisis: Are There Any Solutions?

By Talia Berman, WireTap. Posted August 23, 2006.

Many would argue that higher education in this country is the best in the world. France has some of the best culinary schools, and Oxford and Cambridge have rivaling histories of literary renown, but only in the United States will you find comparable culinary and literary prowess as well as thousands of virtually every other topic one could imagine -- only to the United States do more than half a million students come every year to study.

But at what cost? Americans (and visiting students) have always paid more for education. And in the past 30 years, in the past 10 years, in the past two years, the cost of higher education, including tuition and loan repayment, has steadily increased. But 2006 will likely go down as the worst year in history for student borrowers, and as the mountains of debt grow, young peoples' lives are forever changing.

Holly MacGibbon graduated from NYU's theater program with $120,000 in debt, which has obviously prevented her from taking any entry-level theater jobs. "Without $600 a month in loan payments, I could take a lower-paying theater job instead of working outside my field. Summer theater jobs, where most young performers start out, pay $200 to $300 a week, which is just not enough when you have $600 in loan payments."

And Julia Stubben's post-graduate life has been entirely governed by her student debt. "Being in debt has greatly affected my financial decisions. I do not enjoy my job, and it is not the career I would have chosen for myself, and in order to take the job I had to move three hours away from my boyfriend, family, and friends. Pretty much, I live in seclusion in a relatively boring rural area and hate this stage of my life. The only reason I am in this situation is because of the job -- which is paying off my loans."

According to Toby Chaudhuri, communications director at the progressive research group Campaign for America's Future, continuing to charge exorbitantly for education will have grave results. "If you want to create an America that works for everybody, you have to give every child the right to education," he said. "Families are getting hit with interest rates and across the country they are pinching pennies to afford to send their kids to college."

What's behind the high cost of education

Student debt is climbing for three reasons: Interest rates have begun to rise, tuition is skyrocketing, and student aid programs are stuck in 2003.

2006 has been the worst in history for government action against student borrowers. In February, President Bush rolled out the Deficit Reduction Act, which cut $12 billion in federal student aid money. Part of the plan includes a hike in interest rates on federal student loans and loans taken out by parents. The interest rate on Stafford Loans to students rose from 5.3 percent to 7.14 percent on existing loans and to 6.8 percent on new loans. Interest rates for Parent Loans for Undergraduate Students (PLUS) loans increased even more dramatically, from 6.1 to 7.4 percent on existing loans and to a whopping 8.5 percent on new loans.

These interest rate hikes are designed to ease the federal deficit, but this very budget plan also includes tax breaks for Americans making more than $1 million a year -- a move that negates anything saved in the interest rate increase.

The Deficit Reduction Act is particularly egregious because low interest rates have historically been the way students paid for college. Just as low mortgage rates ease the ever-increasing value of real estate, low interest rates allow students to earn undergraduate and graduate degrees, and even have a little time to outrun their slowly collecting debt. Now, with those rates going up as tuition skyrockets, recent graduates will be caught and buried before they have time to throw their caps in the air.

Though it is not a new problem, student debt has quickly climbed in the last few years. Between 1993 and 2004, the percentage of students needing to borrow money jumped from 46 to 66 percent [PDF]. Debt for graduates averages around $19,000 across public and private schools. Ten years ago, public school borrowers needed about $8,000. Now they borrow about $17,250 -- a 65 percent increase, adjusted for inflation.

Talia Berman is a freelance writer living in New York City.

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