Burying College Grads in Debt
Congratulations, parents of the Class of 2009! As you read this, your child is settling into the routines of college life: ill-timed early morning lectures, inevitable all-night cram sessions, and the search for parties on a now fairly familiar campus.
While the pleasures of college life remain the same, the economic security that a degree used to guarantee has disappeared. This fall, the Class of 2009 joins the ranks of an emerging debtor class composed of educated young adults.
The average student borrower now graduates with $27,600 of debt, almost three and a half times what it was a decade ago. 84 percent of black students and 66 percent of Latino students graduate with debt. And 39 percent of all student borrowers graduate with unmanageable levels of debt, according to the Department of Education.
After graduation, young people confront unaffordable rents in markets like San Francisco, Atlanta, Boston, Chicago or New York, where the majority of young adults pay between 30 and 50 percent of their income to rent.
And what income? Between 2000 and 2003, wages for college educated men and women between 23 and 29 years of age were down 3.5 percent and 1.2 percent respectively. In this flat, stagnant job market, most new opportunities are in jobs like burger flipping and jeans folding. Manpower, a temp agency, is the biggest private employer in the country. Many jobs in more desirable and competitive industries have salaries starting in the low $20,000s that offer little by way of benefits or healthcare.
Add to that young people's average credit card debt of over $4,000. Set aside your stereotypes of irresponsible youth: Over 70 percent of undergraduates use credit cards to buy school supplies, food and textbooks. 24 percent use their credit cards for tuition. Credit card companies are becoming the high-interest student loan industry of last resort. When it's all totaled up, young people spend 25 percent of every dollar earned on paying off debts and loans.
Federal policy isn't keeping pace with reality. Soaring education costs and inflation have not been met with aid increases. Caps on federal student loans have forced students to seek private loans, which were up from $1.1 billion in 1995-96 to $10.6 billion in 2003-04.These loans have much higher, often predatory, interest rates.
Today, the average Pell Grant covers only 40 percent of college tuition, compared to 77 percent 25 years ago. And under President Bush, the Department of Education revised Pell Grant eligibility guidelines, effectively excluding almost 100,000 young people from the program and reducing grant money for another 1.2 million.
This month, the U.S. Congress poured salt in the wounds: The Senate recommended slashing $14 billion in student aid programs as part of the budget reconciliation process. The House of Representatives proposed nearly $9 billion in similar cuts, forcing the average student borrower to pay an additional $5,800 in already unaffordable debt. Despite some unusual Republican dissent in the ranks, late last night, the budget bill passed by a razor thin margin. The final bill included $50 billion in cuts including $14.3 billion in cuts to federal higher education funding Ã¢â‚¬â€ the largest cuts to federal student loans in American history. (Though the reconciliation bill received much negative response from Democrats and even a few Republicans, very few people spoke out against the education cuts, focusing instead on issues like Medicare and food stamps.) Eighteen-year-olds now must borrow tens of thousands of dollars to invest in themselves Ã¢â‚¬â€ because their country will not invest in them.
Moreover, federal tax policy isn't exactly working in the favor of young people making low wages. We can't ask our buddies in the White House to just write off our student loan payments. We pay taxes on each and every dollar that we make in wages, tips, and salaries. We don't have stock portfolios, houses, and other assets to re-structure our tax liability. We bear the full brunt of life without loopholes Ã¢â‚¬â€ but forget fairness: struggling to limit the size of a hurricane-wrecked federal budget, Congress has made it clear that they are prepared to treat us a good deal worse than they already have Ã¢â‚¬â€ before they dare close the loopholes, shut down the giveaways, and trim the no-bid contracts for the well-connected and well-off.
Parents: remember that youthful knot in your stomach as you looked at the world after graduation and wondered about your place in it? We do that too. Only we look at the world as twenty-somethings sandbagged with the kind of debt that, until recently, would have taken decades to accrue. Recent surveys by the Cambridge Consumer Index and the Education Department confirm that student borrowers are deferring major life decisions like the purchase of a first home or marriage.
Energetic young college grads could soon invest in start-ups, emerging markets and new technologies if we entered adulthood burdened only by our high expectations and ideals. Educational debt hobbles the very group of risk-takers and innovators that has historically rejuvenated the American economy when, like now, it starts to flag. Love us, hate us, tolerate us Ã¢â‚¬â€ young people are your future. Fail to invest in us at your own peril. Thirty years from now we won't be able to take care of our parents if we're still living in a converted closet in a group house.
So here's our counter-offer: We need common sense policies that relieve the debt burden on students and recent graduates. Parents of students and recent graduates: tell them not to cut one dime of student aid. Tell them you'll remember how they voted and promise to hold them accountable. We'll do the heavy lifting, but we need you to let Washington to know that you're watching and that you care about the issue.
Work with us now to affect change, and we promise we'll never have to trade you into the traveling circus for a week's worth of Ramen noodles or sell you on eBay to cover the rent.